30/05/2012 Newsnight


Jeremy Paxman is joined by Nobel Prize winner Paul Krugman, Ken Rogoff and Greek minister Giorgos Papakonstantinou to discuss the economic future for Greece, Europe and the world.

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Hello, within weeks, Greece could have tumbled, stalked, or been


chucked out of the euro. An intense nervousness, panic in some places,


is at large. All of us will be affected. Tonight, how it could


happen and what will be the consequences. If Spain falls apart,


will the face of Europe be changed forever. We have the Nobel Prize-


winning economist, Paul Krugman here, the Harvard economist,


Kenneth Rogoff, and from Athens, former Greece politician, Giorgos


Papakonstantinou. Many think that the Germans will


soon blink, that forcing Greece out of the euro will be unthinkable,


what if they are wrong? We will tackle the question whether


George Osborne's medicine for this country is not so quietly killing


the patient. The Government's central aim is to


cut the deficit and establish international credibility, what if


the eurozone crisis means they can do neither.


We will hear from Dublin, where they are being asked to vote for


long years of austerity, to atone for their bankers' sins. David


Cameron's former Director of Communications, Andy Coulson, has


been charged with perjury tonight, after being questioned by police in


Glasgow. We will have the latest.


The world's biggest company, ensuring people who export goods,


said today it was no longer covering anyone who wants to send


stuff to Greece. Nothing will change before the election there on


June 17th, and the latest opinion polls show the biggest parties in


favour and against the bail out are at absolutely level pegging. Which


is no help to anyone, really. In the meantime, there is talk of


power cuts because there is no money to pay energy suppliers. So


the rest of the eurozone, now contemplates something we were told


was inconceivably, recently, that like a bad kebab, Greece is vomited


out of the single currency. What happened today? Almost every day


brings headlines to which the subtext is, confusion, lack of


focus, unreality, incompetence, general clutching at straws, as the


train hurtles towards you. Today was no different. You mentioned


today that the Greek press got hold of a document to the Prime Minister


that they may face blackouts because they can't pay electricity


bills. We find out in the next 24 hours how much money has fled


Greece over the past week. We know if the -- in the past three months


58 million has fled Europe over the past few months. Spain is in


serious trouble and needs a bank bail out. There is the mechanism to


do, that the European Union has the money to do that. Right now Spain


doesn't want to take that money. It is saying, we don't want to be like


Ireland, we don't want to be the slaves of Europe. This is, of


course, on the eve, tomorrow, of the Irish referendum. Where the


Irish are going to sign up for an austerity deal that the Spanish


have just negotiated a one-year opt-out from, that is conyou fewed,


so is everybody else -- if that is confusing, so is everybody else.


Greece could leave the euro? Ever since the Brussels summit last week


the feeling is, most people think, look, Merkel is talking tough to


try to get Greek voters to go back to the centre. To recoil in horror


from any exit from the eurozone, so they vote how the European Union


would like them. Most people think, whether it is just before or just


after the elections, the Germans will have to relent and say it is a


bluff. And they will give the Greeks some extra time to pay, like


Spain, another year to meet the targets. That is what the money is


on at the moment. But, as we are about to see, the ability of


politicians to effect economics, ever since Lehman Brothers, has


been very limited. If Greece left the euro, the


reaction would be frantic. Every Government, every Central Bank, and


all financial markets would be faced with immediate choices.


But the first 48 hours of a Greek exit would depend on precisely why


the exit happened. Politically it is impossible to


expel Greece from the eurozone, and none of the parties likely to win


the election want to leave, including the left. So a Greek exit


would be messy. Driven by economics, driven by capital flight, bank run,


and the breakdown of cross-border payment mechanisms. If you lent


money in euros to Greece, and your debt is redenominated into drachmas,


which falls against the euros, you will get less money back. There is


also a significant likelihood that banks would go under in Greece, a


large number of companies would probably be bankrupt as well. So


there would be more straight forward forms of default as well.


With the far left riding high in the election. And the far right on


the March, any financial collapse would -- march, any financial


collapse would spell trouble. There is already trouble.


We have got total polarisation, we have an economic programme the


Greeks didn't vote for. We have violence in the streets. We have


got Neo-Nazis in parliament. That is before any problems of euro


exit? Yeah, absolutely. Before any problems of euro exit. The other


thing people say, it is awful, but it is awful now.


For London, as a financial centre, there would be deep concern. Not


over Greece, but over the three trillion euros worth of foreign


money sitting in Italy and Spain, which might leave.


The very sense of crisis and uncertainty, is jittering the


global markets, which is having an effect on our real economy. It is


not through trade or diplomatic links, and they would be deeply


concerned that the sense of instability would mean that any


other institution that was not completely 100% robust, would sense


the shockwaves and find themselves in a more perilous situation.


British banks' exposure to Greece is small. Exposure to sovereign


debt of Italy and Spain, is just over 10 million to Barclays, RBS


and HSBC, but it would decrease the value of eurobonds across the


eurozone. And here RBS, with 0 billion total exposure, is among


the highest in Europe. In the first 48 hours after a Greek exit,


everything would depend on preventing the financial collapse


of Spain. The money to do that exist, right now Spain is quibbling


over the terms of accepting it. As for Greece, it would face not


only banking and monetary chaos, its exports would more or less


double in cost, that is bad. There is a lot of fear. People are very,


very worried about this. It feels like falling off the edge of a


cliff to a lot of people. There is a lot of fear about poverty, about


hunger, about political chaos. Greece imports 40% of the food at


the moment. Almost all its medicines, all its oil. And as the


Greeks left, the credibility of the euro as a permanent currency union


would be shattered. Giorgos Papakonstantinou is in


Athens, where he was until recently a Government minister,'s now a


PASOK candidate in the forth coming elections, and taking an anxious


interest in things there. Paul Krugman is a Nobel Prize-winning


economist, who is betting on an exit from the euro zone. Do you


think as a currency the euro is worth saving? I think it is a


mistake, but it is a difficult thing to say it should never have


been done and it is likely to collapse. I would like to save the


euro. But I don't think Greece and the euro is a reasonable


proposition. Giorgos Papakonstantinou, why is leaving


the euro a bad idea from the Greek perspective? Well, first of all,


can I take issue with your bad kebab analogy, which I find


offensive. The Greek economy is in a crisis s the Greek people are


going through a lot, they deserve some respect. I really didn't find


that very appropriate. Coming to your question, leaving the euro


would lead to reduction with a GDP falling by over 20%. It would


double today's extremely high unemployment from 20% to over up to


40%. It would lead to a halving of living standards, and to widespread


poverty. Today's situation is very difficult and very bad, but leaving


the euro would lead the economy back to the 50s and 60s, that is


not something they would want to live through. I would support that,


that was quite inappropriate to say the Greeks have done something


terribly wrong, they made errors, but the trouble, the reason, it is


going to be awful, if Greece exits. It will be awful in the short run.


The trouble is the situation for Greece is hopeless, and I mean that


in a quite literal sense. Under the euro, there is nothing on the


horizon to suggest any recovery, ever. We are looking at extremely


high unemployment, being shut out of the capital markets, as far as


the eye can see. While an exit would be terrible, there would be,


you can see how a recovery could happen afterwards. I understand


that nobody wants to bite that bullet. Nobody wants to take that


decision. Which is why I think it is actually that the decision will


be take be out -- taken out of the hands of the politicians. If anyone


can give me any story where Greece returns to prosperity or a halfway


acceptable situation staying within the euro, I would be happy to


reconsider, I haven't seen that story. Can you imagine such a story,


Giorgos Papakonstantinou? I do, I deliver here with Paul, I think


that clearly we need much more time than what the current programme


gives us, to put the finances in order. But we are very close to


running a primary surplus. The main problem is the economy isn't


growing, and the economy isn't growing, it wasn't growing before


the bail out. We were actually in recession since 2008. Before we


started the austerity package. Clearly the austerity package has


made things much worse. We need growth. Growth needs to come with


the help of our European partners, through some kind of a growth


package. With confidence returning and investment flowing back in. We


have a privatisation programme, which should attract foreign


investment. For all this to work you have to have a stablised


situation, at the moment Europe is not giving the right signals. There


has been some progress in improving the institutional architecture, but


not enough. And the big moves have not been made yet. I'm hopeful that


there is a wind of change in Europe at the moment, following also the


French election, which will change the emphasis away from exclusively


looking at austerity, and balancing it more with growth, and having the


banks being able to bring the liquidity into the system. At the


moment you have both the demand not being there, because wages and


salaries have been cut, and a banking system not funking, which


doesn't provide working cap -- functioning which doesn't provide


working capital. How close are things to not working there?


have had a fragmented result, from an election, and we have an


election where the result is hanging in the air. The polls at


the moment give the Conservatives and the left parties pretty much


equal results. So it is touch and go, where this will go, it is clear


the problems are too big for one party to shoulder this. We tried


this for two years, we had an absolute majority in parliament and


we failed. That is the point, my sense is, in fact, the coalition in


Greece was doing all of the things it was asked to do. The trouble is


that was not producing growth. That nothing plausibly on the horizon


will produce growth. Even if the sternness of European austerity


demanded is lessened a bit, that will not provide growth. Greece is


highly uncompetitive in growth, the idea that you can close those


structural reforms in any time frame is unreasonable. Some of us


cut our teeth in way on the Argentine crisis more than a decade


ago. It was, in some ways, easier, because they had their own currency.


It was the same thing, there was no plausible route back to an


acceptable economic situation, except via devaluation. I think


that's going to be the case here. We just don't see how this can ever


be reinvolved, otherwise. Remember, however, in the last two years, we


clawed back the competition that was lost, in unit labour costs,


since the starting of the eurozone. Greece has some existing advantages,


like tourism and shipping, and some new ones like renewables, logistics.


It does have the natural resources, the people, the ideas, to move


forward. But it costs you power? keep the engine growing.


eventually you lost power? We did. I actually take the same view, I


think there is a lot of fundamental strengths, which are reasons why


Greece, after an exit might recover much more quickly than people think.


But the notion that the exports, essentially it will require exports,


one way or another, the notion that the exports will come on stream,


fast enough, with no, under the current regime, to avoid what is an


on going catastrophy becoming unmanageable. I hope and would love


to believe you are right. This is a horrible situation, it is a trap,


and not the fault of the Greeks for the most part. But, my God, how


much longer can this last, the action forcing the event will, of


course, be people pulling money out of Greek banks. The ECB has to


offer either unlimited credit, with no security, or pull the plug.


Maybe they will do that, maybe they will string it on for another year.


I find it hard to believe. You are geting any signs in Athens of


concessions about to be made to you? I think it is clear that the


troika is realising, also partly as a result of the election result,


but partly also, looking at the fundamentals of the economy, that


something has to give. If you ask any economist they will tell you


that the fiscal path we have been following is extreme. We reduced


the primary deficit by eight percentage points in two years.


That has never been done before. To continue on this path, without


giving it some slack, makes no sense. The more you hit on the


fiscal side, the more difficult structural reforms become. Because


the society is in such a difficult situation it is very hard to get


acceptance around necessary reforms, but reforms always have people who


oppose them. You do need, and the troika is ready to give, and the


European partners, thinking of Germany, because it comes down to


that, certainly some leeway of the base on the fiscal side. And


hopefully on some other issues as well.


Thank you very much. Only a fool would predict precisely how this


crisis will end, but Greece is far from the end of the story. The


interest the Spanish Government has to pay to borrow money reached


record levels today, because so many people who ought to know,


seriously doubt whether it has the wherewithal to keep the country's


banks afloat. Spain, the fourth- biggest economy in the eurozone,


threatens the entire edifice, it is not about individual countries but


whether the euro itself can be rescued.


Imagine this, it is six months on from the Greek exit, it has been


orderly, negotiated, there has been no euro crash. But on the housing


estates of peripheral Europe, things are very bleak.


I think six months after a Greek exit we would still be in a period


of economic and financial uncertainty and weakness. Our


expectation is that the economy would contract, fairly sharply, we


would expect the eurozone GDP to drop something like 5%, on a par


what we saw during the global recession of a couple of years ago.


If all that looks bleak, it is possibly the best you could hope


for if Greece exits, because a disorderly exit could, six months


down the line, pose severe threats to the entire europroject. The


biggest systemic risk is Spain, its economy is shrinking now, its


sovereign debt already verging on unmanageable, its banking sector


sitting on a mountain of bad debt that nobody wants to calculate.


think there is a serious chance that the eurozone could break up.


There are adverse economic factors on going. There are crippling high


levels of debt and problems, one has to fear the exit process of a


country like Spain, would effectively sound the death knell


for the euro all together. Until now Germany insistence on austerity


for Greece has been seen as a giant bluff. But if it does drive Europe


to ruination, even stalwarts of the political centre, now see that as


changing the debate over austerity versus growth. It may be that the


approach of the Washington consensus, and George Osborne and


Cameron, is simply wrong, and that Greece is one of the first people,


because they have absolutely nothing to lose. The first groups


of people putting their head above and saying, no, we are not


accepting this. I think it might be totemic, for how the whole


austerity project is seen. Economists find it hard to model


what is coming. At least they are thinking about it. The problem is,


for the centrist politicians and civil servants who run Europe, they


don't even want to think about it. When you look at what is happening


in Greece, on the streets, you can see why. The old split between left


and right is still there underneath. It still simers, there is still a


sense of families and political history. Your grandfather killed my


grandfather, that could come back? Your grandfather killed my


grandfather, it is already coming back. The political goss are from a


past Greece thought it had put behind it. If it fails there is no


shortage of specters to haunt Europe. Paul Krugman is still with


us, with a similar enlike peedic knowledge of euroaffairs, we have


Kenneth Rogoff in Washington. What is the problem here, is it one of


demand for debt? Well, I think that fundamental problems is a huge


overhang of doubt you have to deal with. You can't deal with it


watching the periphery countries of Europe being in recession for ten


years. That is not going to happen. There has to come a plan to bring


the debt down. Growth is a piece of it. They need to write down debt


and need inflation. They need plan for restoring competitiveness in


the periphery. If they are not going to have their own currency,


then the euro needs to go down. way I think about Spain, is for ten


years they were seen as the golden boy of Europe, now it is safe


because it is part of the eurozone, money flooded in. A lot of it the


Germany banks lending to Spanish banks, which fuelled a huge housing


bubble. A lot of inflation, they get uncompetitive, the bubble


bursts, how do they get back to being competitive again? The


current strategy is that they should cut their wages, and some


how do enough austerity to pay that debt. It is impossible. The demands


being placed on Spain are impossible. If Greece exits, then


everybody says it is impossible, money starts flooding out of Spain


and Europe has a choice. And the choice is? The choice is, Ken and I


seem to agree, that credit has to be made available, open-ended


lending, so when people pull their euros out the banks don't collapse.


An unlimited supply of euros from frack further. More debt? It is


temporary, because if the panic stops the money comes back. You


have to have inflation in Europe, instead of Spain having to cut its


wages, at least it is not solely through cuts of Spanish wages, but


we will have rising German wages, which is an easier way for Spain to


become competitive. It is a change in the vision of Germany policy.


Instead of punishing the debtors and having price stability, they


have to have something more liberal, they have to have a party.


Rogoff, inflation and more debt, is that a solution? No, I don't agree


with the more debt. I certainly agree about writing down debt. I


think inflation is a piece of the solution, all over the world. I


don't think there is really way to go forward here without having some


political union, or vision of political union. I don't think this


is all about Germany being stingy. It is also about not wanting to


have -- st, ing ey it is also about not wanting to have an open bar for


the rest of Europe. I'm not saying what they are proposing is


necessarily nearly the end of things. I really think the only way


this is going to end is either Europe starts to look like a real


country, and I mean France and Germany, part of the same country,


central Government with a lot of taxing power, or it splits up.


Unless they start moving that way enthusiastically soon, I don't


think anything will stablise the situation. I hope's wrong about


that, if he's right it will be over. I have done Ireland versus Nevada,


not the landscape, but everything else looks remarkably similar.


Because the way the US fiscal system exists, Nevada is receiving


de facto aid on the scale of 5-6% of GDP, from Washington. Try to


imagine that Europe, that Germany would be willing to countenance a


system where 5-6% of GDP, not in loans, but actual aid, is given to


southern European countries at the moment, that is not conceivable.


That is a generation's work. We don't have a generation, we may not


have more than a few months here. By that analysis, the euro has had


it? Some doubt write downs, that some default, plus some inflation,


might make it, might make it manage gt, over a five-year d manageable,


over a five-year period to get an adjustment. That is not good, the


solution that the United States of Europe is much to be desired.


it won't happen during my working lifetime.


Ken Rogoff, you tried to get in? think that will be a problem. I


think they need to lay out a vision, it could be 15-20 years, right now


it is a moving 40-50 years. But they need to lay out a vision where


it is going forward, not backward. I think the French election was in


some sense a rejection of moving to a closer Europe, a rejection of


having more interdependance. I certainly see that Germany, one way


or another, is not going to get paid. Either because there is going


to be default, inflation or it will make transfers t has to pick its


poison. I'm very sympathetic to their wanting rules, at least


trying to negotiate. That said, they may find themselves blinking


again and again, simply because they are being gamed into making


the big payments and transfers, because it is so catastrophic what


will happen if they don't. What should western Governments be doing


now? They have to stop the panic here. That is the number one


problem. I think over the longer term there is a huge overhang of


debt, public, private, external debt, that gradually needs to be


deflated out of the of the system. Some through growth, there are very


few historical experiences where that has been very successful.


Except in cases like Canada and Sweden, where the Governments were


very large, and they were able to shrink them and make the economies


much more efficient. I look at the European situation, as something


impossible will happen. One that the euro will be allowed to


collapse, that is unthinkable, impossible. The other is the


Germans will accept lots of debt relief, plus inflation, plus


temporarily large open-ended lending, which is impossible. One


of those two impossible things will happen. It is an awesome choice. It


is not something, they will not have years to dither over this,


they have months to dither over this. It is moving very fast.


Rather surprisingly a survey out tomorrow, of how confident British


consumers feel, will show their slightly less gloomy than they were.


But the facts about the state of the economy in this country, even


without the collapse of the eurozone, are awful. The


Chancellor's sticking to his line that there is no alternative to his


austerity prescription. Not for him, the great economist, John Maynard


Keynes, said when the facts change I change my mind, what do you do.


First let's have this. "To understand my state of mind",


John Maynard Keynes wrote to his friend, George Bernard show, he


said he would be writing a book on economic theory, that would largely


revolutionise, not at once, but in the course of next ten years, the


way the world thinks about economic problems. It was a bit of a brag,


even to a friend, but as it turns out, even he was underplaying it.


Keynes ideas are still in play, nearly 70 years later. In the


summer of 2010, the Chancellor, George Osborne put in place his own


theory. Massive spending cuts, driven by a need to placate the


international bond markets. This Emergency Budget deals decisively


with our country's record debts. It pays for the past and plans for the


future. His opposite number, retaliated. With a modern day case


for Keynesian spending. coalition should act quickly and


decisively to reverse George Osborne's cuts and for household


budgets this year. We should reinstate vital investment for jobs


now. Here on the corner of John Maynard Keynes's street, is a


building site that exsemplifies his ideas of yesterday, he believes if


the economy isn't involved in the private sector, the Government has


no choice, the Government has to intervene. He said, tongue in cheek,


what you should do, is take bottles, and fill them with pound coins, and


put them at the bottom of the large well and put it down there. The


employment of getting the bags out would stimulate the economy. That


is where critics of the Government say we are now. On the one hand you


have �700 billion of public sector private assets that they don't want


to spend. And there is historic low rates of borrowing that the


Government enjoys and could be better used to stimulate the


economy. That is what they think should be done and they are still


Keynesian followers. The Government could actually restore some of its


capital programmes that have been cut. For example, the school


building programme has been cut by 80%. I think much of those cuts


should be reversed. There are other programmes which would be better to


be done by a national investment bank. Because that would get a lot


of the spending off the Government's balance sheet, if


people are worried that the Government is being profligate.


Critics of neo-Keynesian sound warnings. They point out our


economy has generous automatic fiscal monitor, spending rising.


They say the Government is borrowing a fair amount, not much


less than a Labour Government would have done. The Government is


spending close to 50% of GDP, their plan is to get down to to 40% over


the next couple of years. If they want to provide confidence in the


economy, what they need to be doing is getting close to 30%. That would


also allow tax cuts, that would encourage private investment.


are many reasons why the Government doesn't think the time is right for


apartheid of pronounced Keynesian spending. But there are two that


stand out. The first one, according to the ideas of the man himself,


you don't run a deficit during a time of economic boom. The current


Government believe that is exactly what the previous Government did,


and they are now dealing with the effects of it. There is also


unfunded pension liabilities, that this Government is also trying to


deal with. They believed Keynes didn't have them at the time of his


writing, and you can't keep kicking a debt can down the road.


Nonetheless, the Government is due to launch new programmes of


infrastructure investment soon. The debate is shifting towards a


different Keynesian insight, that monetary policy could do more heavy


lifting. The Bank of England should set nominal GDP rates, musing from


the builders until then, they wonder where he buried the pound


coins. Paul Krugman is here, Jon Moulton


joins him, and Andrea Leadsom, a Conservative MP, who previously


worked in finance for 20 years. You have given George Osborne quite


a lot of ear ache about his handle of the economy. Have you seen


anything while you have been over - - handling of the economy, have you


seen anything while you have been over here to change your view?


have had two years of austerity here and elsewhere. What we have


seen, first of all, is austerity really does contract the economy.


That the notion that it would inspire business confidence, and


lead to expansion, not contraction, has been decisively proved wrong


here and across the continent. Secondly, there is growing evidence


that austerity, in these conditions, doesn't even work in fiscal terms.


Because it shrinks the economy now and also shrinks the economy in


future. It hurts the economy's long-run potential, which reduces


future revenues, which worsens the long run budget position. I have


used the analogy, it is like medieval doctors that thought you


could treat a sick patient by bleeding, the patient got sicker


and they said, bleed more. That is what is happening. You have a debt


problem that is real, and the treatment is making things worse,


even in fiscal terms. Why are you shaking your head, this is a Nobel


Prize-winning economist? I find his view reckless, frankly, I can't


believe that somebody as incredibly highly regarded could honestly


think that the answer is to go and borrow more money. It is very


simple mathematics, if you are in a hole, if you have overspent and


overspent, spending more is simply not going to help. It will make


things worse. You talk about austerity, in reality this is


austerity light. If you really wanted to sort the economy, they


would be doing it far faster with a shorter, sharper hit to get us


rebounding sooner than we can. There are a lot of ways to answer


that. The main thing to say, if you try to have a situation that


everyone is trying to slash at the same time, which the private sector


is trying to slash spending cuts, it feels it has too much debt, and


the Government is also saying we have too much debt, we are all


trying to slash. Then we run up against the fundamental fact that


we are not a household, but an economy. And your spending is my


income, and my spending is my income. And if we are both doing


the slashing at the same time, what we end up doing is producing a


depression that leaves us worse off. This is another thing, 1930s


American economist, Irvine Fisher, Keynes plentor, he said if


everybody tries to pay down debt, the more people save and the more


they owe. We are worsening the debt problem by not allowing the


Government to be the stablising factor. Even I struggle to attack a


Nobel Prize winner, but I think you are seriously wrong. The issue


about austerity is we have too large a state. We have let the


economy go from 30 % odd, to pushing 50%, public sector. If you


want growth you need a larger private sector, not a larger public


sector. You are also ignoring, as your book does, I have just been


reading it, waiting to come on, the very simple moral dimension of what


you are recommending. That is we run up more debt. The only thing


that debt does, it enables us to live better today, at the expense


of those who follow us. That is a serious moral argument, and you


cannot ignore it. I would put the moral argument in a different way,


if I think about the future generation, the crime we are


committing against the next generation, is not that we will


leave them with more debt. That is a venal sin, the crime is all the


students are graduating from college with no job prospects.


Graduating with debts they have incurred to get an expensive


education, and then there is no jobs. The damage we are inflicting


on the next generation, by not having jobs for them. Which is the


result of misguided austerity right now. That is the great sin. Those


jobs will be generated when people move from the public sector to the


private sector. What we need to be doing, is really making it easier


for young people to start their own businesses, making it far easier


for new entrepeneurs, you say we have to create jobs. We shouldn't


be about creating jobs, but about enabling the economy to create jobs,


low tax regimes, and opportunities for people to start up new


businesses and so on. The average young person is not going to start


a business. Why not? There has to be an expanding economy which is


not happening, it is not happening because we are not providing the


necessary support. By the way, I think you have just given me


confirmation that something people like me tend to say. Actually none


of this is at all about fiscal responsibility. It is about


exploiting the current situation to pursue an ideolgical goal of a


smaller state. You know, we can argue about whether the British


state is too large, but look at Sweden. Which is weathering it very


well, with a much larger state than you have. That is a great diversion,


that is suggesting it is not sincere, it is not the budget


deficit that is concern you, you are looking for a way to exploit


the deficit situation. You accuse - - we accuse you of being wrong, and


you accuse us of lying. You are mingling concepts that are separate.


There is clear economic evidence, and you must accept as evidence,


not they are hey, that, on average, larger public sectors grow slower


than smaller ones. I don't accept that at all, we could have that


discussion but we need equation charts for that. That is not true.


So Mr Alfonso's study is rubbish. The question of size of the state,


and the question of what one should be doing right now it deal with


this crisis, ought to be separate. Surely there has to be a point that


you can either expand your private sector, by making it easier for the


private sector to expand. Or you can expand your public sec to and


the only way to do that, is by removing wealth from the private


sector, to put into the public sector. You are missing a point of


what it means to be in a depression. We are not going into a depression.


We are in a depression, there are vast numbers of workers idle who


want to work. There is vast amounts of capital going nowhere, because


there is no demand. At this point of time, the private and public


sector are not competing for resources, there are unemployed


resources, the point is to put them to work. Give me a recovery, in the


UK or US, and I will become a fiscal, be happy to find ways to


discuss about Government spending and raising revenue, in the US that


needs to be part of the solution. Not now, not under these conditions.


Don't you think efforts to reduce corporation tax, to deregulate, to


make it ease your to start new companies, to -- easier to start


new companies, and make it easier for banks to lend. To improve the


private sector of the economy, that will have more impact than


borrowing more money to create jobs and throw money at things. We have


survey evidence in the United States about what it is that is


holding private businesses back. Overwhelmingably the answer is lack


of sales. There is not enough demand. Constraints on capital is


not an issue. They would like to have more skilled workers, no more


so than usual. Issues about financing are small issues,


concerns about future Government regulation, they always complain


about that, no more than usual. What has changed is there is no


demand, there is no market there. That is what the austerity policies


are worse, they are inhibiting the private sector as well as the


public. Not all of the policies have failed. Every success story


includes either high interest rates to start with, so you could bring


them down. Or a situation where you have a large currency devaluation,


that won't work now, you have to have some prosperous economy to


devalue against, there is nobody out there now. There is, a clear


example, Estonia. It doesn't fit the story at all. I don't think we


have the evidence on the Estonia example, and we haven't time to go


into it. I would love to. Come back and tell


us all about it. The people of Ireland get to vote


tomorrow on whether to swallow the medicine prescribed by Europe, it


is a quirk of the institution constitution that it requires a


referendum for the country to decide whether to accept a treaty


that most of the rest of the eurozone has already agreed to. The


Irish have a habit of rejecting EU treaties in referendums, and then


accepting them when they are told to come up with the right


conclusion. It was a Drome house, which turned into a nightmare


mansion. Vacant and abandoned, after its owners' fortunes went the


same way as the once booming island. Julia still work, but can't afford


the mortgage any more, she survives by selling her furniture, and votes


no in the referendum. This country is in a mess, because of the lack


of regulation and the banks throwing money at people. Nobody is


taking responsibility at the top, people like myself I lose my entire


life earnings, and people in more dire situations, who are struggling


to put food on the table. They are paying the penalty, the people at


the top are being protected. That is wrong. Many of Ireland's middle-


classes feel the same way, most of those voting no come from the less


well off strands of society. People have seen their standards of living


squeezed. And Sinn Fein, with less than 10% of the seats in Irish


parliament, have stopped into that anger by urging a no vote.


biggest thing the no vote would do, is to send clearly a signal to our


own Government, but then to our European partner, that it is the


considered view of the Irish people that austerity has failed. It is


therefore the responsibility of democratically elected Governments


and politicians, to come up with the Plan B. The yes side is


represented by the vast majority of political parties in Ireland, they


are warning voters if the Fiscal Compact is reject, Ireland might


not be able to get a second bail out in 2014, if one was required.


It is a tough sell, in any circumstance, where you have high


levels of unemployment, and people are hurting. Aren't they voting yes,


because they are afraid, rather than because this is the right


thing, the right forward path? think they are voting yes because


they want an insurance policy of funding there, if we cannot get


back to the markets. They are voting yes because they want proper


fiscal discipline, they don't want to go through the boom to bust


nonsense we have seen over the course of the last number of years.


They want certainty with this treaty. This treaty provides that.


Dublin's Docklands symbolises the boom and bust that was the Celtic


Tiger era. The bridges, banks, hotels that shot up in the last few


years, showed aspiration and growth, it all ended badly, symbolised in


the building over my shoulder, which would have been Anglo-Irish


bank's head quarter, before it collapsed and taking with it --


headquarters, before it collapsed and took the economy with it.


House buying is non-existent, but the Irish export system is booming,


with niches in pharmaceuticals and technology. This man runs one of


the biggest exporters in Ireland. If we can manage our way through


the next two years, combine that with certainty coming out of Europe,


which will trigger economic growth and economic activity. Then I think


you will see a very different Ireland. And that is why we have to


vote yes tomorrow. We're not voting for tomorrow, we are voting for the


Ireland of two years from now. We're voting for the Ireland of 40


years, for our grandchildren. But Ireland's young people may not


be able to wait a few years, they are already emigrating at a rate of


1,000 a week, not all have lost their sense of humour. You find it


interesting, you guys have seen the protests and the indignation in


Spain, the people of Greece taking to the streets and burning down


Athens. Part of you thinks, why doesn't it happen in Ireland, and


you think, we just don't have the weather for it. I'm not paying any


debt, people say that is irresponsible, what would happen if


everybody stopped paying their debt? We would be debt-free.


I decided to do my own little stand-up, afterall, how difficult


with it be? The reason we are here is because we are looking at the


treaty. And I was hoping to canvas your views, because unlike so many


of your peers, you haven't emigrated, yet. So all of you, how


many are "don't know", you will vote in the next 48 hours and you


still don't know. Can I ask someone why you don't no. Did you raise


your hand? Who raised their hand and said they did know. Why don't


you know? No pressure? I haven't really looked into it. Despite the


gallows humour, and the high number of undecided vote erts, even at


this late stage, both sides of the debate agree that Ireland faces a


few more years of austerity, irrespective of the outcome.


Allegra Stratton is back with us to tell us what has happened with the


Prime Minister's former head of propaganda, Andy Coulson. What was


his former title? Head of Communications. He has been


arrested? Before we went on air, he was charged and arrested. He was


detained at 6frplt30am in his home in south London in Dulwich, they


drove him, not train nor plane, they drove him to Glasgow, arrived


at 3.30, six hours of questioning, then announced they were charging


and arresting. It is down to the Scottish authorities to figure out


what they will do next. offences? Related to his appearance


at a Tommy Sheridan trial. charge? Perjury. That is serious?


Taken very seriously up there, more so. The problem for the Prime


Minister is twofold, firstly, it is something he is alleged to have


committed while working for the Prime Minister. A different


category of things he is accused of. It reminds us ahead of the Jubilee


weekend, that no matter how hard the Government tries to disentangle


itself from News International, every time they try they get


dragged back by forces beyond their control. Thank you very much. It is


on most of tomorrow morning's front pages, of course, if I knew I had


time to show you I would. I don't have time to show you, that is the


Guardian there. He's on most of the others as well. That's all for


tonight, James Bond is here tomorrow, but until then, good


tomorrow, but until then, good night.


The heavy, thundery showers in eastern England is clearing away,


only to be replaced by cloud and rain tomorrow, across the northern


half of the UK. To the south it will be dryer and brighter, that is


where we have the last of the warmth. The rain sets in for


northern England, it will be a cool day here. A bit of raib from time


to time in the Midlands, after a bright start East Anglia could see


rain late in the day. Southern most parts of England, dry and bright,


sunshine from time to time, here we have the last of the warmth.


Temperatures 18-19, not as warm as today. South Wales doesn't look too


bad, mid-and North Wales will see some rain at times, in the hills


and mountains. In Northern Ireland a poor day, rain all day, some of


which heavy. The rain in Scotland gets as far north as Inverness and


Aberdeen. It will be heaviest late morning, early afternoon, the rain


becomes lighter during the latter part of the day. A pretty poor day


across many northern parts of the UK. It should be dryer and brighter


for most areas on Friday. As you head further south, there is a lot


Jeremy Paxman is joined by Nobel Prize winning economist Paul Krugman, Harvard economist Ken Rogoff and Greek Minister Giorgos Papakonstantinou to discuss the future for Greece, Europe and the world economy. With analysis from Paul Mason and Allegra Stratton.

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