 When we were approached to put together this program, I have to say I felt like a kid in a candy store. All the people that I read, I listened to, I think are some of the most thoughtful colleagues. I was able to put them all together in a conversation and we were able to whisk you away from your busy desks and your busy schedules for a very concentrated conversation about the future of Europe, what it will look like, how the United States can be a part of that future. So I can't begin to tell you how privileged I feel to have you around this table and to begin a very important conversation. I think it's only fitting that we open this conversation in some ways what brought us to this point of reflection about the future of Europe and that of course is the European economic crisis. So we're going to begin a conversation of what we call a union's greatest challenges, Europe's future path toward economic growth, global competitiveness, and of course addressing the question of debt. As Professor Wood noted, that was a challenge for the early origins of the United States and certainly continues to be a challenge for Europe today. I think the next conversation is going to be one of great importance and I'm so delighted to welcome three colleagues to help kick us off intellectually and I hope everyone around the table will participate. I have lots of questions marked down. I hope you have as well. We're going to begin with David Marsh. David is chairman and co-founder of the Official Monetary and Financial Institutions Forum. That's a long title. But David is senior advisor to many asset management companies, investment banks. He's also, you'll note, we have a lot of influential financial times correspondence, current and former, and David was the European editor for the Financial Times for both France and Germany for many years. He has written some definitive books. I highly recommend The Euro, The Battle for the New Global Currency. I'm in the middle of it. It's a wonderful book and David, we welcome you. After David concludes his opening remarks, we're then going to turn to Bob Hormat who is vice chairman of Kissinger Associates. But for many of us in Washington, Bob was the undersecretary of state for economic growth, energy and the environment. He's been an advisor on international economics to many presidents, many secretaries of state and has a wonderful perspective from the United States about Europe. And Bob, we're so delighted that you could be with us. Thank you. And then last but not least, we've asked Wolfgang Munchow to be what I call the closer on this panel, help summarize the conversation. So many of us read Wolfgang's very important columns in the Financial Times about the Euro crisis, speaking of writing very important books. Wolfgang has written his latest book, The Meltdown Years, The Unfolding of the Global Economic Crisis, has won many awards. He's also co-founded Eurointelligence.com, a website that is absolutely focused on information and debate about economics in the Eurozone. As I said, this is a dream team of economics. So without further ado, we'll start our panelists. After their opening remarks, I'm going to throw them a few questions just to get the ball rolling. And then if you would just turn your little tent, if it stands up upright, and then we'll get into a dialogue. And please, as we begin, introduce yourself hopefully by the end of the conversation of the forum, we won't have to introduce ourselves anymore. So with that, without further ado, David, tell us about the future of Europe's economic growth, competitiveness and debt. Thank you very much, Heather. Thank you for being so flattering and warm hearted in your opening. And you've raised expectations. And let's see whether we can fulfill them. I don't want to go too widely into this since I am just kicking off. So I thought it would be a good idea also to talk about where we've come from as well as where we might be going. And I will talk mostly about the euro because after all, this is the flagship project that we have in Europe and it deserves a bit of attention. So you could call my talk, where did it all go wrong? And that is a phrase that a waiter apparently did to George Best, the famous Northern Ireland footballer when the waiter or the butler burst into a hotel room where George Best was lying in damask sheets with goblets of fine champagne, a couple of semi-naked ladies cavorting with curtains wrapped around them and so on. And this waiter or this person who had been brought in by room service, he said, George, where did it all go wrong? The point about Europe is that the result has gone wrong but Europe has become a great deal more interesting as a result of this. So I'm one that looks for a silver lining in these features. I do think it is very important that we are here in Williamsburg and we do have these historical memories to guide us but rather echoing the thought that Gideon was putting, we have had nearly 250 years of history since then and an awful lot of things have happened in Europe and that is something which Europe should indeed have learnt from. My first couple of minutes therefore will be on what has happened and how did we get into this state? A few minutes on what is happening now and then a few minutes to conclude on where we might be going. I think that Europe did actually draw the wrong lessons from history. The point about the monetary union was that people had had bad experiences with fixing currencies in semi-fixed systems over the last 20, 30, 40 years and so the powers that be simply said we will just abolish all currencies. It's a little bit like going into hospital with a bad tone and the doctor said we will amputate the whole leg that will get rid of the problem. I do think it was a step too far and where I would say that the Europeans went wrong was a monumental mixture of negligence, arrogance, ignorance, incompetence and apart from that probably they did very well but in terms of the actual history of the euro it was monumentally reckless I think to decide a system that was almost certain to have banking failures there was a lot of cross-border lending going on there was almost certainly going to be states that were getting into difficulty because the single currency was really a recipe for countries to live beyond their means and they would run down their competitiveness they would heap up large deficits the banks were almost certainly going to get into difficulties and so it was pretty reckless to go into that system without actually having mechanisms firstly for spossing what was going on and secondly to sorting things out when the problems arose the banking union which is now coming in rather at a later stage and I think it's still very far from perfect and may well be delayed those kind of thoughts should have been entertained much much earlier the European central bank which in no way is the worst offender but I just singled them out here because it's nice to have just one small scapegoat the European central bank because they realised that this wasn't an optimal currency area the point about the European central bank was that they just stopped looking at the individual statistics for the nation states they now to their credit do admit that that was an error that they simply published the aggregate information as though all the individual nation states had disappeared that was part of the plan of course that you should look at Europe as just one big happy family now the inevitability of all this is that when countries do heap up debts and deficits they do have to be repaid and so what the Europeans didn't understand is that by getting rid of the currencies you got rid of the possibility of a currency crisis but you hadn't obviated the problem of a capital market and a debt crisis which is what essentially has taken place now where are we now after five years of monumental cuts in demand falls in demand of up to 20 to 25% in some states Greece is clearly the worst but there's also been falls in demand from the peak of say 2008 to now of 8% we are now getting back on track in terms of just restoring some semblance of balance indeed this is one of the paradoxes that Europe is now recording the current surplus of about 2% of GDP born of the fact that domestic demand has been very heavily cut in many countries that previously had got into trouble it's also a paradox because we talk about Europe's weakness because the euro is relatively strong there's a lot of capital flight going on at the moment from the area of Russia and Ukraine and it certainly isn't going to go into the dollar it's going into the next state most nearby it's going into the euro area the situation that we now have is that if those countries which have inevitably had to cut back demand if they were now to rise up back to the growth levels of the past they would almost automatically run into again a problem of the imbalances because I don't think they're fundamentally competitive enough to cope with a return to the old levels of growth therefore those states that have got themselves into trouble they have continued within the euro they've had to have these massive internal devaluations they have forsaken growth that's gone for good the growth that's been forsaken in the last five or six years will not come back again and I think they are destined to go on a path of continued rather mediocre growth and always facing the difficulties that if growth were to go above a certain level they would get back into the same old competitiveness problems again in terms of where we are going I do believe that is the future I think the euro will limp on it has not been a great success it's not been a complete failure either one has to say technically it's worked well enough and of course the whole mechanism that has taken place has been very much forecast in the past the Wundersbank which some of you may know I followed with perhaps a two greater zeal sometimes they did write all this down this is a story where the script had already appeared I think that the problem, the paradox that we face now is that from an economic point of view you would need much greater centralization you would decentralization of competence both in order to decide the policies that nations should take and also to iron out some of the discrepancies in say tax or in finance between individual states some of whom are doing much better than others but from an economic point of view centralization is the key and this clearly does remind us of some of the American presidents that we were just heard about from Gordon but from a political point of view there is just not the stomach for this there has been so much distrust and suspicion of an equal and opposite kind between the debtor states and the creditor states both are equally but for different reasons suspicious, skeptical downright annoyed about each other the debtor states because they feel that the creditors have been exerting demands which are far too exacting and far too ungenerous the creditor states because they feel that they have been bailing out or at least helping to guarantee the future of the debtor states without enough gratitude being shown the German example is a good one I'm looking forward to what Wolfgang has to say about that but when there are regularly Nazi slogans doved on the walls of great Athenian temples or when Mrs Merkel goes down there and is rewarded with swastikas in the streets this hardly really encourages the Germans to turn a blind eye and just bring more money and yet it's inevitable I think that all the problems of the past the lack of German war reparations for terrible atrocities visited upon the Greek people in the Second World War all this comes back again i.e. the very opposite of what Europe was supposed to bring about therefore my prediction is that we will not have United States of Europe very interesting that Chancellor Kohl came up talking about that in the 1980s and therefore it's very nice that we're bringing this back now for the Williamsburg summit but I think the day of the United States of Europe has certainly gone if the euro is to survive and I'm not at all sure that it will because I do think that the internal contradictions will certainly some stage cause some countries to leave to survive we will have to have some form of political union but it won't be in the classic type of political union that the post war thinkers and the post war architects and the Degas Berries and so on were thinking about it will be a totally suey generous it can be summed up I suppose in three phrases and of course we have had very much at the top of our minds the no taxation without representation if you then throw in the Leninist slogan Vertrauen ist gut Kontrolle ist besser which is quite difficult to translate really because it simply means that one mustn't trust people too far but I was years ago I was given the prize of a book of Shakespeare who after all we all know is a German poet for translating that as don't feel sure make sure which I still think is a pretty good translation of Vertars gut Kontrolle ist besser but that actually does sum up why Mr. Weidmann the young, rather eager looking but really monumentally intelligent chap who's running the Bundesweit these days he's come up with this phrase of Kainer Haftung ohne Kontrolle which is actually rather similar to the no taxation without representation which means we're not going to give you buggers any more money unless we can properly control you and that again just bring us back very much to a paradox and I will leave the conversation on this the Germans clearly should be in charge of the whole thing and making the trains run on time and making the people pay their bills properly and making sure that all the exporters do their stuff but the Germans don't actually want to be in charge of anything they've given up on being in charge of anything so we do have the great project of the euro as a board of a mixture of incompetence and negligence and a historically inevitable state of affairs that we've got into now it is a wonderful conundrum it makes Europe a hell of a lot more interesting place than if we were all aligned with each other but basically there is a hole in the heart of Europe and nobody really wants to run the place we're waiting for the Americans to take over thank you very much Jamie thank you you've kicked us off in great fashion thank you so much Bob over to you well that's a great introduction the Americans should take over that's a very fitting introduction the Americans should take over the thing I wanted to talk about was not so much how the Americans could take over but some of the key elements that I think are important in terms of transatlantic relations and in terms of strengthening Europe's competitive capability in this new global environment and the two really mesh in ways that I will describe in a few moments and I'd like to talk about four key parts of this overall equation one is energy second is trade and investment which I think is extremely important a third is labour market policies proactive labour market policies in an environment where unemployment is extremely high in parts of Europe particularly southern Europe the last which relates to the third which is small and medium size enterprises and the four of these interact in ways that I will describe but in each one of them there's an opportunity for Europe to strengthen its growth outlook but also for the United States and Europe to establish a higher degree of solidarity and mutual support in a very difficult environment and both European economies and the American economy are simply not performing in aggregate as well as they should particularly in the area of job creation let me start with energy because I think this has been a highly discussed topic of late largely because of events in Ukraine it had been a topic on the American European agenda for a considerable period of time it was the US and the EU and I want to emphasize Europe is not only the US and the EU although there are a large number of European countries in the EU but it involved a broader range of countries as well including Turkey and some countries that were not in the European Union the Ukraine crisis in a way should be a wake up call because first of all there are new opportunities in the energy area in Europe, the United States which has taken advantage of new technologies particularly hydrofracking and horizontal drilling both for natural gas and for various kinds of oil or tight oil that's found in shale which has given the United States an opportunity to do two things one is to reduce its dependence on imported oil we used to be at 60% now at 40% we reduce our dependence on natural gas where today we import almost no natural gas which has freed up Qatari and other natural gas which now goes into western Europe and reduces the dependence of the Europeans on Gazprom and has given Europe a stronger negotiating hand in negotiations with Russia on natural gas but there's a bigger topic ahead of us and that is first on the American side are we going to export more natural gas it's a very slow process which has involved individual decisions by both the Department of Energy and what's called FERC which is Federal Energy Regulatory Commission you have to get permission of both so far only one permit has been given by both for one natural gas facility which is in Louisiana there are six that are at various stages of approval and there's something like 20 that are down the road which will enable the US to supply more natural gas to various parts of the world but the fact is that the price of natural gas is higher in Asia than Europe and therefore it's likely to attract a lot of that natural gas onto the Asian market oil where the United States is not a net exporter of oil and it's not going to be for a considerable period of time but there are parts of the country that should be able to produce and export oil and the question of what the United States will be able to do this remains to be seen but it's becoming more supportive the environment's becoming more supportive the reason I mention it is because it gives the United States a new diplomatic and geo-economic opportunity to engage with Europe as an exporter of of energy which can to a degree reduce Europe's dependence on natural gas and oil from Russia but the other side of the coin is that Europe itself has been missing enormous opportunities to do the kind of things in the energy sector that the United States has been doing which is to say and I won't mention countries because it's quite clear who they are but there is one big country that has given up nuclear power which means that either has to import more gas from from its east or import more coal from the west the United States which from an environmental point of view is not the not the fuel of choice and then there are other countries that have in effect decided they're not going to engage in fracking because they have environmental problems so what's needed here I think without going into great detail is a much more strategic dialogue between the United States and Europe on how to do two things one utilize energy to reinvigorate growth and it certainly had a positive effect in the United States in that area but also to figure out ways in which the heavy dependence still heavy dependence foreseeable future heavy dependence on Russian gas and oil will remain if something is not done about it so perhaps the Ukraine crisis can be a wake up call for a greater degree of cohesion in the energy sector and a greater degree of strategic planning added to that there these pipelines that are being built across southern Europe the transit GIN pipeline is a pipeline that goes and taking central Asian gas and oil into Turkey and then taking it by ship to other parts of Europe this is I think one area where the U.S. and Europe have an opportunity if we wake up and sort of overcome some of the psychological impediments to a more robust domestic set of energy policies and greater degree of cooperation can be very useful in boosting growth and in both Europe and the U.S. and boosting cohesion between the two and solidary between the two and this economically and strategically important area. Second TTIP, Trans-Enlight Trade and Investment Partnership this to me is a huge opportunity for both the U.S. and in this case the EU which is a negotiating partner to do something that has found very difficult to do for decades and that is to come to some agreement that reduces barriers and generally tariffs, the average tariff is about three or four percent across the Atlantic but to reduce regulatory barriers and standards differences in standard setting and one can go into great detail in this which I will spare you a discussion of but the fact is if there ever were a moment when the heads of state and government of the United States and Europe should increase the level of prioritization TTIP and give it high level full-throated political support to overcome bureaucratic and regulatory impediments and wrangling among negotiators this is that moment there could be no more important medium term it's not going to benefit either side right away but medium term strategic signal to our own people and to Russia and others of solidary between the U.S. and Europe then to push forward in a much more purposeful and expeditious way progress on TTIP it would create jobs on both sides and in as much as NATO to the average young European and the average young American who don't really understand the odds of NATO to the extent that NATO is not as strong a glue between the United States and Europe today as it has been in the past this can demonstrate to the American on Main Street or the Frenchman in La France profonde this can demonstrate a certain amount of benefit on both sides to the transatlantic relationship economically and undergird stronger security relations between the between the U.S. and Europe the third point relates to proactive labor market policies here if you look at unemployment it is an enormous problem and it is even if the aggregate economies are beginning to improve in certain parts of Europe and they are in many parts if you look at the numbers and trade surpluses of countries that had trade deficits current account surpluses but the unemployment problem is still very substantial and there are some countries in Europe that have and I would say Germany is certainly mentioned in a moment is another there is a need to figure out ways of addressing labor market issues in a more proactive way Germany has a number of things and the Germans here will be able to describe these far better than I but Kurzarbeit is extremely useful we don't have anything like that apprenticeship programs we have nothing like that there are a whole range of things and I think very important where we could learn on our side of the Atlantic and Europeans on their side from countries that have done this and done this quite successfully over a period of time but I'm afraid if you simply leave labor market policies to cyclical changes you will be waiting a very long time because I think David has made the point it will be very difficult to get really rapid growth in any foreseeable future but if you wait that long to have growth and you don't do something much more proactive about high level unemployment then the issue that could adversely affect Europe and the Euro is not just the numbers not just the economics but very serious social problems which will be blamed on the Euro or lack of sufficient cooperation within Europe it seems to me that preserving the unity of Europe and the cohesion of Europe in large part is going to be dependent on how to deal with this massive unemployment particularly unemployment on younger people and particularly in the southern part of the continent and a set of proactive policies again is important within Europe and also on the transatlantic side because we don't have a very proactive set of labor policies either and therefore finding ways of addressing youth unemployment here which is becoming also these income inequalities and issues of mobility or lack of mobility is a growing social problem in this country as well and the last point which relates to the one I've just made relates to particularly the issue of small medium size enterprises which I think in a very real sense is one of the critical dimensions of the US and the European jobs problem but also it has to do with the question of inequity and let me just describe it from an American point of view but it's probably not too different from the European point of view one of the reasons you have such bitterness in this country is that the big bailout the last several years which includes the Tea Party people and others is that the big bailout for which taxpayers money was utilized which includes TARP and includes the stimulus program large banks and large companies got large sums of money and they have for the most part and the government's made some money on this for the most part not in every case but the average person who runs a small company is saying to himself or herself I got nothing out of this and for them credit markets still have not come back and it's still extremely difficult for them to get funds to increase opportunities for their companies raising money if you're a small medium size enterprise the the imbalances in the country and it leads to enormous amount of bitterness between main street American companies that can't get money and financial institutions and other big companies that have gotten money large sums of money and now can pretty well go out and pay bonuses and do the kind of things they were doing living pretty high on the hog while mainstream America continues to suffer and I think that is very corrosive of our democracy lots of social divisions and in the end I think is going to also undermine our foreign policy because a lot of people who feel this way are going to say why should we be doing things abroad why should we be supporting international programs or globalization when globalization in our view harms workers and doesn't really benefit small companies, big companies, big banks benefit small companies and individuals who are not able to participate or sort of recognize don't so it's going to have a major set of implications and I think in Europe again for the same set of reasons that it undermines unity within countries if they see one group of people doing very well or one country or a couple countries doing very well and the average person not and if you look at the interest rate for instance in Greece 10% if you're a small business if you can borrow it all you get 10%, 11% or a third or a home world you can get money at 3-3.5% so it leads to it exacerbates already substantial competitive differences and it leads to very substantial divisions between the opportunities in southern Europe and the opportunities in northern Europe so some type, I know Europe's going through its banking reforms and I think they're very important and perhaps banking reforms have to take place first as a very high priority a lot more work needs to be done internally in Europe on strengthening the ability of small, medium-sized enterprises to get money on the basis of some degree of equity between north and south which means some type of European wide institution or support plan I think is of the highest degree of urgency because if it continues this way the imbalances will widen the competitive disadvantages of south versus north will widen and the support for a harmony or single currency is going to become even more tenuous than it is today. Thank you. Bob, thank you so much. They were great points to highlight. Wolfgang, over to you. Thank you very much. I'm happy. Thank you for the invitation and also thank you for the opportunity to close this debate as you put it. I want to pick up from David's comment and also Lincoln with some of Bob's comments but if I look at the Eurozone crisis or the events of the last three years what had gone wrong fundamentally is a fixed exchange rate system of different non-converging countries is not sustainable. That is basically what happened. Now not sustainable as Herb Stein, President Nixon's economic advisor once famously put it, something that isn't sustainable will end, will stop. There is another way of course which is it can be rendered sustainable and essentially that is what this debate is about and a lot of the pro-Europeans myself included made the mistake in the beginning, not in the beginning of the crisis but at the beginning of the Euro that we thought yes the crisis will come as a famous comment by Romano Prodi who said oh this is all going to end in tears but it's actually quite a good thing because when it ends in tears then we'll finally have the political union to actually fix it and I think that was the mistake because it ended in tears and when the European council met to actually consider political union, economic union, fiscal union they decided not to do this so essentially this rendering it sustainable in the way that we had all in visits just didn't happen. For me the crucial period in the way I think about the Euro happened between June 2012 and December 2012. In June 2012 the markets were very pessimistic about the Eurozone, the spreads were widening it was over the time we were really actively batting against the system it was the period when I was relatively speaking most optimistic because it was the time when the European council including Germany accepted a progression, a long-term progression towards the three goals of fiscal economic and political union including banking union that was sort of subsumed in all of that it was a long-term plan the president of the European council was charged to draw up plans and there were actually some blueprints that later came out that were quite ambitious in some respects even went further than what I sort of advocated in the years before it was actually quite there was a brief attempt the crisis got worse on markets and that was the moment when Mario Draghi launched his whatever it takes promise his OMT right monetary transactions programmed and that was the signal to the markets okay there is now a lender of last resort we stop to panic and the spreads went down so this ended a part of the crisis which was the most visible part which was the sovereign debt crisis the explosion of sovereign yields that made it very difficult for governments to refinance their large volumes of debt that were obviously the result of building up of imbalances that had arisen the euro as David had explained in much greater detail but there was a side effect to the OMT program and this was I think a catastrophic side effect which is that the political will to enter into this monetary political unit it ended it was visible pretty much in the weeks after he launched this program it was then that the opposition to fiscal union became much fiercer in Germany it was in September of that year he had spoken about the program first in July and was it I think in early August and later substantiated it in September it was in the same months that Merkel definitely ruled out Euro bonds not just for now but pretty much forever it's over the next months the opposition became tougher towards fiscal union as a principal goal political union was too they were in favour but there were no concrete proposals but it was decided at the December summit to dump all the progress reports and all those meetings that were being scheduled on fiscal union so that important element of further integration ended because the crisis seemed to have ended the pressure was off and it was for me the moment when what one could render sustainable it was the more we passed sort of a point of no return in the Euro zone crisis my prediction is not that it will collapse I don't think the Euro will collapse there will be a Euro of similar countries Germany, the Netherlands, Austria France had Austria, Germany had fixed exchange rates since the 70s Germany and France had essentially fixed exchange rates since the mid 1980s they will continue to be able to have a fixed exchange rate system in a highly imperfect economic system without transfers, without fiscal union that is not necessary but Germany and Italy Italy is a very instructive example we don't even need to speak about Greece where the catastrophe of this thing is most apparently everybody knows the country has been in recession for six years still falling with no turnaround inside but Italy is an interesting example Italy over the period of 1950 to the late 1990s had a very stable rate of nominal growth that's real growth plus inflation you add the two together if you look at the nominal trend line of Italy it was very stable in those 30-40 years once it entered the Euro zone that line totally flattened Italy is now depending on how you calculate it between if you look at that old long-term this is not sort of like some bubble trend we're not talking about like 2005-2007 kind of trends we're talking really long-term trends that are very stable for most countries Italy is about 20-30% below that trend there is no way that Italy will catch up with that trend that is clear, it cannot happen it would need a rate of growth with a debt level of approaching 135% of GDP a growth rate that has essentially been around zero between zero and 1% Italy is not sustainable in the Euro zone so the question is how can that be how can that be solved can we just miraculously get back the growth very hard to see how Italy the state cannot do it given the constraints it's not even austerity it's still running deficits of 2.6 between 2.6 and 3% of GDP so this is not real austerity these are simple fiscal constraints Italy has exhausted its fiscal potential and there isn't really a lot more that the country can do we're talking small decimal points even the debate today with the new government is about two or three decimal points of GDP it's very hard to see and to get a supply site shock is very difficult and here's the point of probably the only disagreement we have on this panel disagreement with Bob the supply site reforms they've done really small countries have done really well but we've seen no evidence that you can address a macro fundamental macro economic imbalance through labour market and structural reforms these things even if you take the greatest advocates of structural reform like the OECD you don't get more optimistic about the impact of structural reform than the OECD and they did the numbers on Italy and they looked at what's the accumulated impact over 10 years and 10 years this was like the maximum package and we know in real political life you never get the maximum package it's about six percentage points it's a cumulative thing given what Italy has lost they don't take the six percent rather than not take the six percent and I think they would be useful but to repair an imbalance that has a macro economic imbalance that has a reason of that scale requires essentially what Italy always did and the reason Italy maintained this relatively positive growth rates in the 50s and 90s was until the 90s was that the country devalued pretty much every five to ten years they didn't have that to have rendered Italy sustainable in the Eurozone it would have taken a convergence to what's German you know it's not just German labor markets it's also pricing policies of companies it's how to do business it's how to organize your social you know your social life these are so many factors that are interacting that's probably also the deep reasons a small country like Ireland can probably achieve an internal an internal adjustment a real adjustment it's a smaller country where it's not that much to leave a large country like Italy but 20 times as large with structures that have grown for very long periods it's very hard to get the Italian trade union system made compatible with that of another country in fact it would be completely impossible if Germany wasn't in that position had to be made compatible with another country it's completely unthinkable that this is possible which is now the real life in an asymmetric monetary union with Germany being at the core and everyone has to adjust to that particular model not because Germany is wielding power but simply because it is sitting there as the largest dominant part of the system of an asymmetric system in the middle so my prognosis for the Eurozone is that the system holds together in the core countries that of the periphery countries the small and flexible ones will be able to maintain their membership I see no reason for Ireland not to maintain its membership of the Euro as long as Ireland wants it and there is a general will smaller countries like Estonia should have no problems remaining a member of the Eurozone for countries like Slovakia I think it probably is alright there's too many close links to Austria and others I can see the Czech Republic and Poland at one point entering the Eurozone I can see even enlargement of it to certain countries but I find it hard to see how southern Europe is going to remain a member of the Eurozone even with the best will without the establishment of very significant transfers without the realization of debt forgiveness and debt restructuring in other words without a large debt conference that would have to take place in a few years time and these are policy options have been explicitly ruled out certainly by Germany but also by the other northern countries so here's something we'll have to give of those two there has been a strategy and this has been the Merkel strategy to say we don't forgive debt in any explicit way but we do it through extending loans reducing interest rates both to the extension to infinite and the interest rate to zero and obviously that is debt forgiveness by definition unfortunately it doesn't work quite like that and the amounts that you forgive will not be sufficient to bring down that debt and actually reduce the uncertainty of default which is what holds back investment no one is going to invest in degrees until and unless that uncertainty is taken away so these political solutions where you say they might not admit them where you have a smoke screen in front of you they don't really work economically and this is what we're seeing in Greece I see large parts of southern Europe including Spain where I see an unresolved debt problem despite reports of an economic recovery which I doubt in case of Spain I have my great doubts about it I have my doubts about numbers about published statistics I just don't buy the story of a Spanish economic recovery but we're seeing a private sector debt overload that is so massive that I find it hard to see how that can be resolved in any in any smooth bunker so for many strategic point of view yes the east west division in Europe is certainly ended but we might see other divisions coming up and I think the north south division is would be my main scenario wonderful well thank you to all three for giving us such great content and some good food for thought I'd like to just throw out a couple of questions and then I hope everyone's writing down putting their tents up and then we will get moving here for the discussion I have to say I agree I have been surprised as an analyst that muddling through has been achieved thus far the sustainability of this but I think in many ways the political leaders underestimate or don't understand the economic market pressures and markets and economics don't quite understand the political dimension of the European integration project so both are sort of colliding here I have three questions for three panelists what is the greatest risk to the system I think you really talked about Italy and I know we'll have a conversation about that I would probably add France to that list where you have the larger economies that politically are not going to be given the demands to reform unless there's political will to do that but what is the greatest risk to the system that we can see in the future I'd welcome that we haven't talked we talked about the euro and the 18 members but we have not only the north south division but we have the 18 versus the 10 those who are inside the euro zone and are developing perhaps they're not the measures we need David but at least they're focusing on integration but the 10 are not part of that conversation how do you sustain a union when 18 are moving in one direction 10 may or may not move in that direction how do you look at that and you touched Bob on the unemployment here's my societal question so we have an incredible youth unemployment problem particularly in southern Europe but in 10 to 15 years we have a demographic problem in Europe particularly for Germany by 2050 an elderly growing population without the sustainability how does the economic model of Europe look where you have really a lost generation that if this continues we're going to have a skill loss of a young generation that if they've already left Europe if they can some that can't or are losing skills and we have an older population that will grow on the fiscal budget so those three simple questions why don't we tease those out and then I'd love to get the thoughts from our participants so I'm just going to work our way down David Bob and then we'll let you have the last word so you'd like us to answer a cocktail of all those questions well just listening to this this is why one comes to these debates I've just coined a new acronym based on this intertwining irritation because it strikes me that what held the cold war world together stopped it from including as everybody knows mutually assured destruction so the acronym that comes to my mind here and I do want to place a patent on this just in case anybody does in case anybody really thinks it's worth copying is it's more basically is it mutually assured resentment that is the essential binding tool and it and this is actually quite strong because of course it does go back to all the wars that have been fought there is still clearly a very strong political feeling in Germany this got to go one step further to basically make up for being something of a bully in the past and this political feeling does go quite a long way and I think I'm answering your question about what is the biggest risk the risk would be that this political feeling of responsibility I wouldn't say guilt but it's responsibility somehow dissipates as a result of generational change or indeed as a result of the resentment which is there in a dull way spilling over into the feeling that one is really ruling out and of course as many German economists say the German taxpayer actually hasn't spent any money yet because it's all in guarantees well they will now very rightly about the need for a debtors conference interestingly people like Helmut Schmidt talk about the need for a debtor conference and he is old enough now and statesman like enough and deaf enough to say all sorts of things that ordinary politicians, ordinary mortals don't say and he says that debtors conference will be necessary and that's when the German taxpayer will start to pay and so you won't have hospitals built, you won't have roads built, you won't have swimming pools all the things Jeremy does need because you'll be shoring up the debt elsewhere as we all know there's a limit to what you can do with Greece in terms of cutting the interest rates, people talk about the pretend and extend you could of course transfer all those loans into perpetuity that might be going a bit too far that would be actually writing off big time that would mean actually you wouldn't be gaining money through the fiscal system which would otherwise be going on schools and hospitals and swimming pools the Greek interest rate was already pretty low I think although they've got a debt of 170% of GDP the interest rate side of that is still only 3.5% of GDP so even if they were to cut all the interest rate to 0 they'd only save 3.5% and as Wolfgang and others know the fact that growth is still very very low in Greece means that from a numerator denominator point of view the debt to GDP is getting worse all the time despite the huge efforts that they have made so that's my answer number one if this responsibility factor or the political cement binding together were to fail I agree with Wolfgang by the way the business about crises driving Europe to ever greater heights that Monet description has now come to the limit of its usefulness and I think it was actually Padua Skiopa who said in an article in the FT I'm not sure whether it was Pudi I think it was more Padua Skiopa who said now the crisis has come and at last it will claim rightfully the prize of political union which has always been rightfully within Europe's grasp and as you very nicely pointed out that probably is the clue why Mrs. Merkel without actually talking to Draghi and I do know that she did a light on the OMT and gave it her full support because she thought oh well Draghi's managed to sidestep that one for me you know thank you very much Mr. Draghi and that does actually lead to a lot of resentment at the ECB because they do exactly as Wolfgang says they do feel that they've done too much which is why they're doing too little in the last 12 months in terms of the 10 now obviously I do stick up very much for the countries outside as the non-Euro club because as John Major might say this is a not inconstruable bunch of countries and then if you add in those who are not even in the EU like say Switzerland or Norway and you could throw in say the Turks as well these are all countries that Germany is doing a hell of a lot of business with these it's not just the 10 it's also the other 17 countries also of Europe including Russia and Germany is doing progressively more trade with all those almost as much trade now with the non-European countries sorry with the non-EMU countries which are in Europe as it does with the EMU countries it does about 37% of its trade with the EMU countries it does about 32% of its trade with those 10 plus there's other important European countries that are not in the in the EU so I think that is one has to pay attention to those 10 I'm pretty doubt for whether Poland will join Poland wants to join clearly for all kinds of geopolitical reasons but it does know it will be trapping itself into it will be the hammer and the anvil that has always been Poland's tragedy only in a different way this time economically rather than politically they want to keep the door ajar so I think that's going to be a huge test for European statesmanship how to keep that show on the road of indeed as you said Heather making sure that there's a modicum of political integration amongst the 17 or the 18 and somehow keeping the show on the road with the other 10 the other 10 are becoming increasingly important I will stop at those two questions and leave the floor to others thank you Bob on the first one I think the greatest vulnerability is the unemployment issue for a wide range of reasons one because if one talks about discontent or resentment there is no greater source of discontent or resentment than countries with large numbers of unemployed particularly unemployed youth who can't get jobs and therefore find the frustration level rising not simply against their own governments which is palpable in at least some parts of the region but against Europe for either constraining their governments because they don't have the freedom to maneuver their currencies or let their currencies float as in the past or other countries are not in their view in the eyes of these people giving them sufficient sums of money to help overcome the problem or asking a higher level of austerity than they feel comfortable with but it is a source of enormous resentment and I think it is if one has to pick one major source of instability or potential instability or vulnerability that would be it this leads me to the second question that relates to the cyclical structural discussion that we were I think perhaps have a difference in perception on or differences in terms of the notion of what works to address some of these problems I think that the reason I'm first of all a great believer that if you can get growth that is a very good thing and that will be perhaps not perhaps but would be the single most important way of overcoming a number of problems in Europe and overcoming an employment issue that a number of these countries face as in the case of the United States on the other hand there are two factors that require I think a more nuanced approach to this because we in the United States have seen the economy begin to pick up but in this recovery relative to past recoveries employment has not picked up at the same pace as growth in other words we've seen more growth relative to increases in employment than in the past so employment is lagging historically what one would normally expect given the fact the American economy is growing not growing in a dramatically strong way but picking up and therefore there are structural issues that have impeded the recovery of unemployment at a pace one would anticipate given the growth of the American economy so there are structural issues that exist they're not a substitute for growth but growth in itself is not a panacea either the other side of the coin is that in some parts of Europe if you would conclude as I think many of us have that growth is not going to be very robust for a period of time for a lot of the reasons that were mentioned on this panel then there need to be not as a substitute for growth and I'm not arguing there should be a substitute for growth but if you don't have growth you need to find some things that either achieve a higher rate of growth than you anticipated and I would put a better energy policy in that category I would put TTIP in that category and I would put providing ways of financing small and medium size enterprises in a more effective fashion in that category and to a degree it's hard to create growth only with labor market reform but it can be helpful in some areas if one increases training and if one increases education it does improve the productivity of the workforce and therefore it can help to improve the overall environment I point out that if you look at Northern Africa Egypt with huge amounts of labor market discontent had for a period of time the Tunisia growth rates in the 4, 5 and 6% but a lot of people even though that growth occurred a lot of people didn't benefit from it so there is an interrelationship between the two and I don't think one can simply say we need growth we do need growth but there are a lot of structural issues that need to be addressed as well to enable more people to benefit from growth and if you don't have growth there are some of the of the social tensions that arise from a high level of unemployment so this would be the issue that I would focus on and I think that there are economists can debate this endlessly but the longer people are unemployed, particularly young people are unemployed, the more it will affect the ability of the economy to grow so the cyclical problem becomes a structural problem if you can't get your first job you don't get job training then you're less employable and the ability of your economy to produce at a high rate of productivity is diminished because labor doesn't have the training or the experience to do well and to Heather's point which I think is a very good one if these economies age because of demographics if your population is going to stay the same flat or diminish to achieve the very same growth rate you need a higher level of work of productivity so that you need given the demographics of the United States and most countries in the western world you need to increase the rate of productivity of the workforce to maintain the same growth rate if you expect over a period of time as most large industrialized countries do a diminishing workforce as the baby boomers retire so growth and structural issues are not separate they're part of the same overall whole and we have to look at them that way on your question I talked about what's going to be I disagree with you on France the one country I'm less worried about is France I know that in especially in the UK I think it was the 75% tax rate that kind of triggered everything it probably led to political discontent among the elites the people we're talking to people who read the financial times that I can imagine that there is a exactly the kind of people the financial press talks to that we worry about but as an economic event it hasn't been it hasn't been that bad France has a slightly higher level of debt to GDP than Germany about 10 percentage points it's not that big a deal France has a much better growth performance in the Eurozone than Germany much much better since the start of the Eurozone Germany has done relatively better lately but the overall performance is not France is clearly sustainable in the Eurozone they have to do a few reforms I agree not necessarily the ones everyone mentions I think they need to do something about the labour market contract the single, the relatively high youth unemployment not so much for economic reasons merely for social reasons this is an important domestic political issue it would render the economic performance more sustainable in the long run but I do not see France in any way in danger here on the 18 versus the 10 it's not quite as simple from the 18 obviously you have the ins and the possible outs but of the 10 you have the pre ins and the outs so this is quite a sort of we're grouping into like four here and of the 10 only the UK is a definite out in the sense of out forever the Danes are not saying out forever the Danes are saying out for now the Swedes are saying out for now so while I wouldn't classify them as pre ins either they are sort of in a sort of on the cloud the UK is different and that's why we're having this UK debate because the UK has decided it doesn't want to join the Euro it will not, it's not just an opt out but it's definitely a decision not to get in there's nobody I know of in the UK who really wants to relaunch the Euro let's join the Euro debate so that's basically and that's why we're having this debate in the UK about does it make, is it sustainable for a non-member state of the Euro zone to remain a prosperous member of the EU I'm sure we have plenty of would take us away from our subject here today but I think this is one of the most important debates and obviously also central to François's book and this is a hugely important debate on which one could have two different views now on Germany what is happening there and I think you made a very important point Germany has chronic low investment which is Germans has an 8% counter-count surplus which is sort of like Germany invests abroad instead of at home you're seeing under-investment infrastructure, the crappy roads canals and the nation's society so this is you know Germany's turning into a rentier society that is working of its savings that's sort of the counter-count surplus will then shrink, shrivel away over long periods of time they will persist for now, shrivel away and then you know they hope to have amassed enough savings in order to live I don't think this is a very happy sustainable position but just as the energy policy shift from nuclear to coal basically what it is now is a particularly sustainable shift either but you know I think there's a lot of hypocrisy in that so there we are all right let the questions begin I'd like to take two at a time so let's start with François Heisborg and then we'll go with Arigo and I'll take the next set of two thank you very much I can't resist I can just listen to the last point which Wolfgang made about the coal policy of Germany in France in Paris but not only in Paris we've had the worst pollution we've ever had and the specialists say about 50% of this is due to particulates blown in by the wind from Germany so you know no atom thanks there no seriously a question to Wolfgang and to David and I won't talk about my book I'll have the opportunity to do that in a couple of days there's one point upon which I think just about everybody is in agreement I've heard the counterargument if there is one and that is that the Eurozone is not an optimal monetary area but the and here comes the question have we moved closer to creating an optimal monetary area since the creation of the Euro in its banking role in 1998 and of course since the beginning of the crisis strides forward or not in the field of labor mobility the re-nationalization of the various of the financial industry in Europe are we moving forward or backwards in terms of creating an optimal monetary area a couple of quickies for Bob TTIP I couldn't agree more with you what you said but if your president doesn't think that this is important enough to work the hill the way a president is supposed to work the hill to get fast track authority nobody in Europe is going to believe that this is going to happen and it's not as if we had massive resistance against TTIP in Europe we actually don't want to be subdued until now so please please get your president to act like LBJ even if he doesn't look like LBJ energy energy here again energy here again I couldn't agree more A this should be the central topic of a US EU summit we've always been looking for serious things to discuss between the US and the European Union the time has come for this one precisely because of what's happened in the states with the energy revolution and what's happening with the Russians but it's not only the Russians when I look at the sources of gas for my country, for France Algeria very stable no problem in the next 20 years in Algeria I'm sure Libya for the Italians Qatar a great oh this marvelous place Qatar it's not only Russia in other words I would like to see a hard headed discussion between the Americans and the Europeans along the lines we the Americans were going to open up the floodgates for the free movement of gas and tight oil and whatever vis-à-vis the world market the opening up on the one hand but you the Europeans you'd better start pulling up your breaches on your side that's a remark that's not a question thank you thank you and first of all let me thank you very much for this wonderful opportunity to have the benefits of listening to so much stimulating input particularly grateful because this is one of the very rare occasion that I have to express my own view after being constrained for more than eight years as a board member of the IMF I cannot tell you how much I relish this opportunity the only constraints I have now are my own personal limitations and I ask your forgiveness for this in advance let me just touch very briefly three topics which have been raised Euro of course the austerity measure I cannot say nothing about Italy for no other reason that I'm Italian and perhaps an overall conclusion on the Euro has just been a reminder by the previous speaker that the Euro is certainly not an optimal currency area but we have to be careful what that means an optimal currency area could work if not only the monetary construction is perfect something which is obviously the Euro was not but even taken as the function of the monetary construction as an economic entity it could work if the other elements which surround the monetary constructions functions in other words with all the imperfection of the construction of the Euro the system it could work if the other economic factors means a kind of mobility of factors which is the theory says it's necessary to make the optimal currency work but also the elimination of the gap in the performances among these countries work that is what really it did not happen and as a matter of fact the launching of the Euro instead of being the beginning of a process of bringing all these separate there's been an excuse and an alibi to abuse the system and that is not surprises that are certain points that collapse having said that I'm not as pessimistic although I'm a trained economist to conclude that there is no future of the Euro not even as in a reduced form limited only to a selected number of countries that's how we live it as I said on the austerity policy and that is the topics that I feel very personally because at the IMF in addition representing Italy I also represented Greece and Portugal throughout this stabilization programs so I saw all the mistakes but also some of the success that these programs have brought and very synthetically I think I could say that the type of extreme austerity which has been imposed to these countries in order to first to stabilize the situation and hopefully to create the basis for the future growth has not necessarily been the optimum policy but to some extent and I would say by a larger stand is working we have extremely encouraging sign that that type of approach is working austerity would not be forever in these countries as a matter of fact with the exception of Greece all the other countries one way or the other are close to come out of this type of programs and you have to keep in mind that there's no growth to which the program countries has experience the last few years is not a unique experience of only these countries it's a much more generalized phenomena almost all advanced countries and not just the advanced countries are going through a period of relatively slow growth including the United States Canada and so on and so forth there are very specific reasons for this type of phenomenon I don't have the time to go in depth Italy I wish I would be as optimistic as Mr. Munchauer on Italy when I discuss Italian situation to some of my clients now I'm in a private sector and I do that for a living I start to tell them that the fiscal issues is the least of the economic problem of the country the least and as a matter of fact just a butad if you really look and you divide the fiscal situation between the deficit and the debt you see not only that the country has one of the lowest deficit but even more fundamentally the underlying long-term trend which allowed the country to bring to keep the deficit under control are much more positive in Italy that in almost any other advanced countries the problem is of course is the debt which is a secular problem and the only way to cure the debt is growth to another point why you say that fiscal is the least of the economic problem because the number one economic problem of the country is the slow growth is not a recent phenomenon is not due to the entrance or the establishment of the euro Mr. Munchauer has remind us that Italy has been able to sustain some decent rate of growth because periodically it was devalued in the country but that is the problem the country has taken before the euro the so-called easy way out without addressing the fundamental underlying problem that's the reason why I say that it's not the fiscal it's not the economy the country needs very deep and radical changes in its own institutions and even without going into the purely political field it needs radical changes in those institutions that are necessary to make an advanced economy working if the fiscal system it doesn't work if the educational system doesn't work if the bureaucracy is suffocating and if the cost of the politics is exuberant you could have the most endowed countries and the strongest entrepreneurial spirit of the country but that's it's not enough finally maybe and that is a point that I'm offering for discussion I think we should probably come to reexamine the fundamental strategy which has been followed for the unification of Europe we start at the very beginning on the assumption that if we go through economic integration that inevitably we lead to a really political unification at United States of Europe that is not necessarily so I mean I'm not saying that economic integration is not good for itself I'm not saying that it cannot facilitate and bring tremendous advantage but I think that it's not necessarily the only way to go to move forward on that and some other elements here are probably necessary either on the social policy or on the policy in general terms thank you with the panel's forgiveness I think because we have so many more and I want to keep us on time I'd like to bundle all the comments and questions and then I'll let you at the end to do rapid-fire response if that's okay I want to go to Liam Fox thanks Heather very briefly to echo Francois' point one of the few things that actually unifies politicians in Europe at the moment is utter disbelief about the lack of willingness of the American administration to fight for TTIP caving in to domestic political pressure on the hill it has just horrified us and if the administration is incapable of giving leadership on foreign and security policy we might have expected that we've done something an issue that actually might make Americans wealthier which was TTIP but my real question is really to Wolfgang and I completely agree that it's logical I think that at some point there needs to be a way out of the Europe for Italy, probably for Greece probably for Spain and Portugal it's difficult to see that they'll sustain the political and social pain of having in Spain's case 58% youth unemployment it's a crime in any case to inflict that upon a country how? there is no treaty or legal mechanism by which countries can leave the Europe it was designed so that no one would ever find an exit how is this going to happen and given that that's the case is not continuing to progress with things like banking union at present time adding insult to injury and making a very difficult situation thank you Evalo, please Kevin thank you Evalo I would also like to focus on the Euro question although of course the economic development of Europe is much beyond the Euro and very much how Europe stays into the world including the transatlantic relations but going back to the Euro of course now we are very critical to the Euro but it had some 10 years of very positive development before that and we kind of forget that of course if we can imagine now a situation where there was no Euro then what would happen with Greece, Portugal, Spain they would devalue their currency if there is a devaluation of the currency which is the classical reaction to macroeconomic imbalances then what would happen then to the for example German export or German investments in these countries and we forget that before the crisis in Greece the German banks had an exposure of 90 billion Euro to Greece and this is the same Greece that is criticized afterwards by Chancellor Merkel of not being reformed being bureaucratic etc 90 billion German banks investment there if you had a devaluation then that would be a huge blow to the German economy to take one of those political transfers don't have any explanation they are counterbalancing nobody wants to transfer taxpayer money but on the other hand you have quite a lot of benefits from the single currency also going to some very large economies and of course this is not just an economic question this is not a zero sum game because you have plenty of political considerations with influence of decision making etc second talking about the geography of the euro I'm not sure that this is a division between north and south now I hardly imagine to have Spain Italy out of the euro and have Poland and Estonia in what's the rational for that is it economic or it's political or can you speak if we speak about different geographies a few about Germany and German influence countries around but this is not anymore optimal currency area and I'm not sure that we have to go back to Mandel to speak about optimum currency area because there are some other additional issues that maybe we have to put in Europe and finally a reflection that it was really very interesting and stimulating to listen to the professor word before that indeed there is the post war moods make people unified it happened in Europe after the second world war also but the post crisis moods are disunifying and so what is the reason for that do you think that it was easier after the second world war to put together countries that have been fighting before that and now it's much more difficult to put the european citizens together for something which yes they will have some pain I'm speaking about political union but there will be a result of that what I think lax is very much european leadership for that thank you we'll take Ulrike and then Antonio and then John we'll have you finish up yeah thank you very much first I'd like to thank Mr. Hommad for just saying this little sentence that this bailout of the US government basically bailed out or gave a lot of money to big American firms and to big American banks I think the US citizens are upset about these things and I just wanted to say that in Europe this is pretty much the same and european citizens are also upset about these things so my question here sort of in the whole context of the rational who stays in who gets out of the Euro is pretty much when do we as these elite people sitting around tables like this will acknowledge that these people we call populist are actually right in their analysis that there's something going profoundly wrong and I think there we will be talking tomorrow about this sort of where's the democracy problem here I think there is a democracy problem here and as TTIP has been mentioned I think we should put TTIP into this equation because the risk that TTIP basically that the aggregated worlds if there is much aggregated worlds out of this agreement to come that this world is again not evenly distributed among the citizens and not in the US and not in Europe neither so not going too much into details here but I'm very thankful to Evaldi who basically raised the same question that I had and especially to Wolfgang I take your analysis about the convergence factor and sort of if there is a day one after a crash then potentially the Eurogroup may look pretty much the same as it is with you know less south and more east in a way that's an economic rational or an economic logic the thing is that politics is not rational and politics is not logic and just to remember that in the first place the whole endeavor of monetary union by 92 wasn't logic it was Helmut Kohl the law and Mitterrand's emotions and then you can read the thousand pages of Helmut Kohl's biography written by Hans-Peter Schwarz who tells you that story if politics is rational we would probably living in the skies of you know heaven the problem we are dealing with all over the time is that politics is profoundly irrational and people like us do have problems to admit this and so the moment I take Wolfgang's mapping of the new Eurozone then I look at the following question and the following question is the question has been posed how do we make this sort of Italy needs to go out that's the logical rational here and Greece needs to go even if I had the solution in terms of treaty sense so and so forth Germany that's the argument would lose a lot of money because it would Italy would probably not payback it's that right in a country which is devaluating so Germany or the Bundesfang sits on the Italian debt and on the Greek debt anyway why then these countries can't stay in and why can't we then do a debt memorandum rather than hanging around with half a million treaties to disentangle our debt portfolios from Italian to Greek to German sort of banks enriching half a dozen of law firms in the United States and Wall Street probably rather than just saying look get over it and I think or I bet or I hope that this will be political rational which will provide at this moment thank you let me reply to the nice provocations of the EU or the Euro being arrogant ignorant negligent incompetent recklessness so just to start many of the issues of the optimal currency area of the need for addressing shock absorbing mechanisms was already discussed at the beginning but it was clear that the costs were were short term the political costs of addressing these issues were short term and clear and the benefits of not doing or the costs of not doing the risks of not doing the right thing were considered too far in the sky but the decision was made to move into the house even if the house was half built with the idea that it would be completed while living it but soon after the moving into the house the priorities had to change because the house had to be enlarged the enlargement meant that much of the energy that had to be developed to complete in the house was devoted to enlarge it so it was not anticipated at the time sure that there could be a perfect storm that could unsettle the house and this is what happened and it was partly the consequence of incompetence of negligence but it was also part the consequence of this perfect storm that could hardly be anticipated so after that there is a process to both complete the house and fight the storm at the same time and this partly explains the poor performance of growth in the Euro area but the process is on to find the right balance between mitigation so between let's say creditor countries not extending a blank check at the same time to have the shock absorbing mechanisms that had been considered but not put into place and this is a process that is done with a lot of acrimony that the crisis has created but it's going on and what I find hard to understand is that the likelihood of finding a solution is dismissed from the outset and I think there are proofs that this is going on on the one hand the countries that had more need to make the reforms they are implementing three years ago or five years ago one could have never thought of countries like Spain or Italy or even Greece undergoing the reforms that they have done secondly you said that the shock absorbing mechanisms or mutilization is out of the question because Germany has said that they don't accept it some statements go in that direction but others go in a different direction which is ok if there are sufficient reforms and this process is what's going on there is a solution it will take time as I said it's done in a lot of within acrimony which makes it more difficult but it's what you call muddling through that has it will be through small steps to reassure both sides but it's going on so I don't have such a pessimistic forecast as others have thank you Antonio John you want to finish us up here this has been as good a discussion as I hoped it would be so thank you first for all that but there is another way of looking at this which hardly anyone has written about the SPD was fiddling with it a little bit and gave it up and that is what I might call for sake of a lack of a better word a kinder and gentler Germany I mean the every single bit of arguing including here today about this issue is based on the fact that Germany has demanded that everybody in the EU become German and I think that's not going to happen there would be other ways there would have been other ways of handling it right at the very beginning Wolfgang you know this in 2010 Scheuble himself wanted to set up a European IMF to funnel capital into these countries he was killed in about a week by Angela Merkel who took a look at she called Mr. Kauder or somebody like that and said this won't work and it was dead the EU has billions of wasted money every year in subsidies and making sure that cucumbers are straight all that sort of stuff which could easily have been reprogrammed into other kinds of programs either infrastructure programs or even debt relief programs in other words what I'm getting at is if Germany really cares about Europe which is an open to question these days if Germany really cares about the Euro surviving there could have been another way of doing it now why wasn't there because they're afraid of their voters because they never told their voters the truth about the Euro because they didn't have enough fantasy to think up another way of doing it there is not every state in the United States is exactly a productive center but they get sort of helped along by the income tax system and things like that there are various ways of doing it and I'd be very grateful especially you Wolfgang the others also first do you think there would have been another way of doing it and if that's true what do you think this tells about Germany's future as a leading country in Europe well you all have not failed to disappoint what an incredible conversation each of the panelists have about two minutes to fire away at whatever they'd like to fire away at because we have to move on to assure you is that this is the beginning of a conversation that's going to carry over for the next several days that all of these issues we're going to talk through in all these different panels so I promise you this is not your last bite at this particular apple but we do want to be very clear so Wolfgang I'm going to start with you and we'll move down the line and you literally do have two minutes to respond but there's going to be lots of coffee breaks and lots of conversation where you will continue I hope to answer all of them but I won't We'll talk about Italy definitely but not now I'd like to focus on a couple of the fundamental questions Ulrike your point about politics versus economics it was politics that got the euro going when something is economically unsustainable even politics cannot it can make it sustainable it cannot it cannot fix something or it cannot just keep it together in spite of it being unsustainable that's something politics cannot do we've had enough experience of monetary unions and fixed exchange rate systems that failed ultimately even though there was political will what politics would have to do now what is the equivalent of what's called it in the early 90s would actually to make it sustainable but that isn't happening that just isn't happening therefore that's why I come to that conclusion it is a political analysis it's not an economic analysis there is no economic inevitability of it's failure not at all and the perfect storm argument I completely disagree with Schoeple made the point that if it hadn't the deep cause of the eurozone crisis was Lehman Brothers if it hadn't been for the Americans we wouldn't be in this mess this is an unsustainable monetary union that was the trigger it would have been triggered by something else we've had financial flows which were unsustainable coming from the core to the periphery this thing was about to blow up this is not a perfect storm this thing was unsustainable it blew up just as economic theories would have told you that it would blow up so there is nothing we've been very unlucky about this it's just that we've been kind of ignoring this for 10 years we've been kind of complacent about it for 10 years why we are in this situation on the optimal currency area you answered the question we've moved away from it there was an interesting point Joseph Stieglitz has made and I think there's something one would need to explore who said that if you took the sum total of economic performance we are probably now worse off relative to if you hadn't done it I think that is an argument that I haven't heard made before that it is sort of an anchor we're always looking at relative growth rates we actually have to talk about stocks about actually where are we relative to where we would have been the question is have we sort of gone over a point where we could actually say at this point we would probably not have been as bad off if we hadn't done the job that's an interesting question I don't have the answer but I think that's something sort of some of the calculations economists will make in the coming years wow you did great David let me just concentrate on two things one on exports by Germany and then the other one on the OCA it's completely wrong to say that this was an irrational construct part of the reason was indeed to protect German exports one of the reasons why the German manufacturers want this to continue is because not just the intra-European trade would suffer as has been pointed out Germany would export less to Greece but it doesn't export very much to Greece anyway but the Euro would be much higher on the foreign exchange markets which would have a big knock on effect on Germany's exports overall you only have to go back into the archives and look at all the documents about why the EMS got going in the 1970s it was all about German exports and this is a very very important point then let me just I was really pleased that Francois brought up this optimal currency area because everybody knows really that OCA and I just watched this film coming over here it stands for the Osage County area and some of you may have seen the film I think it's absolutely brilliant film I was talking about it at lunchtime actually I mean you've got everything there you've got drug abuse, you've got alcohol you've got incest, you've got unlawful marriage you've got all sorts of abuse and deviant behaviour it's very much a synonym for monetary union and also just to bring up what Liam was saying about how do you end it all well, Sam Shepard who's one of the starring roles he just goes off and kills himself quite early on obviously I'm being a little bit whimsical here but this is why you invite the British to your conferences Meryl Streep she clearly is Germany in all this because all the family go off and leave her and she's just sitting at home with her pills and that is clearly that would be the outcome this is why the Germans desperately want the whole thing to be kept going but it's for fear of being left alone so I do think that Meryl Streep should be given an Oscar together with Mario Draghi because they're both equally good performers now just going into the serious point if I may I would also say that it's become less the area Germany should have an optimal currency area with people that are not in the euro area it would be far more optimal because of all the trade reasons I've spoken about there is obviously a greater degree of labour mobility amongst the right kind of labourers I happen to know quite well the personnel director of BMW she's actually Spanish they are hiring a lot of very talented Spanish engineers and my worry and it echoes the point that Bob has made that those people leave their country going live in Germany learn German become very much settled down there as we all know Germany does have labour shortages this will introduce this hysteresis effect in Spain which will make the whole thing a lot worse I really do help I do hope that those very skilled labourers that are going to Germany now to fill very highly qualified jobs that does reverse so we've got a little bit of extra labour mobility in the right places for the right people not for the masses but as has been pointed out this is re-nationalisation of the financial industry that's very much the opposite of what was intended if you again go back into the literature read what Jean-Claude Trichet may his name be praised said about all this he said that there will be a financial channel opening up in Europe because we're not an optimal currency area this is why there has to be a lot of cross-border bank lending which is indeed exactly what happened including into the bond markets as was pointed out the massive imbalances that were built up German banks pointed out did lend the Greeks a lot of money not just to buy tanks now all that has gone into reverse and I think that is another reason why this thing does look unsustainable over the longer term without massive fiscal transfers which will not just be debt they'll be grants this money will have to be written off which is why I say at the end all the German taxpayers have been heaping up that one trillion worth of of claims that have to be settled will just not get the money back which will be tough because as Wolfgang points out this is a rentier state and the whole point about a rentier state is that you expect the rent to actually be paid if it doesn't that could lead to a lot of worry a lot of hardship and a lot of politicians being out of work thank you oh let there be an op-ed in the future that Germany is Meryl Streep you get to finish up a few quick points one Ulrich's point I think on the populist narrative is something that I think is going to continue to grow if people sense these inequities growing and I do think that that is a vulnerability it'll be intergenerational it'll be intra country intra country and inter country as well and I think that is if we're looking at sort of fundamental weaknesses that could undermine not just the euro and Europe but really weakened support for democracy in some countries I think that's a problem and also very divisive in the United States and for the United States it's easy not to think about it or to characterize certain groups as extremist and there are some very extreme points of view about this about this notion of inequity of the system being unfair but the fact is that for large numbers of people they see politics as sort of an inside game that certain people by virtue of their influence and their power benefit from certain programs and others don't and large number of people are sort of marginalized as a result of government policies which don't really benefit them and if unemployment continues at these levels or gets worse or even just only gets a little bit better I think these problems increase in their density. Two specific points, one T2 I totally agree that if you look at the history of the United States no major trade agreement has worked unless it has the full throated and consistent ongoing support of the president it's going to have to utilize his political capital and admittedly doesn't have a lot of political capital these days but whatever he has he has to do it and not just because it's good internationally which I believe it is for all the reasons that I mentioned but because it's particularly important in terms of American growth to expand opportunities in other markets even though Europe's not a rapidly growing market it's a big market and it's our biggest market and improvements in access there will be helpful in the United States and certainly improvements in access to the American market will be important for Europe. The president is going to Brussels in a few weeks in the end of March this would be an opportunity for him at a very high level with the leaders of the EU to emphasize this point but it can't be just one speech in one place it's a sustained effort on his part and Europe has to European leaders have to make that point but also he has to understand that if he wants to make a success out of this he has to commit himself not just to make a speech but to take major action and that's something that has not yet been forthcoming sadly but it has to be second point is let's use the European summits which really have been hollow gestures in the past the first time the president this president has been to Brussels these European summits last an hour an hour and a half if we're serious about US-European relations then make these summits something substantial and the trade and investment area is one but the other is what Francois and I very much agree on and that is energy we have the international energy agency which we ought to raise the visibility of but the US and Europe and I agree it's not just for reasons related to Russia although that's a wake up call to recognize over dependence but it's other countries on which Europe depends who are not the most reliable sources either and therefore it seems to me if there were a moment in history where we emphasize with Europeans at high level at summit level at heads of government level energy this is the moment this is the moment to look at this as not just a technical issue but a strategic issue which involves American production and export policy European production policies which have really been neglected in some countries or at least de-emphasized and ways of channeling energy from more places around the world are diversifying energy sources that go to Europe and the types of fuel that go to Europe so that it is not so heavily dependent on a very few sources this is an historic strategic moment in the area of trade and investment for TTIP and energy in terms of a broader strategic cooperation between the US and Europe and the energy area I think if that's why I say Ukraine can be a wake up call to wake us up on both sides the fact that these are important issues they need high level attention if we don't do it Europe and the US economically will suffer but so will the alliance Bob thank you very much let me begin by saying thank you Professor Wood for getting us in our frame of mind I think Alexander Hamilton may have blushed a little bit at our conversation but he would have appreciated the rigorous debate thank you so much to our three panelists you have given us a great kickoff here and I can't wait to continue the conversation so please join me in thanking our panelists