16/05/2012 Newsnight


16/05/2012

In-depth investigation and analysis of the stories behind the day's headlines with Jeremy Paxman.


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As caretakers jobs go, it is quite a big one, run the country for a

:00:13.:00:16.

month until we can find someone else. The political mess in Greece

:00:16.:00:20.

may be resolved in new elections next month. Fears of cash pouring

:00:20.:00:24.

out of the country in the meantime leave it in an even more uncertain

:00:24.:00:30.

position. So, this was just a warm-up for the

:00:30.:00:33.

swearing in of another Greek Prime Minister next month.

:00:33.:00:37.

Greek prime ministers are none of our business, but if the Greeks

:00:37.:00:43.

decide they have to leave the euro, it certainly will be. Germany's

:00:43.:00:47.

Deputy Finance Minister remains bluffly confident it won't come to

:00:47.:00:49.

that. When the governor of the Bank of

:00:49.:00:53.

England, says as he said today, that the eurozone is tearing itself

:00:53.:00:59.

apart, he's just wrong? We are a free country, a free Europe,

:00:59.:01:02.

everybody is free to misjudge the political will of the European

:01:02.:01:06.

Union. But if the citizens don't like it,

:01:06.:01:10.

how can Governments get them to take the medicine. Is the wisdom of

:01:10.:01:16.

crowds that you can't cut and grow at the same time actually right?

:01:16.:01:19.

The Chinese age quake, they supposedly restrict families to one

:01:19.:01:23.

child. So why are they running fertility campaigns, encouraging

:01:23.:01:30.

women to conceive. How do ideas people have in the

:01:30.:01:40.
:01:40.:01:42.

bath get to become political policy. The President of the EU bureaucracy

:01:42.:01:46.

did what the union usually does on these occasions and said today they

:01:46.:01:50.

would respect the democratic will of the Greek, but wanted them to

:01:50.:01:52.

remember there were 16 other democracies in the euro. No

:01:52.:01:56.

suggestion of pressure, then. The fact that such a vast chunk of the

:01:56.:02:00.

Greek population wants to stay in the euro, but doesn't want to pay

:02:00.:02:07.

the price demanded for doing so, led today to the equivalent of Mr

:02:08.:02:10.

Justice Cocklecarrot being sworn in as the interim Prime Minister,

:02:10.:02:13.

until somebody else can be found who might form a Government after

:02:13.:02:18.

elections next month. Nobody is paying in this country,

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they steal money, they eat money, the politicians and them, they live

:02:26.:02:30.

and nobody goes to jail. Never tell a taxi driver you are going to meet

:02:30.:02:35.

a politician, it always sets them off. But in Greece, five years into

:02:35.:02:39.

an economic crisis almost universally blamed on a supposedly

:02:39.:02:44.

self-serving elite, the Athens cabbie seems to speak for the

:02:44.:02:49.

nation. The people are very angry, they want to punish them. You can't

:02:49.:02:53.

take the money from the pension of an old man and all these people

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with billions of dollars not to pay anything. This is unfair, of course.

:02:59.:03:05.

Today, ten days after inconclusive elections, the President of Greece

:03:05.:03:07.

appointed a caretaker Prime Minister, who can't be punished,

:03:07.:03:14.

because he's not a politician, but a senior judge. He and his new

:03:14.:03:18.

technocratic cabinet will govern for one month, until voters are

:03:18.:03:22.

asked their opinion again on June 17th. It has no clear mandate to

:03:22.:03:31.

make binding deals with Greece's cred ditors -- creditors, or stop

:03:31.:03:36.

the cuts they are demanding. It is at the banks people are spreading a

:03:36.:03:41.

fear, which the head of state says could turn into panic. Greeks

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withdrew 700 million euros in the weeks during the election, as they

:03:46.:03:51.

contemplated a return to their old currency, the drachma. With the

:03:51.:03:55.

current uncertainty, who wouldn't rather have their euros in their

:03:55.:03:58.

hand, available for use across the continent, rather than leave them

:03:58.:04:03.

in a Greek bank and risk them being stamped as a transitional currency,

:04:03.:04:08.

or even worse, as some fear, forcibly converted into drachmas,

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which will probably then lose most of their value. The liquidity

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crisis is growing, meanwhile further installments of bail out

:04:16.:04:20.

funds from the European Union and the IMF, are dependant on further

:04:20.:04:24.

austerity, that voters have rejected. Soon there may be no cash

:04:24.:04:32.

to pay Government wages. TRANSLATION: According to the

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Ministry of Finance, the money available will last up to the end

:04:36.:04:38.

of June. Families are afraid at the moment, they are taking their money

:04:38.:04:44.

out of the banking system. This is the big danger. That is why we need

:04:44.:04:48.

political stability so badly. the party leaders who failed to

:04:48.:04:52.

come up with any workable coalition can't provide that stability. Among

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them in talks with the President today, Alexis Tsipras, leader of

:04:57.:05:01.

the radical left grouping, Syriza, which came an unexpected second in

:05:01.:05:07.

the last election, and some think may win next time. Today, in a BBC

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interview, he was again defiant in rejecting the terms of Greece's

:05:10.:05:15.

bail out. TRANSLATION: Throughout Europe now the citizens understand

:05:15.:05:19.

that the disease of austerity, if it destroys Greece, will spread to

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the rest of Europe. Therefore, European leadership, and especially

:05:25.:05:30.

Mrs Merkel, need to stop playing poker with the lives of people.

:05:30.:05:35.

Some within his own party now want him to go further, and reject the

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euro. A currency Syriza is still officially committed to keeping.

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When we have our currency, we have Mrs Merkel's currency now, it is

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totally craze year, a country in such a recession, to have a very

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expensive currency. So, I think that a national currency will solve

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the great problem in Greece, the problem of liquidity. The centre

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right New Democracy, which narrowly won the last election, aims to

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convince voters that a return to the drachma would be a catastrophy.

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It means that there will be chaos, the banking system will collapse,

:06:22.:06:27.

what else, savings, everything, it will just go, we will be back to

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drachma, I'm not sure what the rate will be between a euro and the new

:06:33.:06:37.

drachma. For now, most Greeks continue to believe they can have

:06:37.:06:41.

it all, the euro without the strings. It may turn out to be a

:06:41.:06:51.
:06:51.:06:55.

dangerous fantasy. Every country has a plan for the Greek exit,

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Greece has not a plan for a Greece exit. The Greek exit still looks

:07:03.:07:09.

like scare mongering, it would hurt the Germans more thant Greeks,

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wouldn't it? I don't think the Germans want us out of Europe,

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because it will cost a lot of money for them to take us out of Europe,

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more money than our loan is, I don't think they like that. They

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want to be a strong country with investments, to pay them back, and

:07:23.:07:28.

to have a good life, everybody, nobody wants to come to the drachma

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again and lose so much money, I don't think the European people

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want that. I believe they find a solution, I believe they will do

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that. Europe hasn't had to make that

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calculation yet. But it is ever more likely that it will have to

:07:43.:07:49.

sooner or later, if the Greeks fail to decide themselves.

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Tim is still in Athens. Now we know vast sums of cash are being

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withdrawn from Greek banks, so is the banking system now becoming a

:07:58.:08:01.

bigger problem than the political system?

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That's right. We thought that the Greek crisis was on hold, roughly,

:08:05.:08:08.

for a month, until the next elections, but, of course, that is

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not turning out to be the case at all. And the financial pressures

:08:12.:08:17.

are mounting all the time. First, as you say, is the question of the

:08:17.:08:20.

run on the banks. We can only assume the amount of money taken

:08:20.:08:23.

out of banks will get greater and greater, as the prospect, that is

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what the polls suggest, the likely prospect of a left-wing victory in

:08:28.:08:32.

the next election increases. Then there is the situation that the

:08:32.:08:36.

European Central Bank today has said that it will stop providing

:08:36.:08:41.

cheap loans to some Greek banks, for routine operations. Now, there

:08:41.:08:46.

is still a way the Greek banks will get money through another channel,

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that will be also stopped if the ECB considers those banks to be

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insolvent. You can see there possibly a developing liquidity

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crisis that could lead to a collapse of the Greek banking

:08:57.:09:00.

system. Then we would be back to the question of another bail out,

:09:00.:09:04.

or a forced exit from the euro, while the caretaker Government,

:09:04.:09:08.

which has no real mandate, is still in place. This is a nightmare high

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pop sis, there is a lot of ifs -- hypothesis, there is a lot of "ifs"

:09:16.:09:20.

there, but the groks are saying, no reason to pan -- Greeks are saying,

:09:20.:09:25.

no reason to panic yet. The governor of the Bank of England,

:09:25.:09:32.

said he thought the eurozone was tearing itself apart. Such is the

:09:32.:09:36.

view from Threadneedle Street, but it is not the talk they like in the

:09:36.:09:43.

biggest member of the eurozone. The deputy Germany Finance Minister was

:09:43.:09:47.

in London today, I took the opportunity to corner him on the

:09:47.:09:50.

issues? Do you think in a year there will be 17 members of the

:09:50.:09:55.

euro? Yes. You can't be 100% certain? No, but the result of what

:09:55.:10:00.

will be a reality in one year is not only by chance but political

:10:00.:10:04.

will. The activities and engagment of the European Union and the

:10:04.:10:07.

European Central Bank, over the last two years, was to keep Greece

:10:07.:10:12.

back on track, we will go on. But that means we require a stable

:10:12.:10:16.

Government in Greece, but the path is regaining competitiveness, and

:10:17.:10:19.

stability. When the governor of the Bank of

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England, says as he said today, that the eurozone is tearing itself

:10:23.:10:28.

apart, he's just wrong? We are a free country, we are a free Europe,

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everybody is free to misjudge the political will of the European

:10:32.:10:38.

Union. He has done that, he has misjudged that? I think he's

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misjudging the activities of the heads of state. We have achieved, I

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think, quite a case of stability. We achieved the private sector

:10:46.:10:50.

involvement, and now we have some challenges, because of unstable

:10:50.:10:55.

Governments, but I'm expecting, as a result of the election mid-June,

:10:56.:10:58.

a stable, pro-European Government, that is committed today the

:10:58.:11:01.

memorandum of understanding. when the British Prime Minister,

:11:01.:11:06.

David Cameron, says the eurozone has to decide whether to make up or

:11:06.:11:09.

break up, he also has misunderstood the situation, there is a decision?

:11:09.:11:13.

This is clear, but we have already taken the decision two years ago.

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Make up. So he's misread it? the decision was quite clear, when

:11:18.:11:23.

we started the engagment, for solidarity towards Greece, in

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exchange to that, we asked the Greek people to get back on track

:11:27.:11:31.

to reform the country, to stablise the budget, to make structural

:11:31.:11:36.

reform, to come back on a growth path. This is actually what we are

:11:36.:11:42.

doing for the last two years. boss says the Greek people have to

:11:42.:11:47.

decide whether they want to be inside the euro or outside the euro,

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haven't they decided they want to be both? Actually, yes. But if you

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have a participating with the several advantages you have by the

:11:57.:12:03.

currency, you have to fulfil the complication - obligations. But you

:12:03.:12:06.

must have thought about Greece being unable to maintain its

:12:06.:12:10.

position in the euro? The question that Greece would be competitive

:12:10.:12:13.

within weeks, which some of the political debaters seem to have, is

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wrong. It would take a decade. Our programme is not based on weeks,

:12:18.:12:28.

but on years, to support Greece, and to re gain political movement -

:12:28.:12:31.

- regain political movement towards competitiveness. They can't stay

:12:31.:12:35.

within the euro and reject the austerity package? You are right in

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that judgment. They seem to think they can? I don't think that they

:12:39.:12:44.

think that. They are disappointed with their Government, that is

:12:44.:12:49.

quite clear. What they are not now facing is not the result of the

:12:49.:12:52.

European integration, it is the result of the lack of reforms over

:12:52.:12:56.

the last decade. For Germany the euro is working, but it is not

:12:56.:12:59.

working for much of the rest of Europe, and you know it is not

:12:59.:13:04.

working? Actually I disagree with your judgment on that one, it is a

:13:04.:13:08.

win-win situation for both of the participants. Those who gain more

:13:08.:13:13.

solidarity, and those who invest in sol darty. Stability is what we

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gain for -- solidarity. Stability is what we gain for both sides.

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they say the price of staying in the euro is too great, they are

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free to leave, aren't they? Technically they are not, but we

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can't keep them if they don't want. If you look on the polls, there is

:13:30.:13:35.

a majority of the Greek people who want to stay within the euro. And

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my clear answer, if you want to participate in the advantages, and

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I think they are big, you should change the course of politics.

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Plenty of voters, and not just in Greece, but in France as well, now

:13:47.:13:51.

think there may be an alternative towards austerity, is there?

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course there is an alternative. What is it? The alternative is not

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only calling for catastrophy in Greece, but enhancing their chances,

:14:02.:14:06.

taking the time they need. But on the other hand, in exchange to them,

:14:06.:14:11.

that we have to keep them on track. Greece is in a very complicated

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situation, politically, socially and economically. Do you actually

:14:17.:14:21.

think that arguing that this will lead into a catastrophy is any help

:14:21.:14:26.

to improve the situation. I'm not trying to help anybody, I'm asking

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why you haven't thought about it? haven't said I haven't thought

:14:30.:14:33.

about it. You have, what do you think it would be like? I think it

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would be worse than the situation we have now. And what about the

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philosophical alternative, that Francois Hollande poses in France.

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Do you think there is an alternative to austerity, as he

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says? I wouldn't use the word "austerity". It is his word? This

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is the first measure mainly misunderstood. The growth

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strategies have to be based on fiscal conditions that gain trust

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from the market. Growth and consolidation, I would call it.

:15:06.:15:13.

Both sides of one medal, called "economic stability". Whatever Mr

:15:13.:15:16.

Hollande says or other European statesmen say, Germany will not

:15:16.:15:20.

change its position? Germany will develop its position, we have a

:15:20.:15:24.

very good meeting between Chancellor Merkel and Francois

:15:24.:15:29.

Hollande. It came clear to me as a result, we are not renegotiating

:15:29.:15:33.

the Fiscal Compact. Because fiscal conditions have to be stable. But

:15:33.:15:37.

we take up the ideas the European heads of state, including David

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Cameron, are organising since autumn last year, to re-focus the

:15:42.:15:45.

debate back from crisis, on to growth strategies. Thank you very

:15:45.:15:50.

much. David Cameron warned that it was

:15:50.:15:55.

make-or-break time on the euro today. As you heard just there. Our

:15:55.:15:58.

political editor, Allegra Stratton is here. What is it about? We were

:15:58.:16:01.

supposed to be getting a speech tomorrow on parenting and family

:16:01.:16:05.

issues. Instead, it is a sign of the choppyness in Government right

:16:05.:16:07.

now, and the issues we have just been hearing about, that they are

:16:07.:16:12.

actually doing a speech on the euro and the economy. Today in Prime

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Minister's Questions, David Cameron gave us a flash of what he will be

:16:15.:16:18.

mentioning. The eurozone has to make a choice, if the eurozone

:16:18.:16:23.

wants to continue as it is, then it has got to build a proper firewall,

:16:23.:16:31.

it has to take steps to secure the weakest members of the eurozone, or

:16:31.:16:35.

it has to work it out and go in a different direction. It has to make

:16:35.:16:39.

up or look at a potential break up, that is the choice they have to

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make, and it can't be long put off. That is an ultimatum, it sounds

:16:45.:16:51.

like a civil servant rewriting John Wayne. It is an ultimatum by a man

:16:51.:16:56.

who hasn't a dog in the fight? is aimed at the tkhesic audience,

:16:56.:17:00.

not at the central banks around -- domestic audience, not the central

:17:00.:17:02.

banks around Europe. That frustration is about a certificate

:17:02.:17:06.

yues of things, relating to the -- series of things, relating to the

:17:06.:17:09.

interview just done. For a while the Government has talked about has

:17:09.:17:13.

Germany done enough to think about the idea of eurobonds, reaching out

:17:13.:17:18.

to Greece. Has there been enough done to put a firewall around Spain

:17:18.:17:22.

and Italy. It is frustration. It is the moment they are saying to the

:17:22.:17:26.

British public, if it gets choppy and bad, we saw it coming, it is

:17:26.:17:28.

not an extension of the incompetence issue, we were on top

:17:29.:17:34.

of it and issuing advice. Briefly what will the speech be about

:17:34.:17:38.

tomorrow? It is the old friend, austerity versus growth, they will

:17:38.:17:42.

say they are sticking to Plan A. They are looking at a way to get

:17:42.:17:46.

growth in the future through austerity. There is serious concern

:17:46.:17:52.

what might happen should there be a euro break up. The paradox in

:17:52.:17:56.

politics at the moment, which I keep saying in the packages, is the

:17:56.:17:58.

deficit is the most controversial decision this Government has made,

:17:58.:18:01.

but also the one the British public, for the time being, believe they

:18:01.:18:04.

are right about. The events in Europe allow them a vivid display

:18:04.:18:09.

of why they are at it. Thank you.

:18:09.:18:15.

Tomorrow the Prime Minister is going to tell us austerity, or --

:18:15.:18:20.

why austerity, isn't the enemy of growth. As you will have seen if

:18:20.:18:27.

you were watching the German Finance Minister earlier, the "A"

:18:27.:18:32.

word makes many politicians agitated. What does austerity do to

:18:32.:18:36.

growth? That we have a rampent deficit that

:18:36.:18:41.

needs urgent attention, is not disputed, how and how fast it

:18:41.:18:45.

should go cut is. Most people will describe the current mix of

:18:45.:18:48.

spending cuts and some tax rises as austerity, but is it really. Can

:18:49.:18:53.

you grow your economy, while cutting back at the same time.

:18:53.:18:58.

Certainly the coalition thinks so, it aims to take �81 billion out of

:18:58.:19:02.

the UK economy between now and 2015. It feels that by cutting borrowing,

:19:02.:19:07.

what you save on bank interest can be used to invest in long-term

:19:07.:19:10.

projects. And things started well, unemployment has stayed relatively

:19:10.:19:14.

low, and the cost of borrowing for Britain, for example, its bond

:19:14.:19:18.

yields, are also at record lows. But the planned rebalancing of

:19:18.:19:21.

Britain's economy away from borrowing and consumption, and

:19:21.:19:24.

towards manufacturing and exports, is faltering.

:19:24.:19:27.

The Government's austerity plan was to take money out of the public

:19:27.:19:30.

sector, and hope that private sector companies would rush in to

:19:31.:19:35.

fill the void, as well as a cheap pound leading to an export-led

:19:35.:19:39.

recovery. But the Government hasn't exactly had the wind at its back,

:19:39.:19:44.

there is a spike in commodities, et cetera specially oil prices, banks

:19:44.:19:47.

-- especially oil price, banks are so weak they won't lend to

:19:47.:19:50.

companies or consumers. And the markets into which exporters hope

:19:50.:19:53.

to sell their goods, particularly western Europe, are still very

:19:53.:19:59.

feeble. On top of that, the planned cuts have barely started. If you

:19:59.:20:03.

think things are austere now, you might want to ask your grandparents

:20:03.:20:09.

what they were like in post-war Britain. Rampent joblessness was

:20:09.:20:13.

widespread, and benefits didn't exist and healthcare was primitive.

:20:13.:20:18.

Across the Irish Sea they know a thing about austerity. Since 2008,

:20:18.:20:22.

most salaries, including the well unionised public sector have been

:20:22.:20:29.

cut by a fifth. Unploilt is twice that of Britain's, and house prices

:20:29.:20:32.

have collapsed. Britain won't need that kind of correction, because

:20:32.:20:36.

the boom wasn't as big as Ireland's. Will British voters have the

:20:36.:20:41.

stomach for that kind of drop in living standards. When people talk

:20:41.:20:45.

about reefrpbt austerity, as if there were -- recent austerity, as

:20:45.:20:49.

if there were spending cuts and the economic slowing down. That is a

:20:49.:20:53.

misconception, the spending cuts have yet to come. So the British

:20:53.:20:58.

public think they are in the middle of a major windback by the British

:20:58.:21:02.

Government ain't seen nothing yet? It has barely started. So if

:21:02.:21:06.

austerity, as an economic model, is in danger, can aiming for growth by

:21:06.:21:10.

borrowing even more money be the answer? President Hollande got

:21:10.:21:14.

elected on that very premise, and across the pond, the US is showing

:21:14.:21:20.

robust signs of growth on the back of President Obama's two short-term

:21:20.:21:23.

stimuli, first through I infrastructure, and recently

:21:23.:21:27.

through tax rebates. The problems with President Obama's growth plan,

:21:27.:21:32.

a good old fashioned Keynsian stimulus, is it dicks the debt

:21:32.:21:37.

mountain can down the road. By injected thrillions of dollars into

:21:37.:21:40.

the US economy you will create growth and you may get re-elected,

:21:40.:21:45.

but you are postponeing the problem to a future President or future

:21:45.:21:49.

generation. But can American-style growth be achieved here, by

:21:49.:21:53.

borrowing even more money. On the latest projections they will borrow

:21:53.:21:57.

something like �150 billion more over the course of this parliament

:21:57.:22:01.

than they originally intended. They are borrowing �150 billion more

:22:01.:22:06.

because their plan has failed. Tax revenues aren't as strong as they

:22:06.:22:11.

hoped, because the social security bill is stronger than they hoped.

:22:11.:22:14.

They are borrowing money, it would be better to borrow money to get

:22:14.:22:17.

the economy moving, paying people to be in work, rather than paying

:22:17.:22:21.

people to be out of work. Could there be a third way? Can an

:22:21.:22:27.

economic stimulus and cutbacks work in tandem. Francois Hollande thinks

:22:27.:22:35.

so, he's already banging that drum in Brussels? Austerity and growth

:22:35.:22:39.

are not mutually exclusive. Some countries need to take tough action

:22:39.:22:43.

to reduce their amount of borrowing, it is the rate which you do it,

:22:43.:22:46.

what is sensible. If you don't have policies for growth, the risk is

:22:46.:22:49.

you crash the economy, we are back in a double-dip recession now, if

:22:49.:22:53.

you look at what is happening in Europe, it is a scene of

:22:53.:22:57.

unremitting gloom. Tomorrow David Cameron will attempt to steel our

:22:57.:23:01.

nerves for the long but rewarding battle against debt. The economy

:23:01.:23:04.

and ultimately voters will decide whether it is worth fighting for

:23:04.:23:09.

now. Here now are the Conservative MP,

:23:09.:23:12.

and former adviser to the Chancellor, Matthew Hancock, the

:23:12.:23:19.

economist, Ann Pettifor, and the chief executive of the city broker,

:23:19.:23:23.

Priebke, Terry Smith. It is -- Priebke preb. It is clear that

:23:23.:23:29.

austerity isn't doing anything for growth? As Alastair Darling said in

:23:29.:23:34.

the clip there, the two aren't mutually exclusive. You need to

:23:34.:23:37.

deal with the deficit to have sustainable growth. We have the

:23:37.:23:41.

lowest interest rates since 1703, we found out this week. We can cite

:23:41.:23:45.

any number of statistics, the fact is we are back in recession. Only

:23:45.:23:49.

today the growth forecasts were downgraded? Of course they were.

:23:49.:23:52.

That is nothing to do with austerity? There is a sharp

:23:52.:23:55.

increase in commodity price, and we have seen from the first package

:23:55.:23:58.

what has happened in the eurozone. But the crucial question is, and

:23:58.:24:03.

the question that people will be asking, and we should all ask, is

:24:03.:24:07.

what can you do to try to get out of this, given that we are in a

:24:07.:24:11.

debt crisis. And if you...Everybody Wants to get out of it. But the

:24:11.:24:15.

other way of putting your excuse, is that Government policy has had

:24:15.:24:22.

no effect? That's not true. It is all external factors, the euro

:24:22.:24:27.

crisis, commodity prices and the rest? Let me tell you where it has

:24:27.:24:31.

had an effect, the deficit has come back down by a quarter over the

:24:31.:24:35.

past two years. That means we are a quarter of the way, broadly,

:24:35.:24:38.

through the difficulties. You know, does that mean there is three

:24:38.:24:43.

quarters to go, and does it mean it will be difficult? Yes. But we are

:24:43.:24:47.

a quarter of the way through, the deficit is coming down, yes it is

:24:47.:24:51.

difficult. There are head winds that aren't helping, but if you

:24:51.:24:54.

don't try to deal with your debts, then you won't get growth. We have

:24:54.:25:00.

seen in the euroarea, what happens if you leave it. Where is the

:25:00.:25:04.

evidence that the austerity is hurting growth? Well, it's in

:25:04.:25:08.

Europe, across Europe, of course. What about in this country? In this

:25:08.:25:13.

country it is in the evidence that Mr Justin King of Sainsbury's has

:25:13.:25:16.

given us. That customers are not walking through his door. It is in

:25:16.:25:21.

the evidence of the banks, who are frightened to lend because they can

:25:21.:25:26.

see the contraction getting worse. It is in the evidence of the

:25:26.:25:30.

companies who have are hording -- who have been hording cash, because

:25:30.:25:33.

they are so in fear of the Government policies and contraction,

:25:33.:25:36.

that they will not take risks in investment. That is where the

:25:36.:25:39.

evidence is. It is in rising unemployment. I know the

:25:39.:25:42.

unemployment numbers today looked a little bit better, but the vacancy

:25:42.:25:48.

numbers were down. And the long- term unemployed were up. I think it

:25:48.:25:53.

is better when there is good figures, like today's unemployment

:25:53.:25:57.

figures, to welcome those figures, and welcome areas that are growing,

:25:57.:26:00.

like exports to the rest of the world that isn't Europe, which are

:26:00.:26:06.

up by 16%. There are good signs. But the point is this, you can't

:26:06.:26:09.

borrow your way out of debt. I have said it endlessly. Can I say about

:26:09.:26:14.

that, if that is the case, why did the Chancellor say in his 2012

:26:14.:26:19.

budget, just recently, that net borrowing was going to increase by

:26:19.:26:22.

�100 billion, over the next year or two. Because the size of the

:26:22.:26:26.

deficit that he's dealing with is vast. And of course, it has to come

:26:26.:26:30.

down, you have to deal with the deficit before you can then deal

:26:30.:26:35.

with the debt. This is the appropriate point to bring you in,

:26:35.:26:38.

you claim there isn't any real austerity here? There is no

:26:39.:26:43.

austerity so far. Even with the Government's figures. The reduction

:26:43.:26:48.

in Government spending is 1.5%, that is 0.7% of GDP. That can't

:26:48.:26:52.

have caused the problem with the economy, it is just not big enough.

:26:52.:26:56.

The economy never got out of recession. He's right that the

:26:56.:26:59.

policy hasn't caused the difficulties, but he has the wrong

:26:59.:27:03.

policy, because he hasn't got one at all? To debate the policy in a

:27:03.:27:08.

moment. We never got out of the recession. �500 billion of deficit

:27:08.:27:11.

spending, �300 billion on quanative easing, and the interest rates are

:27:12.:27:16.

the lowest for 300 years. Einstein said, repeating the same action and

:27:16.:27:20.

expecting the same result is a definition of insanity, it hasn't

:27:20.:27:23.

produced a result in the economy. List a few things you think should

:27:23.:27:28.

be cut in Government spending? only things you can cut in those

:27:28.:27:30.

circumstances, the benefits bill, and the National Health Service.

:27:30.:27:33.

You can't make very big cuts elsewhere. Cut the health service

:27:33.:27:36.

and the number of people on benefits, presumptionably and the

:27:37.:27:41.

level of benefits? You can't make cuts by tinkering at the edges,

:27:41.:27:46.

that is the definition of austerity, in your view? It is not really the

:27:46.:27:50.

only part of austerity. I think you need to cut the tax take, and the

:27:50.:27:54.

whole size of the state, unless you believe the Government is more

:27:55.:27:58.

efficient at spending money than the individuals. The Government is

:27:58.:28:03.

doing just that. It can't cut the Welfare Bill, it can't cut pensions.

:28:03.:28:08.

It is having real difficulties with that bit of the budget. But it is

:28:08.:28:11.

slashing capital investment. Let's look at the facts here. It is

:28:12.:28:15.

slashing productive investment. amount of people on out of work

:28:15.:28:20.

benefits is lower than at the election two years ago. And the

:28:20.:28:25.

benefits have been capped, there is a big row about that. And making

:28:25.:28:31.

sure that people have to try to get work, if they are getting benefit.

:28:31.:28:34.

Terry Smith is no clown, he understands how economies work, he

:28:34.:28:40.

has come to a completely different conclusion? Not the case. Terry

:28:40.:28:45.

said there are cuts. There has been no significant austerity.

:28:45.:28:52.

deficit is down. Is my 1.5% number correct. I will explain. Is it

:28:52.:28:58.

correct? I take it that's yes, is it. No, my number is not correct?

:28:58.:29:05.

The deficit is down from �160 billion at the time of the election,

:29:05.:29:09.

and down now. Have you cut spending by more than 1.5% of Government

:29:09.:29:13.

spending in the last year? Yes. must have missed that, I thought it

:29:14.:29:18.

was about �680 million now, it was about �690 million before? You have

:29:18.:29:24.

to look at the impact. Terry, 270,000 Government civil servants

:29:24.:29:29.

have lost their jobs. That's cuts in spending. What they haven't done

:29:29.:29:34.

and what hasn't happened, is that spending on the revenue side, on

:29:34.:29:40.

benefits and pensions has risen. But what is being cut is spending

:29:40.:29:43.

on managed expenditure and capital investment. Very drastically cut.

:29:43.:29:49.

That's the bit of investment, Jeremy, that will generate jobs and

:29:49.:29:53.

generate income for companies like Sainsbury's. And construction

:29:53.:29:58.

companies. You are comparing apples and oranges here, do you have any

:29:58.:30:03.

inclination towards either an apple or orange. Which two on these two

:30:03.:30:08.

in analysis do you come down in favour of? As we see somebody

:30:08.:30:11.

saying that the Government is cutting too fast, and somebody

:30:11.:30:14.

saying that the Government isn't cutting enough, that is normally a

:30:14.:30:19.

sign that the Government is getting it about right. I would like to

:30:19.:30:25.

explore an idea that Ann Pettifor has got here, explain to us the

:30:25.:30:31.

thing that is usually said, you can't increase spending, to

:30:31.:30:34.

increase spending increases more borrowing? The deficit doesn't tell

:30:34.:30:37.

you anything about what is going on in the economy. Because the fact is,

:30:37.:30:41.

the deficit is rising, or falling, because of what's happening in the

:30:41.:30:47.

rest of the economy. And the fact is, we have had hollowed out from

:30:47.:30:50.

the economy something like �120 billion, since the start of the

:30:50.:30:54.

financial crisis. As Terry says, the Government intends to take out

:30:55.:30:58.

another �85 billion. What is your solution? We have this create hole

:30:58.:31:04.

in the economy, somebody has to invest in it, the private sector

:31:04.:31:08.

won't because it is too nervous and indebted. The only sector that can

:31:08.:31:13.

is Government, it can do that with fingerprintsing from the Bank of

:31:13.:31:18.

England. The idea that the deficit doesn't matter. Is delusional.

:31:18.:31:22.

is dangerous. I didn't say it didn't matter, I said it didn't

:31:22.:31:25.

reflect what is really going on. Anne has discovered the secret

:31:25.:31:30.

source of finance we can use is frankly delusional. The Bank of

:31:31.:31:35.

England has been financing the budget deficit. It has been doing

:31:35.:31:39.

it indirectly, but it has been financing the deficit. It hadn't

:31:39.:31:42.

escaped our notice, if it is that easy, why not get the Bank of

:31:42.:31:46.

England to lend the Government all the money it needs to pay off the

:31:46.:31:49.

debt. Why didn't we think of that? It is not enough for the money it

:31:49.:31:54.

pay off the debt. It has to be invested in sound infrastructure

:31:54.:31:58.

projects, which, for example, would boost private sector activity in

:31:59.:32:02.

the construction sector. Which would boost economic activity,

:32:02.:32:06.

enable companies to make profits, people who have jobs, and income to

:32:06.:32:10.

be generated to pay the taxes which will reduce the deficit. This idea

:32:10.:32:15.

that you spend more, and therefore borrow less is frankly, for the

:32:15.:32:19.

birds. I think it is delusional. The British economy is predicted to

:32:19.:32:23.

grow at just under 1% next year. China is hoping for 7.5%. In the

:32:23.:32:27.

space of a single generation the size of China's economy has

:32:27.:32:32.

overtaken most of those in western Europe. But China's also set to

:32:32.:32:36.

overtake Europe in another key area. Thanks to longer life expectancy,

:32:36.:32:41.

and plummeting birth rates, China's population is getting older.

:32:41.:32:47.

Mukul Devichand roorns, 30 years after China implemented its one-

:32:47.:32:56.

child policy, the Government faces a crisis of too many elderly.

:32:56.:33:01.

This is one of the fastest-ageing places on earth. In Shanghai there

:33:01.:33:06.

are twice as many old people as there are young. As the city has

:33:06.:33:11.

developed, people are having fewer and fewer children. The one-child

:33:11.:33:16.

policy has accelerated the decline in the birth rate. And where

:33:16.:33:22.

Shanghai leads, China follows. Break-neck economic growth in

:33:22.:33:25.

China's cities, has been accompanied by an astonishingly

:33:25.:33:31.

rapid ageing of their populations. China is growing old, at a rate

:33:31.:33:34.

unprecedented in human history. This ageing could bring the

:33:34.:33:42.

country's seemingly irrepressible March out of poverty to an end.

:33:42.:33:46.

This woman spend her working life in a factory, her husband is a

:33:46.:33:50.

tailor, they have been married for 53 years.

:33:50.:33:56.

Now, she has Alzheimer's. Every day he bathes her, dresses her, and

:33:56.:34:01.

brings her to this drop-in centre for lunch.

:34:01.:34:08.

He says it is hardest when she doesn't know who he is.

:34:08.:34:12.

TRANSLATION: Before she got sick she was full of life. She loved the

:34:12.:34:15.

opera, now she doesn't really understand what is going on. Her

:34:15.:34:20.

mind is gone. Life has become difficult. But I must take care of

:34:20.:34:28.

her, anyone in my position would do the same. This is all the help the

:34:28.:34:32.

state can provide. A basic welfare system does exist in China, but it

:34:32.:34:37.

is many years behind anything in the west. Nationally, the

:34:37.:34:41.

Government says ten million care workers are needed. So far, only

:34:41.:34:45.

100,000 have been trained. Providing for the elderly will

:34:45.:34:51.

create a massive drain on China's future wealth.

:34:51.:34:57.

Chinese society has not been fully prepared for its pension and social

:34:58.:35:02.

security systems, so people are worried, what will be the case if

:35:02.:35:05.

they do not have kids, and they do not have the social security, what

:35:06.:35:11.

can they do when they become old? Traditionally in Chinese families,

:35:11.:35:15.

this didn't used to be a problem. The elderly were cared for at home.

:35:15.:35:19.

But as the birth rate is declining, there are now not enough of the

:35:19.:35:24.

younger generation, to look after the old.

:35:24.:35:27.

Those what who can afford it end up somewhere like this, recently

:35:27.:35:37.
:35:37.:35:38.

opened, one of the new private care homes in the city. This man has

:35:38.:35:43.

been here since he had a stroke, four months ago.

:35:43.:35:49.

His daughter wishes she could care for him at home. But, she says, she

:35:50.:35:58.

needs to go out to work. She, herself, has only one child. She

:35:58.:36:08.
:36:08.:36:08.

worries about who will look after her, when her time comes. By the

:36:08.:36:14.

year 2050, one third of China's population will be over 60. That's

:36:14.:36:19.

450 million people. This huge imbalance has been caused by

:36:19.:36:22.

China's showcase development policy, the one-child programme. It has

:36:22.:36:27.

forced down the numbers of young people, just when they are needed

:36:27.:36:37.
:36:37.:36:42.

most. China's economic model is in danger.

:36:42.:36:50.

The lack of young workers is already slowing down the economy.

:36:50.:36:54.

Having too few young people is a serious threat in itself. China's

:36:54.:36:58.

economic engine has been fuelled by a seemingly endless supply of cheap

:36:58.:37:03.

and young labour. If that supply now runs out, then China's ability

:37:03.:37:08.

to keep on growing could be seriously undermined.

:37:08.:37:12.

In this factory south of Shanghai, workers make jewellery and

:37:12.:37:17.

accessories that end up in high streets across Britain. Research

:37:17.:37:20.

suggests that one quarter of China's economic growth has come

:37:20.:37:25.

from the supply of cheap labour. It is here that the impact of

:37:25.:37:30.

demographic change is being felt most keenly. The shortage of the

:37:30.:37:35.

labour force is inevitable to increase the labour costs. This

:37:35.:37:44.

will force China to restructure its economy. To move from the labour-

:37:44.:37:53.

intensive export-orientated economy, towards a more capital-intensive or

:37:53.:37:55.

technology-intensive economy. aren't enough young people for the

:37:55.:37:59.

model on which China's economy depends. In addition main migrant

:37:59.:38:07.

workers have moved back to their home towns, to care for their

:38:07.:38:11.

elderly parents. Around Shanghai there is an acute labour shortage.

:38:11.:38:14.

TRANSLATION: It is really tough to find new workers because the cost

:38:14.:38:18.

of labour keeps increasing. Workers are asking for more pay and better

:38:19.:38:23.

conditions when we hire them. At the same time as labour costs

:38:23.:38:33.

are rising, the pressure from retailers is for ever cheaper stock.

:38:33.:38:38.

TRANSLATION: We are becoming uncompetitive, it is affordable for

:38:38.:38:44.

companies to move from China to Thailand. All of this means that

:38:44.:38:50.

China's one-child policy is beginning to lose loosen, and

:38:50.:38:54.

Shanghai is in the vanguard. In this family planning clinic, young

:38:54.:39:00.

women are no longer instructed in contraception and abortion, but in

:39:00.:39:03.

fertility, and how to conceive more successfully. In Chinese terms,

:39:03.:39:09.

this is something of a revolution. TRANSLATION: We hope people will

:39:09.:39:13.

follow the regulations and have a second child. We are offering

:39:13.:39:17.

parenting classes as well as fertility clinics. If you are an

:39:17.:39:21.

only child and you marry someone else who is also an only child, you

:39:21.:39:24.

have always been allowed to have two children. But now we are trying

:39:24.:39:32.

to encourage everyone to do so. many Chinese people aren't

:39:32.:39:38.

listening. The majority in Shanghai still choose to have one child.

:39:38.:39:41.

They believe their children's life chances are better, that they

:39:41.:39:46.

themselves are richer in small families.

:39:46.:39:50.

In fact, some academics think China's future lies in a smaller

:39:50.:39:54.

population. That increasing the birth rate is a matter of buying

:39:54.:40:01.

time. Amidst vast social change. To modify the policy cannot reverse

:40:01.:40:06.

the ageing process, but at least it can slow down the process,

:40:06.:40:10.

providing more time for Chinese society to get ready, to prepare

:40:10.:40:19.

for the restructure of the society. In that case we can cope with

:40:19.:40:24.

ageing issues more easily and properly. One thing this couple

:40:24.:40:29.

don't have, is time. He says as long as he has the

:40:29.:40:34.

strength, he will always care for his wife. He says if she was put in

:40:34.:40:39.

care home, he would be apart from her, at least this way they can be

:40:39.:40:45.

together. TRANSLATION: There's nothing more

:40:45.:40:51.

we can do now. At least we have the past. All we can hope for is that

:40:51.:40:55.

her illness progresses slowly, and we can both enjoy what little time

:40:55.:41:03.

we have left. China is facing up to the fact that it is ageing. And at

:41:03.:41:07.

a rate that few societies have ever experienced. It will have to find a

:41:07.:41:12.

way to pay for the costs of ageing, without the economic wealth

:41:12.:41:19.

supplied by so many young people. There is a special phrase for why

:41:19.:41:25.

they worry, "China might become too old to get rich".

:41:25.:41:29.

As we all know, thanks to the experiences of Jim Hacker, real

:41:29.:41:34.

power in Britain is wielded by masses of anonymous sir Humphreys,

:41:34.:41:40.

that used to be the case until Tony Blair and Malcolm Tucker came along.

:41:40.:41:45.

Now the man known as David Cameron's brain, Steve Hilton, has

:41:45.:41:50.

disappeared on a Saab battle. He was known for wandering -

:41:50.:41:54.

sabbatical, he was known for running around without any shoes

:41:54.:41:59.

and coming up with original ideas. Who does the blue-sky thinking now.

:41:59.:42:05.

And in these storm tossed times, do we need more blue sky. The nearest

:42:05.:42:09.

we can get to it are here, Danny Kruger, who now runs a charity,

:42:10.:42:16.

helping prisoners and young people at risk of crime, and an adviser to

:42:16.:42:20.

Ed Miliband until last week, and prefers the company of the Social

:42:20.:42:24.

Research Unit now. Where do ideas in Government come from? Probably

:42:24.:42:29.

the ideas we had in opposition, mostly. Interestingly the most

:42:29.:42:32.

inventive stuff seems to have been thought up beforehand. The job of

:42:32.:42:36.

Government, often seems to be the job of handling the daily crises.

:42:36.:42:40.

Can I pay tribute to Steve Hilton, I worked with him in opposition. I

:42:40.:42:44.

don't know what it was like working in Government, it must be have been

:42:44.:42:49.

frustrating, he found it frustrating working with us in

:42:49.:42:52.

opposition. He was one of the most imaginative I have worked with. And

:42:52.:42:57.

contributed a huge amount to the creativeness and inventiveness the

:42:57.:43:02.

party came to Government with. have been living in this mail trom

:43:02.:43:07.

and firmive of ideas in opposition? Is that what it is like? There are

:43:07.:43:13.

lots of places political parties get ideas, in Government or

:43:13.:43:19.

opposition. They look at research, universities, they look abroad.

:43:19.:43:23.

This idea that we don't have enough big ideas out there, that is not

:43:23.:43:27.

the issue with what's begin doing going on with Government in the

:43:27.:43:30.

last -- been going on with the Government in the last few years.

:43:30.:43:33.

Nobody will say this Government hasn't had big ideas, they clearly

:43:33.:43:37.

have. The real issue is how you apply those ideas. What your

:43:37.:43:45.

analysis of an issue is. They do need to reform the NHS and what

:43:45.:43:48.

does success look like? Until you have those things straight, it is

:43:48.:43:51.

hard to understand how the big ideas will come along and change

:43:51.:43:55.

the world. The circumstances under which you take office, and try to

:43:55.:43:59.

act out these schemes that you cooked up in opposition, are

:43:59.:44:02.

clearly critical, there are times for great ideas, and there are

:44:02.:44:05.

times for just trying to get your head down and get on with things,

:44:05.:44:08.

aren't there? This Government is occasional low stuck on the horns

:44:08.:44:12.

that have dilemma. They have some very large ideas, and they have

:44:12.:44:16.

come into office with a clear determination to change the country.

:44:16.:44:20.

And yet they are managing a terrible economic situation, as

:44:20.:44:24.

well as all sorts of external things going on, and the daily

:44:24.:44:29.

crisis of Government. It looks like and feels like, from the outside

:44:29.:44:32.

looking in, they are constantly battling the determination to

:44:32.:44:35.

change the country and do radical and substantial things, with a need

:44:35.:44:38.

to manage the crisis of the day. It must be incredibly difficult to

:44:38.:44:42.

balance the two. If I could just jump in, I would say never

:44:42.:44:45.

underestimate the power of the small idea. It is not just about

:44:45.:44:48.

big ideas. For example, if you want to improve how children are doing

:44:49.:44:53.

at school, we know that the most important thing is the quality of

:44:53.:44:57.

teach anything their classroom. Trying to change that experience

:44:57.:45:01.

through one big idea, one silver bullet, one structural reform of

:45:01.:45:05.

our school systems very, very difficult. We know it is the small

:45:06.:45:11.

things that add up to change. How we train our teachers, how we teach

:45:11.:45:13.

our professional development in schools. I think it is very

:45:13.:45:17.

important. Big ideas are great, we all need them. If we are really

:45:17.:45:20.

interested in serious change, you shouldn't underestimate the power

:45:20.:45:26.

of doing lots of small things well. What about this idea, and one has

:45:26.:45:32.

heard it promogated, Tony Blair talked about it a bit, the

:45:32.:45:35.

institutional boundaries, notably exsemplified in the Civil Service,

:45:35.:45:39.

always said to be a great break upon change s that fair on the

:45:39.:45:43.

Civil Service, do you think? haven't worked in Government, you

:45:43.:45:46.

sense the frustration when you watch politicians trying to get

:45:46.:45:49.

their way, and having spoken about the grand changes they are going to

:45:49.:45:54.

make, finding them some what diluted in office. But I also think

:45:54.:45:59.

there is a sense in which they are obliged by their own ideology, the

:45:59.:46:02.

loyalties they have to their party, and what they said in opposition,

:46:02.:46:05.

and to the grand ideas they came into Government with, then they run

:46:05.:46:08.

into the sands of reality. That is probably a healthy process, tough

:46:08.:46:12.

run fast through the sand, it is good they start running quickly.

:46:12.:46:16.

that your impression too? I don't think that is quite fair. NHS

:46:16.:46:19.

reform, for example, nobody would argue the Government has found

:46:19.:46:23.

itself in some of the difficulties they have around NHS reform,

:46:23.:46:30.

because the Civil Service has acted as a break on reform. -- brake on

:46:30.:46:35.

reform, but it is the politics that are an issue and the way it

:46:35.:46:39.

developed in the political system. I don't think it is fair to say the

:46:39.:46:42.

Civil Service are always a brake on what ministers want to. Do I would

:46:42.:46:45.

argue you see politicians who want too much change, and too much

:46:45.:46:49.

change can be just as bad, as not enough.

:46:49.:46:59.
:46:59.:47:25.

Thank you very much. Tomorrow That's all tonight. Emily will be

:47:26.:47:35.
:47:36.:47:39.

here with more tomorrow, until then, goodnight.

:47:39.:47:42.

Good evening, not as cold tonight as last night. Thanks to a lot more

:47:42.:47:46.

cloud. It makes for grey start in the morning. Some brightness across

:47:46.:47:49.

north-east England, that will disappear. Brive, bright or sunny

:47:49.:47:55.

spells across the south. Northern Britain dull. Outbreaks of rain and

:47:55.:47:58.

drizzle coming throughout the day across northern England. Generally

:47:58.:48:01.

from Birmingham southwards it will be dry. Any showers in the south

:48:01.:48:05.

will be few and far between. Cloudier than today, still some

:48:05.:48:08.

brightness coming through. A hint or two of sunshine, just about

:48:08.:48:12.

lifting the temperatures into the teens. Feeling cool because of the

:48:12.:48:16.

strength of the breeze. The breeze picking up slowly across Wales. A

:48:16.:48:19.

bright day in the south. The outbreaks of rain and drizzle on

:48:20.:48:24.

the north coast, rain and drizzle will come and go throughout the day.

:48:24.:48:30.

Dull, dump and chilly, temperatures stuck in single figures, as across

:48:30.:48:40.
:48:40.:48:53.

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