00:00:18
it's a great honor for me to speak after
00:00:20
Mr
00:00:21
Perera I think that the change in
00:00:24
government last November in Italy was a
00:00:28
tremendously positive development
00:00:31
was extremely positive for Italy Mr
00:00:34
Pacer outlined the policies that they're
00:00:36
going to follow which are a big
00:00:39
improvement over the ones previously
00:00:43
because there wasn't much growth
00:00:46
previously and hopefully we will now get
00:00:49
that I think also though it was a
00:00:52
tremendous positive development for the
00:00:55
Euro Zone and the EU as a whole because
00:01:00
the government now in
00:01:02
Italy brings a sense of sanity and
00:01:06
discourse which is much better than it
00:01:09
was before in the whole European
00:01:15
union now I'm going to talk about the
00:01:19
crisis uh this is a based on work with
00:01:23
Victor ngi who graduated last Monday
00:01:26
from
00:01:28
Wharton
00:01:30
and the t is in what form will the EUR
00:01:33
Zone emerge from the
00:01:36
crisis now the headline story in the
00:01:39
internet version of uh the European
00:01:43
edition of the financial times this
00:01:45
morning is about a speech that the
00:01:48
British Prime Minister David Cameron is
00:01:50
going to give this
00:01:52
afternoon and apparently what he's going
00:01:54
to say is that the Euro zone is heading
00:01:59
for disaster
00:02:00
unless it makes a move to quickly go
00:02:04
towards full political and economic
00:02:08
union now my own view is that I don't
00:02:11
think we're ready for a full economic
00:02:14
and political union in Europe
00:02:18
yet people still think of them first and
00:02:21
themselves first and foremost as being
00:02:23
French or Italian or Spanish or whatever
00:02:26
country they come from now I think maybe
00:02:30
20 to 30 years time people may start
00:02:33
thinking of themselves as being
00:02:35
Europeans first and then the country
00:02:38
that they come from as their second
00:02:43
identity but I'm much more optimistic
00:02:46
than Mr Cameron about the survival of
00:02:49
the Euro
00:02:50
Zone I think though the way that events
00:02:53
are developing the Euro zone is changing
00:02:56
in a very positive way and it's putting
00:02:59
in place the mechanisms it needs to
00:03:02
survive in the long run until in 20 to
00:03:05
30 years time we can fully Implement a
00:03:10
complete fiscal and monetary
00:03:15
union now when they originally designed
00:03:20
the
00:03:21
Eurozone they realized that there would
00:03:24
be an issue about fiscal
00:03:27
responsibility and so they put in place
00:03:30
the stability and growth PCT which had
00:03:33
rules about what governments could and
00:03:36
couldn't
00:03:40
do now the two major rules were to do
00:03:44
with government finance and they
00:03:46
required that the deficit to GDP ratio
00:03:51
must be close or under
00:03:55
3% except for crises times
00:04:00
government debt the ratio that they
00:04:03
allowed for that was
00:04:05
60% now they also had a number of other
00:04:09
restrictions on inflation rates exchange
00:04:11
rates and long-term interest rates which
00:04:15
countries had to satisfy in order to
00:04:18
join the
00:04:20
Euro but it's those two that are the
00:04:23
most
00:04:24
important now what this graph shows is
00:04:28
the three years prior to the start of
00:04:31
the Euro Zone and it's the government
00:04:33
surplus or deficit for those three years
00:04:37
the blue is 1996 the red is
00:04:40
1997 and the green is
00:04:45
1998 now you can see that countries made
00:04:50
big efforts to get their deficits under
00:04:55
the
00:04:56
limit Greece moved down Italy also and
00:05:03
Belgium too by the time we got there
00:05:06
countries were either very close to the
00:05:08
3% or
00:05:11
underneath now what this shows is the
00:05:14
gross government debt to GDP for again
00:05:17
the three years prior to the entry of
00:05:20
the Euro
00:05:21
zone now three countries stand out as
00:05:24
not satisfying it there Belgium which at
00:05:28
that time had over 120% to start with
00:05:32
Greece around
00:05:34
100% and Italy also at around
00:05:40
120% clearly they weren't satisfying the
00:05:45
obligations of the stability and growth
00:05:48
pact so what they did was to change it
00:05:50
so as long as you were moving in the
00:05:51
right direction then things would be
00:05:55
okay and you could join now Greece
00:05:58
because of of the problems it had the
00:06:01
notion was that they would have to delay
00:06:03
so instead of joining in 1999 they
00:06:05
joined in
00:06:08
2001 now if we take a longer term view
00:06:11
what what was happening well these are
00:06:16
three countries that are the poster
00:06:19
Childs for fiscal rectitude in the
00:06:23
current
00:06:24
environment at that time and we can see
00:06:27
that Ireland Luxembourg and Finland all
00:06:31
went from to to strong surpluses as the
00:06:35
date of the start of the Euro
00:06:38
occurred now Luxembourg we won't talk
00:06:41
much about them again they have
00:06:43
fantastic record and have always
00:06:45
satisfied the stability and growth
00:06:50
pact here we have Belgium Germany Spain
00:06:54
Netherlands and
00:06:55
Austria now you can see that Belgium
00:06:59
they
00:07:00
had a deficit and they got it in in in
00:07:03
under
00:07:04
control and most of the countries did
00:07:07
now the interesting one is Germany
00:07:11
Germany is the red
00:07:13
line because of the reunification they
00:07:16
had to run deficits in the
00:07:18
1990s they got that under control and
00:07:21
got to a surplus by
00:07:24
2000 but then you can see that their
00:07:28
deficit went went below the minus 3% so
00:07:32
they were in violation of the stability
00:07:34
and growth
00:07:37
pact if we look Greece France Italy and
00:07:40
Portugal Greece clearly has a problem
00:07:44
it's been in violation most of that
00:07:47
period up to
00:07:49
2007 the other interesting one here is
00:07:52
France which also violated
00:07:56
the Surplus restriction of three minus
00:08:01
3% they also went to 4% we'll come back
00:08:04
to that in a
00:08:07
minute if we look at government debt
00:08:09
over this period this is Belgium Greece
00:08:12
and Italy you can see that Belgium did a
00:08:14
very good job of bringing its debt down
00:08:17
Greece did not do such a good job Italy
00:08:21
like Belgium brought it
00:08:24
down here we see Ireland Spain
00:08:27
Netherlands and Finland they did a good
00:08:30
job of coming below the the
00:08:35
60% now here we see Germany and France
00:08:40
again and what you can see is that they
00:08:43
were under the 60% to start with and
00:08:47
they drifted up and then as we went into
00:08:51
the early 2000s they went farther above
00:08:54
that's when they were running these
00:08:55
deficits so again France and Germany
00:08:58
broke the rules
00:09:01
now as they broke the rules the
00:09:05
commission started to implement the
00:09:09
procedures in the stability and growth
00:09:12
pack and they started to ask them to
00:09:16
make
00:09:17
adjustments now Germany avoided a formal
00:09:20
excessive deposit procedure by making an
00:09:23
agreement with the
00:09:24
commission but the commission did bring
00:09:28
an action against France now November
00:09:31
2003 they presented the evidence to the
00:09:35
Council of um Finance
00:09:38
ministers and at that point the French
00:09:41
and the Germans undertook political
00:09:45
moves to persuade the other members of
00:09:48
the council not to impose penalties on
00:09:51
them and that was really a a in my view
00:09:55
a big mistake because it reduced the
00:09:58
effectiveness of the stability and
00:10:00
growth pact so they in fact ended up
00:10:03
suspending The Pact and no country was
00:10:07
penalized France and Germany weren't
00:10:08
penalizing none of the other countries
00:10:10
that had violated
00:10:13
temporarily 2005 they reformed the pack
00:10:17
they loosened the Escape causes they
00:10:18
lengthened the deadlines and they ex
00:10:22
allowed longer adjustment
00:10:24
periods now if we go back before the
00:10:27
2007 crisis
00:10:30
is all the countries except Luxembourg
00:10:34
and Ireland VI violated the 3% deficit
00:10:39
Rule now a number of countries as we saw
00:10:43
including France and Germany also
00:10:44
violated the 60% but again no countries
00:10:48
were penalized for
00:10:50
violations now clearly the convergence
00:10:53
criteria the fact you had to meet them
00:10:55
to get into the Euro meant that
00:10:59
countries did change their fiscal acts
00:11:02
and they got much better situations but
00:11:06
once the Euro was established that
00:11:08
pressure effectively diminished and
00:11:11
there are studies which show that there
00:11:13
doesn't seem to be any marginal effect
00:11:15
of the stability and growth pact if you
00:11:17
compare these countries with other oecd
00:11:23
countries now once the crisis started
00:11:26
then of course we were in exceptional
00:11:28
circumstances
00:11:30
and most countries violated both
00:11:34
rules now interestingly there are
00:11:36
currently only four countries in the EU
00:11:40
that fully satisfy the stability and
00:11:43
growth pact
00:11:44
criteria Estonia is one of them
00:11:47
Luxembourg is another Finland and Sweden
00:11:51
now of course Sweden isn't a member of
00:11:53
the Euro zone so we just have those
00:11:56
three two other countries current ly
00:11:59
satisfy the criteria they didn't until
00:12:03
recently and so they're still under
00:12:05
excessive deficit procedures and that's
00:12:08
Bulgaria and
00:12:11
Denmark so it seems that you either have
00:12:14
to be a rich Scandinavian country or you
00:12:18
have to be a former communist country if
00:12:22
you're going to satisfy these
00:12:25
criteria the important point though is
00:12:27
hardly any of the countries satisfy it
00:12:31
and yet no countries have been
00:12:37
penalized so just to summarize the
00:12:40
stability and growth pact I think is a
00:12:41
very good idea the political mechanisms
00:12:44
haven't worked very well and I think you
00:12:47
know it's important to have them there
00:12:49
but I don't think we can rely completely
00:12:51
on
00:12:53
that now what about the market so
00:12:56
economists love the market and and how
00:12:59
did it do in this
00:13:01
period well here we see the period
00:13:04
leading up to the euro Zone and you can
00:13:07
see that there was tremendous variation
00:13:11
in interest rates across
00:13:14
Europe now by the time we got to 1999
00:13:17
they had pretty much
00:13:21
converged now from
00:13:23
1999 with the exception of Greece which
00:13:25
is the red line remember they didn't
00:13:28
join until 2001 because they didn't
00:13:31
satisfy the criteria well enough in
00:13:34
1999 but since that period what we've
00:13:38
seen is very tight spreads 20 30 40
00:13:43
basis points was the biggest spread
00:13:45
between the different Count's
00:13:49
bonds now we often talk about efficient
00:13:51
markets and how good markets are at
00:13:53
predicting the future but one of the
00:13:55
very interesting things is they didn't
00:13:57
predict the future in this case many
00:14:00
people remarked on the fact that it was
00:14:02
quite interesting that Greece had a 20
00:14:05
or 30 basis point differential to German
00:14:09
BNS but the belief was that that was
00:14:14
okay now as we can see what's happened
00:14:17
since 2009 is we've seen a big
00:14:22
Divergence not quite as much as we had
00:14:24
before but a significant difference so
00:14:28
the market did didn't work and I think
00:14:30
one of the issues there is why not I
00:14:33
think what happened is that they
00:14:35
believed the official sector that there
00:14:36
was no chance that anything bad could
00:14:40
happen and also this was a very much of
00:14:43
this was what the period the economists
00:14:45
call the great moderation and things
00:14:47
were working fairly well for much of
00:14:51
it now
00:14:53
201 they introduced some more reforms
00:14:56
this is colloquially known known as the
00:14:59
sixpack I'm not sure how many Europeans
00:15:02
know exactly what a sixpack is but
00:15:05
nevertheless that's what it's called and
00:15:07
this is EU secondary law so it's law
00:15:10
that they pass in Brussels which applies
00:15:12
to the uh EU EU and this has various
00:15:18
components of fiscal policy so they
00:15:21
strengthened the budgetary surveillance
00:15:23
they speeded up and clarified the
00:15:26
implementation of the excessive death
00:15:29
procedure and so on they also were
00:15:32
worried about macroeconomic
00:15:35
imbalances because it isn't just fiscal
00:15:38
Pro profac that's the problem arguably
00:15:41
in Greece that's the issue but if you
00:15:44
think about Ireland and Spain these are
00:15:47
countries which were extremely good in
00:15:50
terms of the stability and growth
00:15:53
PCT and yet they had these big shocks
00:15:58
and got into
00:16:00
trouble so the part of the six-pack is
00:16:04
to monitor macroeconomic
00:16:09
imbalances they also introduced
00:16:11
sanctions and
00:16:14
penalties that were larger than before
00:16:17
they changed the way the decisions were
00:16:19
made about that so before the council
00:16:22
ecoin had to
00:16:24
vote positively to impose sanctions
00:16:29
now if the commission recommends
00:16:31
sanctions they have to vote it down so
00:16:36
it goes ahead unless there's a majority
00:16:39
against it that's called this reverse
00:16:41
qualified majority voting and we'll see
00:16:44
how that
00:16:47
works the macroeconomic imbalance
00:16:50
procedure unfortunately it's taking
00:16:52
something of a long time they introduced
00:16:56
this mechanism they just released few
00:16:59
weeks ago the first alert mechanism
00:17:02
report based on 2010 indicators
00:17:05
unfortunately the crisis move much
00:17:07
faster than
00:17:09
this then we have the fiscal compact
00:17:12
treaty and what that is again is more of
00:17:15
the same now what countries have to do
00:17:18
is to put a balanced budget rule in
00:17:20
their
00:17:21
constitution they have to then if they
00:17:24
go above 60% start moving towards the
00:17:28
60%
00:17:29
at 12th per
00:17:32
year and then if you're in excessive
00:17:35
deficit procedure you have to put in a
00:17:37
plan with with the
00:17:41
commission
00:17:43
now the problem is that the stability
00:17:45
and growth pact didn't work no countries
00:17:48
were
00:17:49
penalized and what the current strategy
00:17:53
is is to do more of the same but have
00:17:56
more penalties and so on but I think we
00:18:00
need more than that as I say I think
00:18:02
these are good moves but they clearly
00:18:04
aren't enough on their own and I think
00:18:08
the basic problem is that the shocks are
00:18:11
much much larger than people expected
00:18:15
when they designed the Euro Zone as I
00:18:18
said we were going through a period
00:18:19
known as by macroeconomists as the great
00:18:22
moderation we didn't see big recessions
00:18:25
we didn't see big macroeconomic problems
00:18:28
and so the kind of things that happened
00:18:30
in Ireland and Spain with massive
00:18:32
Bubbles and then fiscal problems were
00:18:36
not
00:18:37
anticipated and the problem is that the
00:18:40
adjustment within the Euro Zone
00:18:43
particularly for many countries which
00:18:46
have wage adjustment which isn't very
00:18:50
fast which have income distributions
00:18:52
determined in a in a fairly centralized
00:18:55
manner they don't adjust quickly and
00:18:59
that's what's caused a lot of the
00:19:01
problems that Mr pacero was talking
00:19:03
about
00:19:04
earlier and you know Spain is is one
00:19:07
example here it has got this very high
00:19:10
24.4% unemployment rate and perhaps most
00:19:14
distressing of all
00:19:16
51.1% among youths and that is the real
00:19:19
problem I think that we face in Europe
00:19:21
that we need to do something about
00:19:25
that now what alternative strategies are
00:19:29
there out there what else can we
00:19:32
do now one of the things that we could
00:19:36
do is to have transfers between
00:19:39
countries now at the moment what we have
00:19:42
is loans the bailouts are loans they are
00:19:45
expected to be paid back with interest
00:19:49
but one way of doing things would be to
00:19:51
have
00:19:52
transfers Spain for example through no
00:19:55
fault of its own had this massive bubble
00:19:59
I don't think people there were doing
00:20:02
anything that was wrong it just got
00:20:05
caught up in an economic tsunami so
00:20:08
maybe we could have a transfer from
00:20:10
countries which weren't as badly caught
00:20:12
up and help Spain through it now the
00:20:16
problem is that we don't have full
00:20:18
political and economic Union we aren't
00:20:21
willing particularly in the AAA
00:20:24
countries to have transfers of that kind
00:20:29
so I think that will come in 20 to 30
00:20:33
years and that would be a good thing
00:20:36
it's a way of ensuring against these
00:20:38
very extreme shocks and of course we
00:20:41
have that somewhat in the US we do have
00:20:45
a federal system which transfers across
00:20:48
States if California ever goes bankrupt
00:20:51
though I will never vote for a
00:20:53
government that transfers money from the
00:20:54
federal government to California if it's
00:20:57
Mississippi or arkans thought that's
00:20:59
fine but the rich ones we don't
00:21:01
shouldn't be transferring to
00:21:04
them now what are the Alternatives well
00:21:07
Victor and I suggest is we need two
00:21:10
mechanisms which when countries get into
00:21:13
very desperate trouble will help them
00:21:16
get out of
00:21:18
these now it's interesting because I
00:21:21
think both of these mechanisms are
00:21:24
beginning to come about the two are s
00:21:28
devault within the Euro Zone we've seen
00:21:31
that we had that in March with
00:21:33
Greece contrary to many people's
00:21:36
predictions it wasn't a catastrophe in
00:21:39
fact it went through very smoothly there
00:21:41
wasn't much drama and the reason for
00:21:44
that I think was it was widely
00:21:47
anticipated and I think the second one
00:21:50
which is also important is to have
00:21:52
temporary and I want to stress the word
00:21:54
temporary exit from the Euro Zone and
00:21:59
then once a country has recovered
00:22:01
economically started growing it can
00:22:04
re-enter when it satisfies the stability
00:22:07
and growth pact
00:22:10
criteria and I think what this would do
00:22:12
would be to add to what the official
00:22:15
sector has come up with the treaties and
00:22:18
so on and it would allow the market to
00:22:21
provide incentives to countries although
00:22:24
markets haven't done a great job in the
00:22:26
last 10 years in predicting what what's
00:22:28
happened I think they're very quick
00:22:30
Learners and people will start to
00:22:33
monitor the fiscal policies and the
00:22:36
macroeconomic balances much more
00:22:39
carefully so as I said Sovereign default
00:22:42
worked pretty well with Greece the
00:22:44
unfortunate thing was they didn't do it
00:22:46
soon enough if in May
00:22:49
2010 they defaulted the same way on the
00:22:52
private sector they would have limitated
00:22:55
about 75% of the debt burden they would
00:22:58
have had a real chance of growing out of
00:23:00
the problem now that's what the IMF
00:23:03
usually does unfortunately I think the
00:23:06
politics dsk was already thinking about
00:23:10
the French election and so they didn't
00:23:13
force that on the EU and I think that's
00:23:17
a Pity but I think this is a useful
00:23:19
mechanism to have if a country has a big
00:23:21
shock through no fault of its own then
00:23:24
this is one way of getting back to a
00:23:28
growth
00:23:29
situation more quickly so for example at
00:23:32
the moment I think Ireland will get
00:23:33
through this but it would be a help if
00:23:36
they could default on the senior Bank
00:23:39
debt at the beginning the ECB said no no
00:23:42
don't do that it's going to cause
00:23:44
catastrophe but these defaults in Greece
00:23:47
haven't done that and I think it would
00:23:49
be the same in Ireland they wouldn't and
00:23:52
Ireland would have a lower debt and
00:23:54
would have a a somewhat better chance of
00:23:57
of getting out but as I say I think they
00:23:58
have a very good chance of
00:24:01
emerging now temporary exit from the
00:24:04
Euro
00:24:05
Zone I think that in some countries we
00:24:09
have this desperate problem of
00:24:12
unemployment and particularly youth
00:24:14
unemployment and the wages aren't
00:24:17
adjusting if anything wages in many of
00:24:20
these countries with high unemployment
00:24:21
are still going up and creating less
00:24:26
competitiveness now I think the initial
00:24:28
view was that austerity problem
00:24:31
austerity policies would solve the
00:24:33
problem because if you cut government
00:24:37
spending increase taxes to put
00:24:39
governments Back in Balance then that
00:24:41
would show that the longterm was okay
00:24:44
and the country would start growing and
00:24:46
the economists the macroeconomists had
00:24:48
models which had market clearing which
00:24:51
showed that that would be happening
00:24:53
unfortunately that's not the way it's
00:24:55
turned out in some of these countries in
00:24:57
Greece is the the most prominent example
00:25:00
the austerity is simply making things
00:25:03
worse as you cut government expenditure
00:25:06
the economy shrinks and government
00:25:09
revenues go down and so
00:25:12
on now it's very interesting there are
00:25:15
many growth
00:25:17
strategies
00:25:19
and these are structural forms of the
00:25:22
kind that that we've been discussing in
00:25:25
Europe for a while they tend to take a
00:25:27
while though things like Market reforms
00:25:30
take a few years educ uh labor reforms
00:25:35
take a bit longer education takes even
00:25:37
longer than that now the one policy
00:25:41
which
00:25:42
does usually provide growth is a long
00:25:46
change to the exchange rate Argentina is
00:25:49
the classic example of
00:25:52
this Argentina had a fixed exchange rate
00:25:55
with regard to the dollar and you can
00:25:58
see that they started to go into a
00:26:00
recession in the late '90s and that got
00:26:03
pretty bad in '
00:26:05
01 they then dropped the peg to the
00:26:10
dollar they shrunk for a few more months
00:26:14
but then they started growing and
00:26:17
growing very quickly and they've grown
00:26:20
at about 8% since then they're now up to
00:26:24
about 60% above where they were a decade
00:26:28
to go and they soon passed where they
00:26:31
started so in the two or three years
00:26:33
they were above where they
00:26:35
started now you may say but don't they
00:26:37
fix the inflation numbers in in
00:26:41
Argentina well my understanding is they
00:26:43
do at least a little bit but even if you
00:26:45
measure in terms of US Dollars using
00:26:48
market exchange rates you get a similar
00:26:50
kind of
00:26:51
phenomenon now people say well Argentina
00:26:54
was different it was a growing World
00:26:56
economy so what are some other
00:26:58
examples well if you compare South Korea
00:27:01
and
00:27:02
Japan what you see is that South Korea
00:27:06
with an exchange rate adjustment during
00:27:09
the crisis despite having an economy
00:27:12
very much like Japan managed to start
00:27:14
growing pretty quickly Japan because
00:27:17
it's a safe haven currency didn't have
00:27:20
that luxury and they aren't above where
00:27:24
they were in 2007 they're still about 3
00:27:26
or 4% below
00:27:29
so this is South Korea you can see the
00:27:31
blue line is GDP they got badly hit
00:27:35
after Leman but the exchange rate
00:27:37
adjusted then they started growing
00:27:39
they're now about 15% above Japan if you
00:27:44
look they're still not where they were
00:27:46
as I say they're about 97
00:27:49
98% even today 5 years
00:27:53
later what are some of the other
00:27:55
countries well if you go back to the 199
00:27:58
90s and look at the crisis then many
00:28:02
countries followed this strategy of
00:28:05
default and depreciation of the exchange
00:28:07
rate and had long periods of high growth
00:28:11
South Korea at that stage did the same
00:28:13
thing they had a very sharp recession
00:28:16
that lasted for about a year or two one
00:28:19
to two years and they started growing
00:28:21
they've grown at 6% a year since
00:28:25
then Indonesia its banking syst system
00:28:28
was devastated most banks basically
00:28:31
collapsed they then defaulted and had an
00:28:35
exchange rate adjustment they started
00:28:37
growing at
00:28:38
5% for about the same for nine years or
00:28:41
so Russia same kind of thing
00:28:44
7% now people often say that for example
00:28:47
if Greece was to follow this strategy
00:28:49
then it wouldn't be as
00:28:51
successful because it has a low GDP to
00:28:55
uh sorry low exports to GDP p ratio but
00:28:59
many countries have expanded that and
00:29:02
been very successful so for example
00:29:04
India even without an exchange rate had
00:29:06
its exports to GDP ratio double in the
00:29:09
1990s and then again in the 2000s it
00:29:13
started from a place not that different
00:29:15
from
00:29:18
gree's the gold
00:29:20
standard there's a nice paper by Barry
00:29:23
ier green and Jeffrey saxs in the mid
00:29:25
80s and what they argued was that in
00:29:27
fact fact the countries that left the
00:29:30
gold standard in the 1930s did pretty
00:29:34
well it's the same effect they were able
00:29:37
to get over the effects of the Great
00:29:39
Depression and start growing now the
00:29:42
popular wisdom is that they was a begger
00:29:44
Thy Neighbor policy but that what they
00:29:46
argue is that although there was a
00:29:48
negative effect on those countries
00:29:51
around them it may well have been worse
00:29:54
if they hadn't done the exchange rate
00:29:57
trange and their conclusion is that more
00:30:00
devaluation would have helped us get it
00:30:02
through the Great Depression more
00:30:04
easily my view on this is the basic
00:30:07
problem is that relative prices are
00:30:09
wrong if we can adjust those then we can
00:30:12
do much better and we can improve things
00:30:18
substantially contagion this is the big
00:30:21
problem this is what the official sector
00:30:24
says you know if we do these changes
00:30:26
we're going to have these terrible
00:30:27
problems of contagion with the Greek
00:30:29
default we didn't because people
00:30:31
anticipated it I think the same thing is
00:30:34
true currently with
00:30:38
the possible exit of Greece from the
00:30:41
Euro Zone Investment Bank reports are
00:30:44
putting about a 75% probability on that
00:30:48
everybody's beginning to take actions to
00:30:50
hedge against those kinds of risks if
00:30:53
Greece leaves it will be somewhat
00:30:55
chaotic but just like countri leaving
00:30:58
the gold standard in the 1930s we can
00:31:01
cope with that and the big thing is that
00:31:04
within a year or two I believe Greece
00:31:06
would start to grow again and it was the
00:31:09
best and most effective policy for
00:31:12
solving these
00:31:13
terrible unemployment problems
00:31:16
particularly among youths and as I say
00:31:18
it's temporary there's no reason why
00:31:21
they can't go out in 5 10 years whatever
00:31:24
time it takes them to get back to
00:31:26
economic health to rejoin
00:31:29
Jo so let me conclude I think the moves
00:31:33
that we've seen are very
00:31:35
positive but they're not enough we need
00:31:38
to go farther and in particular when we
00:31:40
have very large shocks we need to have a
00:31:44
mechanism that allows countries to start
00:31:47
growing again
00:31:49
quickly and I think with those we will
00:31:52
see the Euro survive as I say they're
00:31:54
coming about and I am very optimistic
00:31:57
about the future of the year I think
00:31:59
that we can keep it on track and in 20
00:32:04
to 30 years we can go towards the full
00:32:06
political and economic Union but at the
00:32:09
moment it's a little premature to do
00:32:11
that let me stop
00:32:14
[Applause]
00:32:26
there
