02/11/2011 World Business Report


02/11/2011

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follows UNESCO's decision to award Palestine full membership.

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Time for World Business Report. Welcome to the programme. The

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headlines: Place your bets. Emergency talks under way in Cannes

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in a be in to save the euro deal. At Europe sneezes, fears that the

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US could catch a cold. -- as.

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One newspaper calls it Greek roulette. In his gamble to save his

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own political credibility, the Greek Prime Minister's decision has

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plunged and the entire eurozone back into crisis. George Papandreou

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will meet his French and German counterpart later today. Other

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signatories to last week's deal are also scrambling to hold it together.

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International banks represented by the Institute of International

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Finance had agreed to forgo 50% of the money owed to them by Greece.

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They had hoped that the right of would avoid a default on the entire

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debt owed it to private lenders. Ealing with this problem is like --

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dealing with this problem is like getting on to a roller-coaster.

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There are sharp, unexpected terms and then you start to settle down

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again. We remain focused on this deal and we are engaged in

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technical discussions with our partners in Greek and the EU about

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how the deal may be fleshed out. We look forward to doing that because

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this is an historic opportunity for Greece to put aside a substantial

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burden of debt. We are joined by the former Greek

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finance minister and an assistant professor in business.

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First of all, can you give us your reaction when you first heard that

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George Papandreou was calling for a referendum? I thought and still

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believed that this was an irresponsible and reckless decision

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that introduces massive uncertainty in an already uncertain environment.

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I do not support his decision. will happen between now and if a

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referendum were to take place? Some are saying that the government will

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be voted out anyway and there will therefore not be a referendum in

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the end. This is possible but what will probably happen will be a

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severe slowdown in the way that Greece approaches its problems.

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They have already been slow and they will become slower now. If you

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asked me what I believe will happen, there will be an increase in the

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deficit within the next few months until we reach a referendum. This

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is all counter-productive and I think it is simply wrong. It should

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not be happening. What impact has this had on the

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perception of Greece from now on in? Obviously, deals have been done

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and China has been seen as a possible helping hand. What impact

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has this decision had? This is truly a disastrous decision and no

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matter what the outcome of the referendum will be, all the

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disciplines in the market for stakeholders like China are going

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to be wondering in the future about the credibility of the Greek side

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of any kind of a deal. We are looking at a sovereign debt problem.

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Everything is negotiable at any point in time. This is not a

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company that can close down and sell off their assets. Greece must

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participate. The deal that was struck said that in 2020, the Greek

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GDP level would be 120 % -- the great debt compared to GDP level

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would be 120 %. Basically, we do not know what is going to happen

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for example with the Greek government in 2013 and 2015. Will

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they be sticking with this or not? Basically, people will be

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questioning from now on the credibility of any kind of

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arrangement on Greek debt with Greece participating.

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From the point of view of the situation within Greece, do you

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believe that George Papandreou is hoping that the referendum will

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bring the citizens of Greece on board? Obviously it depends on the

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questions in the referendum itself, but do you think this is his

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intention? We still do not know what a

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question of the referendum will be and if there will be any

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implications of that question. But my supposed would be that the Greek

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people are very much against George Papandreou and that puts the

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referendum in danger and increases uncertainty. I cannot predict with

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certainty how he Greek people will handle this. If you ask people if

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they want to stay even the euro or leave the euro, most would say that

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they want to stay in the euro but that has nothing to do with the

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specific question of debt. This is a dangerous situation because the

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hatred against the government could influence the decision of the

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referendum. The next few days are critical. The G20 Summit in Cannes

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and an George Papandreou's meeting with Angela Merkel and Nicolas

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Sarkozy tonight. At this stage, from the European side, Angela

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Merkel and Nicolas Sarkozy need a deal very quickly. They want to

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stop the further deterioration of Western banks. I doubt that there

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will be any more concessions to Greece because the process of

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granting the current deal was very painful. Slovakia did not have

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voted it in on the first occasion, for example. He would require all

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the eurozone countries to participate in such a deal. Second,

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the magical number of one and then 20% -- 120 %... Even assuming that

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this were to take place on a one- time bassist... We have tea leave

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it there for now. Thank you for joining us.

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And how are the markets digest in all of this today in Asia? -- di

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jesting. This is quite his situation we are in, right now,

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isn't it? Naturally, Asian investors have continued to react

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to the referendum. Essentially, we have seen a third day of decline.

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The Japanese yen has strengthened against the euro, which is bad news

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for export rely it countries. And it was not just Asian investors

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reacting, but we also had some comments from the Japanese finance

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minister, who said that people do not understand Greece's decision to

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hold a referendum. Nonetheless, it was not all entirely about Europe.

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There are other concerns about the US and American manufacturing,

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which grew more slowly in October. Many companies are making steep

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losses. Banking shares have also been hit. HSBC has fallen in the

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region. Thank you.

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Is could plunge the entire eurozone reason -- region into recession and

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there is a fear of contagion. On Wednesday, the US Federal Reserve

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will announce its thinking. Violent demonstrations on the

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streets of Greece. But the EU's dire financial problems are not

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just a concern for Europeans. The turbulence is being closely watched

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by America's central bank. Ben Bernanke has said that eurozone

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crisis does impact the US economy. Marc Chandler explains why. What

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happens in Europe affects the US, just as how what happens in the US

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affects the EU. The economy in the EU is so fragile that the debt

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crisis has the potential to paralyse the economy. And it is not

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just Greece. There are problems in the UK as well. From high

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unemployment to a stagnant housing market, which is stifling the US

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economy. Even with a record low mortgage rates, many households

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have been unable to borrow or remortgage. The Obama

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administration has a new plan to help homeowners through finance but

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the Federal Bank is under pressure to keep intervening, especially

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given the political deadlock in Washington DC. This increases the

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urgency for the gradual reserve to do more rather than less. Even

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though there are dissenters, the majority in the Federal Reserve

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feels that they would rather try to fail and a tie at all. The Federal

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