:00:28. > :00:34.- western lead remembers under pressure on multiple fronts. NATO
:00:35. > :00:37.must make a decision on forces to protect Ukraine.
:00:38. > :00:41.It feels like back to the future with NATO with all this talk of a
:00:42. > :00:53.Russian threat, on that issue and ISIS, moving beyond strong words
:00:54. > :00:57.won't be easy. Rich man, poor man, how long will Germany be prepared to
:00:58. > :01:02.put up with less frugal neighbours in the eurozone. We will hear from
:01:03. > :01:06.both sides. I think a party run by an out-of-touch elite. Are they
:01:07. > :01:11.really? We will ask these two what they make of Douglas Carswell's
:01:12. > :01:26.scorn for the Tory leadership. Ship and the rest.
:01:27. > :01:31.Squeezing IS out of existence is David Cameron heaps, but deciding
:01:32. > :01:34.how to do so presents a nightmarish set of decisions. Yet British
:01:35. > :01:39.military action could be loser than we think. Newsnight understands that
:01:40. > :01:43.ministers are already considering plans to join American air strikes
:01:44. > :01:49.targeting IS in Syria, potentially without asking parliament first. Yet
:01:50. > :01:52.a simple military response seems unlikely to deal alone with the
:01:53. > :01:56.complexity of the problem. Achievable, perhaps, only by talking
:01:57. > :02:00.to those who were previously our enemies. One former British
:02:01. > :02:16.ambassador tells us tonight talking to Assad may be the only way. Er
:02:17. > :02:20.James Foley and Sotloff, pictured here in life and not in the horror
:02:21. > :02:26.of their death. A small dignity afforded to victims of a desperate
:02:27. > :02:30.situation, one where the west appears impotent to further horror.
:02:31. > :02:33.The next turn could be the spectacle of a British Jihadi killing a
:02:34. > :02:38.British hostage. David Cameron said there would be no
:02:39. > :02:44.kneejerk reaction. Today in parliament neither he nor Ed
:02:45. > :02:48.Miliband even mentioned military intervention. If I may say the way
:02:49. > :02:51.the leader of the opposition is approaching this is entirely right.
:02:52. > :02:55.We should see this crisis as one where we are there to help the
:02:56. > :02:58.people on the ground and the countries in the region that want to
:02:59. > :03:06.solve this crisis. We should not see this as one where it is a
:03:07. > :03:09.western-led intervention some how. Newsnight understands that the mood
:03:10. > :03:15.behind the scenes is stiffening and there is a growing, if reluctant
:03:16. > :03:19.realisation that Britain may have no option but to intervene militarily
:03:20. > :03:23.in Syria. This new strategy is driven by three people, David
:03:24. > :03:32.Cameron, a man called Hugh Powell, who has quietly become one of his
:03:33. > :03:44.most cocilliaries and Alex Hammond the man at the front. There is a lot
:03:45. > :03:47.mentioned at Whitehall that he should followies instincts than
:03:48. > :03:52.those around him, which I think he should. When Alex Hammond says we
:03:53. > :03:57.won't rule out air strikes by definition they are on the table? I
:03:58. > :04:04.think so. The new hawkishness is coming out in COBRA meetings, Alex
:04:05. > :04:10.Hammond harangued the generals over how to get the jets to the regions,
:04:11. > :04:15.needing for time to iron their shirts. There are mini-COBRA
:04:16. > :04:22.meetings convened by David Cameron. Who controls Syria is not easily
:04:23. > :04:29.defined. This map shows how IS forces occupy a swathe of northern
:04:30. > :04:33.Syria. The Free Syrian Army and al-Nusra have strongholds in the
:04:34. > :04:37.west, Kurdish forces control parts of the far north and then there are
:04:38. > :04:42.areas, including around Damascus where control is often ambiguous. If
:04:43. > :04:48.there were air strikes they would likely be targeted around the IS
:04:49. > :04:52.stronghold of Raqqa, where hostages are believed to be being held. As
:04:53. > :04:55.well as other command and control centres co-ordinating the violence
:04:56. > :04:59.in Iraq. He has taken his time about it, but
:05:00. > :05:03.President Obama has finally started to privately lobby Governments,
:05:04. > :05:08.including our Government, for military support. He believes that
:05:09. > :05:12.you have to strike ISIS at source in Syria. But there is a problem, where
:05:13. > :05:18.as in Iraq the Government has asked for help, that is not the case here.
:05:19. > :05:25.So he is looking to build a broad coalition to help him legitimise any
:05:26. > :05:32.air strikes. But what about shaking this hand? For some it is time to
:05:33. > :05:37.think what was once unthinkable. A deal with Syrian President Assad.
:05:38. > :05:42.The alternative to Assad at the moment is not a democratic Syrian
:05:43. > :05:45.Government, but an Islamic state. That would not be in the wider
:05:46. > :05:50.interests of the Middle East. So we have to hold our noses and talk to
:05:51. > :05:54.Assad? I would say so, but I understand the difficulties.
:05:55. > :05:58.Memories of last year's chemical weapons attacks by the Assad regime
:05:59. > :06:04.are too fresh for the Prime Minister to consider that. But unlike a year
:06:05. > :06:09.ago he no longer believes he needs the authority of MPs to authorise
:06:10. > :06:13.immediate military action. Barack Obama, who arrived in Britain this
:06:14. > :06:22.evening for tomorrow's NATO summit has made clear he's not going into
:06:23. > :06:25.Syria on his own. I'm joined by Andrew Mitchell from the
:06:26. > :06:29.Conservatives and the Labour MP, Peter Hain, both former cabinet
:06:30. > :06:32.ministers and both who voted in favour of intervention in Iraq in
:06:33. > :06:36.2003. Andrew Mitchell also voted in favour of military action in Syria
:06:37. > :06:41.last year. And with us from New York is the political columnist and Obama
:06:42. > :06:46.observer for Time Magazine, Joe Klein. Thank you for being with us.
:06:47. > :06:50.You told the House of Commons today that ISIS won't be beaten unless
:06:51. > :06:55.there are air strikes in Syria, should the UK and the US be doing
:06:56. > :07:00.this now? The only reason ISIS have been pushed back in northern Iraq is
:07:01. > :07:05.because of the air strikes there. Otherwise they were running amock,
:07:06. > :07:10.frankly, with all their mayhem and medieval barbarism, but their base
:07:11. > :07:14.is in Syria as well. If they were to be pushed and there is no certainty
:07:15. > :07:18.that this will happen out of Iraq by the Iraqi forces in the main, then
:07:19. > :07:24.they will simply regroup in Syria. So there has to be action in Syria,
:07:25. > :07:29.but I also said that it has to be with the engagment of the Assad
:07:30. > :07:33.regime, however unpalatable that may be, also Iran and the Saudis as
:07:34. > :07:39.well. You have to use this opportunity to try and get the key
:07:40. > :07:44.regional players to tackle the fundamental fault line in this
:07:45. > :07:48.region, which is the Shia-Sunni divide of which ISIS are the most
:07:49. > :07:53.extreme on the Sunni side. On air strikes how can you be sure that
:07:54. > :07:58.they wouldn't just destablise such a complex situation further. Simply in
:07:59. > :08:02.terms of the geography. As we saw in Nick's report, they are spread out.
:08:03. > :08:06.How could we be sure the strikes would be effective and what makes
:08:07. > :08:11.this worse? You have to do this with great deal of care. The start of
:08:12. > :08:16.your programme suggests we are rushing in tomorrow, I doubt that,
:08:17. > :08:21.and I would counsel against it. It has to be done with great deal of
:08:22. > :08:26.care, and not that Britain play cowboy in the region, but joins with
:08:27. > :08:31.the regional force, ISIS is a bigger threat to them than us. You are
:08:32. > :08:36.articulating the case for western air strikes alongside that
:08:37. > :08:40.engagment, is that what your leader, Ed Miliband advocates? We are all
:08:41. > :08:44.saying on the Labour side that something has to be done to stop
:08:45. > :08:47.ISIS, that should include military action, not on our own and
:08:48. > :08:51.unilaterally, not just rushing in. But supporting the Government if
:08:52. > :08:55.they come up with a careful plan, including air strikes? If Ed was
:08:56. > :09:01.consulted and it seemed a reasonable plan he would go along with it I'm
:09:02. > :09:08.sure, but not grandstanding by the Prime Minister over Syria in August
:09:09. > :09:12.like that, and he rightry lost that. You have made an eloquent case
:09:13. > :09:16.arguing strongly that the UN has to be in the lead here? This is a
:09:17. > :09:20.complex situation. I think that nothing should be taken off the
:09:21. > :09:23.table, I agree with virtually everything Peter has said, but we
:09:24. > :09:26.need to engage the regional powers and we need to engage more widely
:09:27. > :09:32.than that. That is why I think it is exthrum important that Britain uses
:09:33. > :09:36.its position as the current chair of the Security Council, uses its
:09:37. > :09:40.position to try to galvanise the UN into taking action. This is not a
:09:41. > :09:43.problem, it is a multifaceted problem, but it is not a problem
:09:44. > :09:47.that will be resolved by action just by America and Britain and it is
:09:48. > :09:51.certainly not a problem that will be resolved by smart weapons being
:09:52. > :09:57.delivered from 12,000 feet. If you look at precedents where the UN has
:09:58. > :10:02.tried to take intervention. Look what happened in Syria last year?
:10:03. > :10:06.Russia would surely veto any kind of move towards this by the United
:10:07. > :10:09.Nations, would they not. What gives you any hope at all that Putin, in
:10:10. > :10:14.his current mood, would be supportive? Well the United Nations
:10:15. > :10:17.is a hugely frustrating organisation as I wrote in this piece today. They
:10:18. > :10:21.were virtually complicit in the genocide that took place in Rwanda,
:10:22. > :10:27.but when the United Nations moves, when it gets it right it confers an
:10:28. > :10:31.awesome authority on the decisions that it is able to take. And this is
:10:32. > :10:37.such a major problem now in the Middle East that we need the sinews
:10:38. > :10:40.of the United Nations heavily involved in any resolution that will
:10:41. > :10:45.take place. It won't happen overnight, it will take a lot of
:10:46. > :10:49.negotiation, the great powers will move the position they are in during
:10:50. > :10:52.that time but not something that will be resolved in short-term. Even
:10:53. > :10:55.if the United Nations were able to get some agreement, as you
:10:56. > :10:58.acknowledge, it would take a long time. With the Prime Minister saying
:10:59. > :11:02.that right now this is a direct threat to the UK, are you willing to
:11:03. > :11:07.put British safety and what happens here, the threat to our streets in
:11:08. > :11:12.the hands of a tangled, frustrating bureaucracy like the UN? Absolutely
:11:13. > :11:18.not. Of course Britain, as part of NATO, may play a role, but I think
:11:19. > :11:23.that the United Nations confers an authority, the United Nations is the
:11:24. > :11:26.right organisation for us now to try to make significant progress and
:11:27. > :11:30.Britain has a key role to play through our diplomatic region and
:11:31. > :11:33.our role in the United Nations in trying to galvanise opinion across
:11:34. > :11:36.the region and the world focus on this very serious problem. Does
:11:37. > :11:42.President Obama have any faith in the UN being able to grasp this
:11:43. > :11:47.problem? I think he would like to have faith in the UN, but I don't
:11:48. > :11:50.think that any rational observer in the region can really have all that
:11:51. > :11:56.much faith. Although I agree that we should make that move. There are
:11:57. > :12:03.other moves that are far more important and those involved, the
:12:04. > :12:08.regional players there are on Iraq, which has already said that they
:12:09. > :12:15.wish to co-operate with us. The Arab League, I think that as one of the
:12:16. > :12:21.guests in London said that ISIS is a threat, a greater threat to the
:12:22. > :12:29.region than it is to us and I would hope that we would be able to put
:12:30. > :12:34.together a regional coalition with US, UK and some European support to
:12:35. > :12:38.take action in this case. But measured action. I think it is
:12:39. > :12:44.really clear, it has to be really clear to the American and British
:12:45. > :12:51.public that we are not talking about a cowboy, George W Bush, send in
:12:52. > :12:55.huge numbers of troops and overrun Iraq again type of operation. For
:12:56. > :12:58.this to work it has to be very targeted air strikes and the use of
:12:59. > :13:02.special operators on the ground. How close, therefore, given what you
:13:03. > :13:07.describe as President Obama's ambition for a coalition of the
:13:08. > :13:11.willing, if you like. How close do you feel he is to actually making a
:13:12. > :13:16.decision that he must act? Because the view of so far has been
:13:17. > :13:23.prevarication, real difficulty with taking a decision? Well I think that
:13:24. > :13:31.you have to remember that even George W Bush took over a month to
:13:32. > :13:36.react to 9/11. And the Afghanistan operation really should be a model
:13:37. > :13:45.here. Because it was very few boots on the ground, the strategic and
:13:46. > :13:51.tactical use of air power and against a rather weak a less
:13:52. > :13:55.daunting enemy than ISIS. It was an action that went on for years and
:13:56. > :14:02.years and years? And that is in part because it didn't remain a targeted,
:14:03. > :14:07.measured, Special Forces-led effort. I mean a lot of that has to rest on
:14:08. > :14:12.both Presidents, Bush who increased the troop levels and Obama who
:14:13. > :14:18.significantly increased the troop levels in Afghanistan. I think that
:14:19. > :14:23.the era of you know western powers launching massive assaults on
:14:24. > :14:28.Islamic countries really has to end. It has ended. Andrew Mitchell if
:14:29. > :14:33.action were to be taken without a vote in parliament what do you think
:14:34. > :14:37.the reaction would be? We have all cast our minds back to this time
:14:38. > :14:39.last year with the vote in parliament, could it happen without
:14:40. > :14:43.a vote taking place? I don't think you require a vote for certain types
:14:44. > :14:48.of military action. I think the Government would be wise to ensure
:14:49. > :14:52.that any action they take is supported by parliament, it would be
:14:53. > :14:57.a big mistake to ignore parliament in this. Peter Hain, possible
:14:58. > :15:00.without a vote in parliament? It depends what it is, if it is a
:15:01. > :15:05.question of rescuing hostages we don't need a vote in parliament, if
:15:06. > :15:08.it is a wider attack we do. The elephants in the room here is the
:15:09. > :15:12.Assad regime, there is an unwillingness and so far in London
:15:13. > :15:20.to recognise that Assad is in place, we don't like him, he is a
:15:21. > :15:25.Barrettous dictator -- barbarous dictator, but he's backed by 40% of
:15:26. > :15:30.his dictate to they might not like him but they fear ISIS more. You
:15:31. > :15:33.have to engage with him and you can't resolve the Syrian conflict
:15:34. > :15:36.without doing that. Should David Cameron be talking to Assad? We have
:15:37. > :15:40.reached a position where it is impossible to say no to almost any
:15:41. > :15:45.option in dealing with this very complex and difficult problem. Thank
:15:46. > :15:49.you very much. For a brief moment today it looked as if one of the
:15:50. > :15:54.west's other foreign policy knots might have started to untangle.
:15:55. > :15:58.Ukraine and Russia appeared to have agreed a ceasefire, within hours it
:15:59. > :16:03.emerged it wasn't really a deal at all. The Ukrainian Prime Minister
:16:04. > :16:06.scoffed at it, there was no agreement on territory at all. NATO
:16:07. > :16:10.leaders will tomorrow have to try to deal with that as well as the crisis
:16:11. > :16:15.in the Middle East. We're there ahead of the meeting in Wales. In
:16:16. > :16:21.terms of IS what chance do you think there is of any coherent, cohesive
:16:22. > :16:24.agreement in the next few days? Well, if there is going to be such a
:16:25. > :16:29.discussion it is going to be on the margins of this, it is not actually
:16:30. > :16:33.on the agenda of this summit, just before we came on air, I spoke to a
:16:34. > :16:37.couple of people in the British Government who both said to me that
:16:38. > :16:41.there has been no request for example to join American air strikes
:16:42. > :16:46.in the region. Now of course these kinds of requests might come in such
:16:47. > :16:51.informal discussions, if they did it would be far easier for the UK to
:16:52. > :16:55.say yes in the case of Iraq, Syria remains hugely problematic I think
:16:56. > :16:58.for the British Government in a legal, diplomatic, political and
:16:59. > :17:02.military sense. So it could still be a while, I think, before we see a
:17:03. > :17:05.common line emerge. In terms of Ukraine, which originally was the
:17:06. > :17:10.main issue they were going to have to deal with, we saw today with the
:17:11. > :17:16.unravelling of the ceasefire it really seems as if Putin is still
:17:17. > :17:22.setting the agenda here. The west is scrabling to catch up? Well, and you
:17:23. > :17:29.might say also the President of Ukraine also trying. He was the one
:17:30. > :17:32.who let the hare run this morning announcing on Twitter that the
:17:33. > :17:36.ceasefire had gone into effect. Then the Russians came out including his
:17:37. > :17:40.own Ukrainian Prime Minister and started to pull the thing apart. We
:17:41. > :17:45.don't know what is happening, it is true at some point many people
:17:46. > :17:50.believe that Mr Putin will try to freeze the conflict, hold on to the
:17:51. > :17:54.gains s that the recent introduction of Russian forces has allowed them
:17:55. > :17:57.to make in Ukraine. All that have is something that the leaders are going
:17:58. > :18:01.to discuss for much of tomorrow and what they can do about it. That too
:18:02. > :18:04.is an area where I don't think they are getting strong leadership from
:18:05. > :18:09.the United States, for example on the issue of should they arm
:18:10. > :18:13.Ukraine, the answer is they are not ready to take that step. That does
:18:14. > :18:18.leave Mr Putin still calling an awful lot of the shots and trying to
:18:19. > :18:22.waken the hope of the ceasefire in a week where there have been threats
:18:23. > :18:26.of further EU economic sanctions on Russia. No doubt we will hear from
:18:27. > :18:30.you tomorrow. There are, not surprisingly, nerves among Ukraine's
:18:31. > :18:35.near neighbours, a little earlier I spoke to Radoslaw Sikorski, the
:18:36. > :18:41.Polish foreign minister I started by asking him whether he thought a
:18:42. > :18:46.Ukrainian ceasefire was possible this week? It would be very good if
:18:47. > :18:52.the fighting stopped and if a political settlement could be
:18:53. > :18:57.reached. But I think we have had statements from the Kremlin before
:18:58. > :19:03.which didn't check out. Also we have to remember that President Putin has
:19:04. > :19:08.proven to be an agile tactition. But he has underestimated the effect of
:19:09. > :19:16.the loss of confidence that we have in his words. Do you trust Putin? I
:19:17. > :19:20.think it was comrade Lenin who said "trust and verify". In terms of
:19:21. > :19:25.where this is all taking place, it is in your neighbourhood, how
:19:26. > :19:29.worried are you about the extent of Putin's ambition, does Poland feel
:19:30. > :19:34.threatened? Poland is indeed a neighbour of both Russia and Ukraine
:19:35. > :19:41.and obviously when neighbours quarrel it is of concern. We would
:19:42. > :19:46.like the decolonisation of the former Soviet Union to proceed more
:19:47. > :19:51.smoothly. It is very difficult for a former colonial power to acknowledge
:19:52. > :19:57.the existence and the right to existence of a former protege. But
:19:58. > :20:05.the sooner it happens the better for the citizens, even of the former
:20:06. > :20:11.Metropolis, let alone the former colony. It looks like an awful lot
:20:12. > :20:15.more than Putin having difficulty acknowledges the decolonisation of
:20:16. > :20:19.the former Soviet Union. It looks like quite the reverse that he's
:20:20. > :20:24.actually trying to extend his power? President Putin has indeed stated
:20:25. > :20:31.his aims rather frankly in his annexation speech of the Crimea. But
:20:32. > :20:35.it is so bold and so brazen that many in Europe still can't believe
:20:36. > :20:41.it is for real. Do you believe it is for real? Yes. NATO's proposals
:20:42. > :20:45.appear to be rapid response force of several thousand troops to protect
:20:46. > :20:51.Eastern Europe. That potentially means NATO troops, Polish troops in
:20:52. > :20:55.direct combat with Russian forces since the end, then the aftermath of
:20:56. > :21:02.a Second World War. Are you aware of the significance of that, what would
:21:03. > :21:07.that mean? Well you have NATO bases, you don't think they threaten
:21:08. > :21:11.anybody, everybody understands it is not strength that invites
:21:12. > :21:14.aggression, it is weakness that invites aggression, as the
:21:15. > :21:23.Ukrainians are finding out to their cost. So NATO belatedly
:21:24. > :21:28.strengthening its eastern flank is at last beginning to level the
:21:29. > :21:32.security across the NATO treaty area with the hope of preventing what you
:21:33. > :21:35.have just described. Minister, thank you very much indeed.
:21:36. > :21:39.Thank you. Now tomorrow the head of the
:21:40. > :21:44.European Central Bank might, just might get out his chequebook to sign
:21:45. > :21:50.off a few enormous promises of money. Because, let's face it, there
:21:51. > :21:57.doesn't seem to be much chance of the eurozone's economies staggering
:21:58. > :22:01.back to health on their own. For how long for the countries who have got
:22:02. > :22:04.their act to go will Germany give cash to those who are more willing
:22:05. > :22:15.to spend it. We have been hearing both sides of the story. This is
:22:16. > :22:24.Italy. At the moment it is casting a shadow over Europe's economy. There
:22:25. > :22:35.is no better example of this economic malaise than here in
:22:36. > :22:40.Naples. In 2011 a scandal involving rubbish
:22:41. > :22:45.collection in Naples briefly captured the world's attention. A
:22:46. > :22:49.combination of bad management, corruption and poor public finances
:22:50. > :22:59.led to an unprecedented build-up of rubbish in the streets. Eventually
:23:00. > :23:13.people started to burn it in protest. Three years on, Naples
:23:14. > :23:19.still has a rubbish problem. And Italy's economy is no better. A you
:23:20. > :23:24.don't have to spend much time in Naples to see that in large parts of
:23:25. > :23:28.Italy any talk of economic recovery feels pretty meaningless, but this
:23:29. > :23:35.isn't a problem which began in 2010, it is much more long running than
:23:36. > :23:39.that. Italy has now entered a triple-dip recession, in fact the
:23:40. > :23:44.economy is no bigger than it was in 2000. Unemployment is 12. 5%, and
:23:45. > :23:50.Government debt is climbing, it currently stands at a huge 130% of
:23:51. > :23:56.GDP. But the biggest worry is what is happening with prices. They have
:23:57. > :24:00.started falling. The country has entered deflation. Falling prices
:24:01. > :24:06.suck demand out of the high street. They push down wages as profits
:24:07. > :24:10.fall, and they make debt harder to repay. Italy is already in
:24:11. > :24:22.deflation, there are fears that may soon spread to the rest of the
:24:23. > :24:26.eurozone. Italy has a toxic cocktail of deflation, high unemployment and
:24:27. > :24:31.high youth unemployment, that is the recipe for another lost decade. For
:24:32. > :24:38.the past five years there has been only one quarter in which we had
:24:39. > :24:44.positive growth and even before the crisis before 2007 there has been
:24:45. > :24:49.very low growth. We have long-running problems, at least two
:24:50. > :24:55.decades old in terms of a high public debt, low capital formation,
:24:56. > :25:02.high corruption, high public spending, high taxes and very high
:25:03. > :25:05.unemployment rates at the moment. Italy's economy faces a whole host
:25:06. > :25:09.of problems. Some of the reforms the Government is trying to implement
:25:10. > :25:13.will begin to address the long-term issues. But they won't do much for
:25:14. > :25:17.this country in the short-term. And that's the problem. The kind of
:25:18. > :25:31.things which could give Italy the shot in the arm it needs are opposed
:25:32. > :25:36.by the eurozone's largest economy. Germany's horrified by what it sees
:25:37. > :25:39.in Italy. Here things are very different, unemployment is low, the
:25:40. > :25:47.budget is in surplus, and growth has been strong. This is the Town Hall
:25:48. > :25:51.in Munich, one of the healthiest and most productive cities in Europe. In
:25:52. > :25:55.the past 15 years German economic success has been based on two
:25:56. > :25:59.pillars, a decade of flat real wages gave it one of the most competitive
:26:00. > :26:06.economies in the world and the creation of the euro locked in
:26:07. > :26:09.export markets across Europe. Germany's politicians and public are
:26:10. > :26:12.terrified that they might have to bail out other countries. The
:26:13. > :26:18.general view is that places like France and Italy just need more
:26:19. > :26:24.reform. Italy has basically done nothing over the last five years. So
:26:25. > :26:28.there have been no reforms, the political environment in Italy is
:26:29. > :26:32.very difficult, you know. The Government is changing every six
:26:33. > :26:42.months and so there is no clear strategy for this country to get out
:26:43. > :26:46.of the crisis. There is a reason Germans are uncharacteristically
:26:47. > :26:50.animated by this. What happens in Europe affects their economy. You
:26:51. > :26:54.can see this in the traditional barometer of the German economy, the
:26:55. > :26:58.car industry, which was badly hit by the crisis in Europe. Overall the
:26:59. > :27:03.German economy actually contracted in the second quarter of this year.
:27:04. > :27:08.Selling high-value products like these cars to the big emerging
:27:09. > :27:13.economies has provided Germany with some insulation against the European
:27:14. > :27:16.crisis. But with Russia and Brazil in recession, and India and China
:27:17. > :27:21.slowing, that protection is starting to wear thing. We are not in a
:27:22. > :27:25.recession yet. Even if the second, third quarter would be negative
:27:26. > :27:28.again, we at least here in Germany would not talk about a recession.
:27:29. > :27:33.This would be rather, you know, a technical or a slowdown of the
:27:34. > :27:37.economy. Tomorrow the European Central Bank will announce its
:27:38. > :27:41.latest policy steps, it is in a difficult position. The kind of
:27:42. > :27:50.policies which might provide support to countries like Italy are fiercely
:27:51. > :27:53.opposed in Germany? That's the fundamental problem, cities like
:27:54. > :27:57.Munich and Naples, with very little economies, have been placed in the
:27:58. > :28:05.same economic block. The question is can European politicians find a way
:28:06. > :28:11.to make this work with me now from the chief economics commentator at
:28:12. > :28:18.the Financial Times, the economist from the University of Sussex. And
:28:19. > :28:23.the senior economist at Berenberg Bank. Thank you for coming in.
:28:24. > :28:35.Martin Wolf, firstly these problems are tub born and arguably long-term
:28:36. > :28:47.if the eurozone can't get its act together what is the worst case
:28:48. > :28:52.scenario? I have just published a book written viewers can get a good
:28:53. > :28:55.view of things by reading it. The worst that could have happened, I
:28:56. > :29:01.don't think it is very likely, is that it breaks up. I think it is far
:29:02. > :29:09.more likely is what I have described as the bad marriage scenario. That
:29:10. > :29:13.is to say the costs of break-up are incredibly high, they see and
:29:14. > :29:16.understand that enough will be done to keep it together, and enough is
:29:17. > :29:19.consistently done to keep it together. Both by the policy makers
:29:20. > :29:23.and Governments and the European Central Bank which has acted very
:29:24. > :29:27.powerfully in the past, and might get act powerfully again. They have
:29:28. > :29:32.done enough to keep it together, but not enough either collectively, they
:29:33. > :29:38.have to do some things together, or individually to make this really a
:29:39. > :29:43.prosperous union. They are in my view likely to remain, the most
:29:44. > :29:48.likely by far is just in a very uncomfortable relationship. What are
:29:49. > :29:51.the consequences for the continent of staying in a terrible marriage,
:29:52. > :29:57.as you cry it, very unhappily, what does it mean in brass tacks? I'm
:29:58. > :30:00.assuming that there are obviously political and social consequences
:30:01. > :30:03.which others can probably talk more about than I can. I have spent
:30:04. > :30:07.recently the summer in Italy it is clear this is a very depressed
:30:08. > :30:11.country. They have experienced really five years of recession and
:30:12. > :30:15.the economy is now about as big as it was 15 years ago. Unemployment is
:30:16. > :30:18.very high, youth unemployment is very high. A lot of people are
:30:19. > :30:22.leaving. It is a very depressed state. But remember at the same time
:30:23. > :30:27.that this is an ageing continent, I tend to think that very old people
:30:28. > :30:34.and elderly people will not start revolutions, the young are
:30:35. > :30:39.remarkably acquiescent. That is an astonishing thing for me. There is a
:30:40. > :30:43.reasonably, overwhelmingly probable that they will go on like that.
:30:44. > :30:47.Isn't the question though for Italy, France and Spain, is they could get
:30:48. > :30:51.out of an unhappy marriage if they went about some serious reform and
:30:52. > :30:58.actually showed discipline? I think it depends what kind of reforms we
:30:59. > :31:04.are talking about. So Italy remember is a country that only Haiti and
:31:05. > :31:09.Zimbabwe have grown less than Italy in the last 20 years. Zero
:31:10. > :31:12.productivity growth in the last 20 years. My real problem, even with
:31:13. > :31:15.the report we have just heard is the diagnosis of what the differences
:31:16. > :31:19.between say a country like Germany and Italy is just wrong. Then the
:31:20. > :31:26.medicine has been wrong and the patient has been getting sicker. In
:31:27. > :31:30.what sense? How do you increase your competitiveness, what does it mean?
:31:31. > :31:34.It means having productive companies and being able to produce the kind
:31:35. > :31:40.of goods that the world wants to buy, both products and services. So
:31:41. > :31:46.Germany wins procurement contracts in the UK, Seimens recently, not
:31:47. > :31:49.because they paid their workers less during the whole the reforms, but
:31:50. > :31:52.because Germany over the last decade has been investing massively in
:31:53. > :31:59.precisely those areas that make you competitive. Except if you look at
:32:00. > :32:04.who is doing well now look at the UK and other countries in northern
:32:05. > :32:09.Europe where there have been reforms and changes, If you look at private
:32:10. > :32:12.business investment in the UK it is scary. But the economy is growing
:32:13. > :32:16.here? First of all it depends, we want to look at something more than
:32:17. > :32:22.just a quarter. And I think, at least, that the UK is growing
:32:23. > :32:28.because of debt-driven consumption and Mark Carney is right to worry
:32:29. > :32:33.about that. Tomorrow the European Central Bank boss takes to the stage
:32:34. > :32:36.and has a big opportunity to write off some IOUs to get everybody
:32:37. > :32:41.spending again, what do the markets want him to do? The markets since
:32:42. > :32:45.the speech a couple of weeks ago expect him to do big things, pretty
:32:46. > :32:49.much something as big as he did in 2012 when in London he announced
:32:50. > :32:53.what is called ONT, these potentially unlimited bond purchases
:32:54. > :32:58.which were actually never activated but which changed the whole eurozone
:32:59. > :33:03.story from a downward spiral to at least for a while an upward spiral.
:33:04. > :33:06.They expect a big message from him. If he doesn't deliver it could be
:33:07. > :33:15.short-term trouble in the markets tomorrow. I think it is unlikely he
:33:16. > :33:18.will deliver what the markets hope a huge bond-buying programme, he is
:33:19. > :33:23.preparing the ground but it would be astonishing if he would be, it would
:33:24. > :33:26.be a game-changer economically, politically is another matter. The
:33:27. > :33:34.extend of the unhappy marriage, surely it is time for the ECB to
:33:35. > :33:40.take bold action and get out the big bazuka again. In the eurozone we
:33:41. > :33:44.have double trouble, on the one hand we have inflation far below the
:33:45. > :33:48.target. Clearly there is a point for the ECB to do more. They had already
:33:49. > :33:52.made some announcements in June but things got worse. What got worse has
:33:53. > :33:57.nothing to do with deflation, it has to do with something that happens
:33:58. > :34:03.outside the eurozone with the Ukraine crisis, that is not squarely
:34:04. > :34:07.in the remit of the Central Bank t increases the pressure on the ECB to
:34:08. > :34:13.do more. In terms of getting out of this, whatever the ECB does tomorrow
:34:14. > :34:17.or in October, is it actually possible for them to write blank
:34:18. > :34:21.cheques and give IOUs and get out of this crisis in this sway or is it
:34:22. > :34:24.fundamentally the problem that there are countries in northern Europe
:34:25. > :34:27.where the economies are so different to those in southern Europe that
:34:28. > :34:33.something much more radical has to happen? Think of the US that
:34:34. > :34:37.underwent a $4 trillion quantitative easing cycle, that is not what is
:34:38. > :34:41.making today the US grow at a 3% rate, it was the fiscal stimulus
:34:42. > :34:44.that stimulated that. I think quantitative easing is important
:34:45. > :34:49.mainly to calm down the financial markets, but what gets your real
:34:50. > :34:52.economy growing, what gets jobs and good jobs, high-quality and
:34:53. > :34:56.well-paying jobs in the future which is what Portugal, Italy, Greece and
:34:57. > :35:00.Spain need, is not quoting which also -- quantitative easing which
:35:01. > :35:03.also ends up in the banks but serious spending both public and
:35:04. > :35:12.private sector spending. Today we have record level hoarding rates in
:35:13. > :35:15.Europe. I think it is 1. 5 trillion euros-worth being hoarded. Huge
:35:16. > :35:20.amounts spent on boosting stock prices. Do you agree with that? In
:35:21. > :35:23.the long run I would agree with this, but we need competitiveness
:35:24. > :35:27.quickly and growth quickly. I think these things will not deliver
:35:28. > :35:30.quickly enough. Do Germans have the patience for this? I think the
:35:31. > :35:36.Germans have shown throughout the crisis that they are ready to help
:35:37. > :35:39.the other countries. In return for reforms. We have demonstrated that
:35:40. > :35:45.we can get countries reforming and deliver results. Countries like
:35:46. > :35:50.Spain, Portugal, Greece, Ireland, the countries that had a package
:35:51. > :35:55.financed by German tax payers are now growing rapidly, some countries
:35:56. > :35:59.almost as fast as the UK. I think he can do things but he won't, but he
:36:00. > :36:04.can do things which will help a little, but he can't fix the
:36:05. > :36:08.problems identified. There are huge structural problems and huge
:36:09. > :36:12.competitiveness problems and they are going to be taking years and
:36:13. > :36:15.years to solve. But the structural problems are not just about labour
:36:16. > :36:19.market rigidites and corruption, it is actually again about investment,
:36:20. > :36:23.until you have proper public and private sector investing and R and
:36:24. > :36:31.human capital formation and education, training you will not
:36:32. > :36:36.have... Thank you all very much. It can be pretty impole light to leave
:36:37. > :36:41.a party early. It is certainly downright rude to trash the host
:36:42. > :36:44.after you have gone. That seems to be what Douglas Carswell is intent
:36:45. > :36:48.on doing. Telling Newsnight the party he had been in for years until
:36:49. > :36:51.just last week was run by out-of-touch elites, but having left
:36:52. > :37:03.the Conservatives to run for UKIP, he now has to persuade people in
:37:04. > :37:11.Essex his new found boldness is worth their vote. Things go up and
:37:12. > :37:15.down in politics, but the basic picture stays the same, occasionally
:37:16. > :37:18.the whole political system is thrown up in the air. In Essex right now
:37:19. > :37:26.there is a by-election doing just that. As we visit UKIP's campaign is
:37:27. > :37:33.under construction, quite literally. I see the plumbing and heating has
:37:34. > :37:39.arrived. Hello Douglas. Welcome. The team, plumber and all are digesting
:37:40. > :37:43.another opinion poll. This one gives Carswell a 32% lead. Can we talk
:37:44. > :37:47.about the type of party you have joined, you talked about having a
:37:48. > :37:53.five-year-old daughter and you have seen what feminism has to offer.
:37:54. > :37:57.These are people until recently were calling women "sluts"? When you
:37:58. > :38:01.discover people with those noxious views you have to make sure they
:38:02. > :38:04.know it is intolerable, you cannot have people who hold those views
:38:05. > :38:08.seeking public office or helping others seek public office. Carswell
:38:09. > :38:13.is feared in this by-election because of how well he already knows
:38:14. > :38:18.the electorate. He's not Conservative any more? I know, but
:38:19. > :38:25.he's a Conservative at heart, oh I'm on camera. Are you a Conservative at
:38:26. > :38:30.heart? I'm a free market Gladstonian liberal. 'S independent. I'm
:38:31. > :38:36.independent. I don't mind the UKIP thing to stop these foreigners
:38:37. > :38:39.coming in basically. Too many and this euro thing I don't think we
:38:40. > :38:44.should be dictated to by them either. You don't quite agree with
:38:45. > :38:47.her on the foreigners' point? We need to control our borders.
:38:48. > :38:52.Controlling our borders doesn't mean not letting anyone in. We have too
:38:53. > :39:00.many haven't we. Have we got too many? We have a shortage of GPs, if
:39:01. > :39:03.you can get a good GP to come to this place and deliver healthcare,
:39:04. > :39:08.it shouldn't matter where they come from. He would like to have Ed
:39:09. > :39:11.Miliband as Prime Minister? You heard it your safe, how different
:39:12. > :39:15.are Ed Miliband and David Cameron. Do you think Ed Miliband is really
:39:16. > :39:18.free market? Is George Osborne that free market, look at the gene
:39:19. > :39:28.market, look at the nationalised banks. They are not really that
:39:29. > :39:32.different. . The seat was Labour in Clacton until Carswell turned it
:39:33. > :39:35.Tory, remaining Labour supporters are flirting with UKIP, the question
:39:36. > :39:40.is whether a UKIP fronted by Carswell can now attract these
:39:41. > :39:45.one-time Labour voters. Do you usually vote Labour? I have voted
:39:46. > :39:49.Tory? Are you disappointed with the Government? Yes. Are you going to
:39:50. > :39:53.come back to Labour this time? Yes I am. I'm local boy, that would be
:39:54. > :39:57.great, I will leave you one of the leaflets. What are you saying to
:39:58. > :40:01.people who say they were Labour and thinking of going to UKIP. Why stick
:40:02. > :40:04.with Labour? What is the difference between UKIP and the Tories, the
:40:05. > :40:08.same policies and the same sessions and the same people now. If you are
:40:09. > :40:11.not that way inclined and you are usually a Labour voter stick with
:40:12. > :40:14.Labour, because you know the Government has left Clacton behind.
:40:15. > :40:18.There is no economic recovery here. But the difficulty for you is if
:40:19. > :40:23.there is a Douglas Carswell victory, a UKIP victory, that will help Ed
:40:24. > :40:26.Miliband won't it? I don't know. I want Labour to win the election, if
:40:27. > :40:30.that helps Labour win the election then all well and good. You are a
:40:31. > :40:36.sacrificial Lambert? I wouldn't put it like that, we are fighting for
:40:37. > :40:40.every vote in Clacton. No love lost in Tory HQ, they haven't chosen a
:40:41. > :40:45.candidate but they were changing the locks when Newsnight visited, a bit
:40:46. > :40:50.late, this horse has already bolted. Strange though it may sound, there
:40:51. > :40:55.was basically no Tory activity by the seaside, no liberal or Green
:40:56. > :40:59.candidate selected either. Back in London I was able to ask one
:41:00. > :41:03.euro-sceptic minister whether Carswell had been right or indulge
:41:04. > :41:08.gent? I think it is DLEEP counter-productive what he has done.
:41:09. > :41:10.I'm sure the voters in Clacton are seeing what is going on
:41:11. > :41:13.internationally. They want strong and firm Government which is what
:41:14. > :41:17.they have right now. They will be more concerned with the future, the
:41:18. > :41:26.economic security of hard-working families, about jobs, international
:41:27. > :41:31.security. For the next election you have them saying they will vote to
:41:32. > :41:36.go out of Europe, MPs saying that, they are going out? I think it is
:41:37. > :41:40.about the economic future of the country. If we talk about UKIP right
:41:41. > :41:46.now a vote for UKIP is effectively going to lead to a Ed Miliband-led
:41:47. > :41:53.Government. Carswell has up in his UKIP HQ a poster ofdy and Gladstone.
:41:54. > :41:59.The free marketeer won three elections while the then Tory Party
:42:00. > :42:03.was split. Carswell might split it again. There is a full list of
:42:04. > :42:05.candidates for Clacton available on the BBC website. We will return
:42:06. > :42:09.there before the election to speak to the others. The impact of
:42:10. > :42:13.Carswell's defection has reached way beyond the corridors of Westminster
:42:14. > :42:18.or the streets of Clacton. This week resulting in an extraordinary spat
:42:19. > :42:22.over the future of the party on the newspaper columns and blogs of
:42:23. > :42:26.Conservative commentators. Parris pass has been busy predicting a
:42:27. > :42:30.schism in the party. He says it is inevitable and that Carswell and his
:42:31. > :42:33.crew should go to UKIP by all means stay there. Also with us is the
:42:34. > :42:38.prominent backbencher, Bernard Jenkin, a well known euro-sceptic
:42:39. > :42:43.who take as rather different view. Firstly to you matters Matthew
:42:44. > :42:46.Parris, surely the Tory Party can't afford to send a big chunk of its
:42:47. > :42:50.grassroots, Carswell and others and people on the very euro-sceptic or
:42:51. > :42:54.anti-euro wing of the party and just do without their support. They can't
:42:55. > :42:58.afford that can they? It wouldn't be such a big chunk as people might
:42:59. > :43:04.have you believe, but there would be 30 or 40 and they would go. The
:43:05. > :43:07.alternative is that they give the impression of dragging the
:43:08. > :43:12.Conservative Party to the right and if the Conservative Party is
:43:13. > :43:16.reported to have dragged to the right the loss that we would have in
:43:17. > :43:20.the centre, the loss that we would have from floating voters and the
:43:21. > :43:23.loss that many of us would have in what we believe would be
:43:24. > :43:27.incalculable. You say losing 30 MPs wouldn't be a big deal. At the last
:43:28. > :43:30.election the Conservatives didn't even man to get a majority, that is
:43:31. > :43:33.really important isn't it? I don't think 30 MPs are going to cross the
:43:34. > :43:38.floor. I don't think any more MPs are going to cross the floor, but
:43:39. > :43:45.what I do think is the Conservative Party steadfastly and in an
:43:46. > :43:48.unpanicky way needs to project an image of moderation, the moment we
:43:49. > :43:54.stop doing that and start flirting with the right as a party we have
:43:55. > :43:59.lost it. Bernard Jenkin, do you deny that beyond Douglas Carswell and as
:44:00. > :44:02.Matthew would suggest a small group of people there is a genuine
:44:03. > :44:06.disconnect between the leadership and the grassroots? In most parties,
:44:07. > :44:11.particularly parties in Government there is always a tension between
:44:12. > :44:16.the grassroots and the party leadership, because the party
:44:17. > :44:18.leadership's perspective is inevitably different from the
:44:19. > :44:22.grassroots. What is happening here is big. The one thing we are all
:44:23. > :44:26.agreed about, listen to your previous package about the state of
:44:27. > :44:32.the eurozone. The European Union is in a terrible mess and even George
:44:33. > :44:36.Osborne is now saying that the problems of the eurozone are so
:44:37. > :44:40.preoccupying the eurozone they are sidelining the concerns of member
:44:41. > :44:44.states like the United Kingdom. Doesn't that mean the people in your
:44:45. > :44:46.party have to concentrate in making the current relationships work
:44:47. > :44:51.rather than doing what Douglas Carswell has done and walk away from
:44:52. > :44:54.it completely? I have no brief for Douglas Carswell, I believe his
:44:55. > :44:57.action has been catastrophically bad for the country and the things he
:44:58. > :45:00.says he believes in. What is happening in the Conservative Party
:45:01. > :45:03.is we need to modernise our relationship with the European
:45:04. > :45:08.Union. It has always been the case that very often the backbenches have
:45:09. > :45:11.been ahead of where the establishment needs to be and we
:45:12. > :45:15.have seen that in every major development of policy down the ages.
:45:16. > :45:19.Matthew Parris that sounds reasonable to you doesn't it? It is
:45:20. > :45:27.an act of treachery what Carswell has done. I'm not going to start
:45:28. > :45:31.calling names, it is odd, politicians often accused of being
:45:32. > :45:36.uncivil to each other, you are a journalist now Matthew you can throw
:45:37. > :45:40.these brickbats around, I think it is just destructive and silly. You
:45:41. > :45:43.won't describe it as an act of treachery, he has wrapped himself in
:45:44. > :45:48.the Tory colours and elected as a Tory. I think he has made a
:45:49. > :45:52.terrible, terrible error and I'm not defending it, I think he's wrong and
:45:53. > :45:56.I think he will deeply regret what he has done. Will the rest of the
:45:57. > :46:00.party also regret being dragged further to the right and end up in a
:46:01. > :46:03.schism with the party split into two? I think this is a nonsense,
:46:04. > :46:05.most of the country wants a different relationship with the
:46:06. > :46:07.European Union. Most of the Conservative Party wants a different
:46:08. > :46:12.relationship with the European Union. And so does the Prime
:46:13. > :46:16.Minister. And he will try to negotiate that and the result of his
:46:17. > :46:20.negotiation will be put to a referendum. So we have to support
:46:21. > :46:26.him, don't we as Conservatives? We have to hope that's going to win. Do
:46:27. > :46:31.you really hope's going to win the election? I'm rather hurt by that
:46:32. > :46:34.accusation, we have known each other for a great many years but I really
:46:35. > :46:38.want to win this election, I really think it will be a disastrous result
:46:39. > :46:42.for this country if we don't win the election. That is why I'm furious
:46:43. > :46:46.with what Douglas Carswell has done. Isn't the best way. Calling him a
:46:47. > :46:49.traitor isn't the best way. Isn't the best way to bring about what you
:46:50. > :46:53.say you want, which is a resounding victory for David Cameron to support
:46:54. > :46:58.him up to the hilt. I do support him. Up to the hilt. I regularly
:46:59. > :47:02.talk to him and I support him. But the problem we have got is we
:47:03. > :47:05.haven't actually got a policy on what our relationship with the
:47:06. > :47:10.European Union should be, that's a perfectly legitimate argument. Today
:47:11. > :47:13.we had the port services regulation stopped in committee because we
:47:14. > :47:16.couldn't even get the papers that the European Union is discussing
:47:17. > :47:20.that we're meant to be scrutinising on the port services. It will cost
:47:21. > :47:25.hundreds of thousands of jobs in this country, the unions and
:47:26. > :47:29.industry against the directive, this is a mad way to legislate. We have a
:47:30. > :47:33.good flavour of the debate inside the same party that you support.
:47:34. > :47:41.Thank you both for coming in. That is it for tonight. Do you remember
:47:42. > :47:46.John Redwood's mimed Welsh National anthem, the US Ambassador to the UK
:47:47. > :47:50.has tried to learn the language ahead of the summit in Newport. He
:47:51. > :47:58.has bravely published this video about how he has got on. Take a
:47:59. > :48:13.look, and good night. Hello, how was that. A longer "o". But just one
:48:14. > :48:46."l". Hello (in an accent) I forgot it. (Speaks Welsh). All Welch people
:48:47. > :48:58.say z-e-eta we would say Z-a-t-a. Good evening a check on the weather
:48:59. > :49:01.for Thursday, to be honest for a lot of us Thursday is going to be
:49:02. > :49:02.similar to what we had on