:00:25. > :00:31.This is World Business Report. 1 euros a go predictions were
:00:31. > :00:35.widespread that Greece would leave the eurozone. -- year ago. Are we
:00:35. > :00:45.at the beginning of the end of the eurozone crisis or is there a lot
:00:45. > :01:01.
:01:01. > :01:06.more to come? Thank you for joining us. From an American perspective,
:01:06. > :01:11.you were once an adviser to the White House on these affairs, do
:01:11. > :01:16.you feel that the steps that have been put in place in the eurozone
:01:16. > :01:22.are probably a long way towards say e to
:01:22. > :01:26.say as an outsider to this it looks to me like the political theatre is
:01:26. > :01:31.very good. Political theatre accounts for a lot, but
:01:31. > :01:38.fundamentally the market believes that the ECB can buy it all of the
:01:38. > :01:42.Italian bonds, Spanish bonds, everyone else... The Germans in
:01:42. > :01:47.particular at do not believe the ECB have that mandate. They have
:01:47. > :01:50.given permission to buy a few of these bonds in the margin.
:01:50. > :02:00.think there are underlying misunderstanding staff have not
:02:00. > :02:03.been tested? -- that have. They are going to be tested. Would you agree
:02:03. > :02:13.with that? with that? misunderstandings between member
:02:13. > :02:14.
:02:14. > :02:19.countries? countries? know. The European Central Bank until now has
:02:19. > :02:25.not used this instrument. That said, I think this crisis is not solved
:02:25. > :02:33.at all. It is a political crisis mainly. What we need to do, we need
:02:33. > :02:37.to go as fast as possible into a genuine economic, fiscal and
:02:37. > :02:41.political union. Including a common bond market in Europe. These
:02:41. > :02:50.problems have not been battered by the European leaders. For the
:02:50. > :03:00.moment markets are quiet, but this crisis is not soft at all. Would
:03:00. > :03:09.you agree that what is needed is much more greater integration? --
:03:09. > :03:17.not solved. I would not agree with that. I would agree the crisis has
:03:17. > :03:26.not been resolved. It has been pacified. The ECB has made
:03:26. > :03:36.speculation against bonds. This crisis, the underlying cause has
:03:36. > :03:36.
:03:36. > :03:41.never been economic, it has been competitiveness. There are vast
:03:41. > :03:45.imbalances between countries on the periphery. The way it has been
:03:45. > :03:54.resolved in practice is by destroying wages in peripheral
:03:54. > :04:00.countries. The spreading the risk of debt, one country issues debt,
:04:00. > :04:07.all of them become responsible for paying it back, is that a solution?
:04:07. > :04:17.Not really. It is a problem and Europe does need a fiscal mechanism
:04:17. > :04:17.
:04:18. > :04:22.but the real issue is to produce balances. The imbalances do not
:04:22. > :04:27.come from the peripheral countries, they come from the core. Germany is
:04:27. > :04:35.as much a problem as it reform countries are. Explain the current
:04:35. > :04:43.account differences, why is it important? Competitiveness is the
:04:43. > :04:50.key. Even if Greece was to default 100% on its debts, it cannot be
:04:50. > :04:59.competitive in the context of the road today. They need to devalue. -
:04:59. > :05:06.- the euro. They need to become more price competitive. I think the
:05:06. > :05:11.humanitarian issues will compel The key is to understand the human
:05:11. > :05:17.cost. More and more children admitted to Athens hospitals with
:05:17. > :05:21.malnutrition. We see companies saying we are not going to give
:05:21. > :05:25.chemotherapy to grace any more the . As
:05:25. > :05:32.the humanitarian problem gets worse, politicians will begin to say,
:05:32. > :05:42.which is more stable? Staying in the euro or dealing with the
:05:42. > :05:44.
:05:44. > :05:50.humanitarian issues? Germany Burma handover cash endlessly. -- Germany
:05:50. > :05:56.will not hand over. Could integrated politics solve that
:05:57. > :06:05.problem? If you have a larger European budget you can develop
:06:05. > :06:09.more of these policies in a country like Greece. I think that the more
:06:09. > :06:19.Europe, the larger the Budget, the European budget is only 1% of the
:06:19. > :06:24.is 24% of the American GDP. That is the real source of the crisis.
:06:24. > :06:30.Behind the euro there is no state of ferrety, there is no bond market,
:06:30. > :06:35.there are no common policies. -- state autho state authoe can
:06:35. > :06:40.exist without a currency, there are many examples of that, but a
:06:40. > :06:46.currency cannot exist without a state. We have to develop that as
:06:46. > :06:51.fast as possible. Otherwise it is the end of the euro. Do you agree
:06:51. > :06:57.that economic reform could change this imbalance in competitiveness?
:06:57. > :07:06.I would agree with that. Let's talk about the kind of reform necessary.
:07:06. > :07:16.Germany has consistently undershot its targets for inflation. The
:07:16. > :07:17.
:07:17. > :07:22.cumulative gap over the last ten years is outstanding. They are
:07:22. > :07:30.trying to crush of wages and living conditions in the south. That is
:07:30. > :07:36.not right. The adjustment must fall on surplus countries, that is where
:07:36. > :07:46.it is most easily dealt with. The European Monetary Union is imposing
:07:46. > :07:47.
:07:47. > :07:54.all of the costs on the deficit countries. It is an unbelievable
:07:54. > :08:01.situation. You talk about more political integration, can it be
:08:01. > :08:07.achieved when you have a profound differences between France and
:08:07. > :08:13.Germany? How can Germany helped to lower costs of the reforms in a
:08:13. > :08:22.country like Spain? The only way to do it is by the neutralisation of
:08:22. > :08:28.debt. That is the solidarity we need. Mariano Rajoy and do whatever
:08:28. > :08:35.he wants, but if he is confronted by interest rates of 5% -6 %, he
:08:35. > :08:45.cannot do anything. The average interest rate in the US at the
:08:45. > :08:53.
:08:53. > :08:58.moment is 5%. We have to solve that. You are shaking your head. It is
:08:58. > :09:04.never going to happen. It would cost the Germans 50% of their GDP
:09:04. > :09:11.to do a bail-out of the entire eurozone. That is ten times the
:09:11. > :09:17.Marshall Plan that Americans did for Western Europe. I understand.
:09:17. > :09:21.From a German point of view, it means them taking the financial
:09:21. > :09:25.responsibility for the risk taking others are incurring. I do not see
:09:25. > :09:30.the German public ever agreeing to clearystal
:09:30. > :09:36.clear on that point. The other thing, inflation would be a
:09:36. > :09:45.solution from the point of view of almost every eurozone state apart
:09:45. > :09:55.is worth watching. Fin land is saying, maybe we should check out
:09:55. > :09:55.
:09:55. > :10:01.of this thing. -- Finland. This is the point, both sides cannot agree.
:10:01. > :10:11.How optimistic are you about the eurozone? I am still optimistic.
:10:11. > :10:13.
:10:13. > :10:21.what is necessary. They do not want to lose the euro. In my opinion, at
:10:21. > :10:25.the end it is the pressure of the markets next year and 2014, who
:10:25. > :10:35.will oblige the German political leadership to go into that
:10:35. > :10:39.