25/12/2012 World Business Report


25/12/2012

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This is World Business Report. 1 euros a go predictions were

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widespread that Greece would leave the eurozone. -- year ago. Are we

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at the beginning of the end of the eurozone crisis or is there a lot

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more to come? Thank you for joining us. From an American perspective,

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you were once an adviser to the White House on these affairs, do

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you feel that the steps that have been put in place in the eurozone

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are probably a long way towards say e to

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say as an outsider to this it looks to me like the political theatre is

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very good. Political theatre accounts for a lot, but

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fundamentally the market believes that the ECB can buy it all of the

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Italian bonds, Spanish bonds, everyone else... The Germans in

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particular at do not believe the ECB have that mandate. They have

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given permission to buy a few of these bonds in the margin.

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think there are underlying misunderstanding staff have not

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been tested? -- that have. They are going to be tested. Would you agree

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with that? with that? misunderstandings between member

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countries? countries? know. The European Central Bank until now has

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not used this instrument. That said, I think this crisis is not solved

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at all. It is a political crisis mainly. What we need to do, we need

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to go as fast as possible into a genuine economic, fiscal and

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political union. Including a common bond market in Europe. These

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problems have not been battered by the European leaders. For the

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moment markets are quiet, but this crisis is not soft at all. Would

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you agree that what is needed is much more greater integration? --

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not solved. I would not agree with that. I would agree the crisis has

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not been resolved. It has been pacified. The ECB has made

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speculation against bonds. This crisis, the underlying cause has

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never been economic, it has been competitiveness. There are vast

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imbalances between countries on the periphery. The way it has been

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resolved in practice is by destroying wages in peripheral

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countries. The spreading the risk of debt, one country issues debt,

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all of them become responsible for paying it back, is that a solution?

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Not really. It is a problem and Europe does need a fiscal mechanism

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but the real issue is to produce balances. The imbalances do not

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come from the peripheral countries, they come from the core. Germany is

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as much a problem as it reform countries are. Explain the current

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account differences, why is it important? Competitiveness is the

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key. Even if Greece was to default 100% on its debts, it cannot be

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competitive in the context of the road today. They need to devalue. -

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- the euro. They need to become more price competitive. I think the

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humanitarian issues will compel The key is to understand the human

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cost. More and more children admitted to Athens hospitals with

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malnutrition. We see companies saying we are not going to give

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chemotherapy to grace any more the . As

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the humanitarian problem gets worse, politicians will begin to say,

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which is more stable? Staying in the euro or dealing with the

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humanitarian issues? Germany Burma handover cash endlessly. -- Germany

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will not hand over. Could integrated politics solve that

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problem? If you have a larger European budget you can develop

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more of these policies in a country like Greece. I think that the more

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Europe, the larger the Budget, the European budget is only 1% of the

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is 24% of the American GDP. That is the real source of the crisis.

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Behind the euro there is no state of ferrety, there is no bond market,

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there are no common policies. -- state autho state authoe can

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exist without a currency, there are many examples of that, but a

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currency cannot exist without a state. We have to develop that as

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fast as possible. Otherwise it is the end of the euro. Do you agree

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that economic reform could change this imbalance in competitiveness?

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I would agree with that. Let's talk about the kind of reform necessary.

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Germany has consistently undershot its targets for inflation. The

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cumulative gap over the last ten years is outstanding. They are

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trying to crush of wages and living conditions in the south. That is

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not right. The adjustment must fall on surplus countries, that is where

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it is most easily dealt with. The European Monetary Union is imposing

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all of the costs on the deficit countries. It is an unbelievable

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situation. You talk about more political integration, can it be

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achieved when you have a profound differences between France and

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Germany? How can Germany helped to lower costs of the reforms in a

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country like Spain? The only way to do it is by the neutralisation of

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debt. That is the solidarity we need. Mariano Rajoy and do whatever

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he wants, but if he is confronted by interest rates of 5% -6 %, he

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cannot do anything. The average interest rate in the US at the

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moment is 5%. We have to solve that. You are shaking your head. It is

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never going to happen. It would cost the Germans 50% of their GDP

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to do a bail-out of the entire eurozone. That is ten times the

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Marshall Plan that Americans did for Western Europe. I understand.

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From a German point of view, it means them taking the financial

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responsibility for the risk taking others are incurring. I do not see

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the German public ever agreeing to clearystal

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clear on that point. The other thing, inflation would be a

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solution from the point of view of almost every eurozone state apart

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is worth watching. Fin land is saying, maybe we should check out

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of this thing. -- Finland. This is the point, both sides cannot agree.

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How optimistic are you about the eurozone? I am still optimistic.

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what is necessary. They do not want to lose the euro. In my opinion, at

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the end it is the pressure of the markets next year and 2014, who

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will oblige the German political leadership to go into that

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