 moved between the two levels of economics and politics during this period, and they very much look forward to discussing with you and to hearing what you have to say. Basically, my intention was to give a different interpretation of the political economy behind the crisis beyond the standard one. So I will use an economic language, but the message would be mainly political. And the beginning is pretty consensual, the consensual view of how the crisis sat in. And basically, we all know financial integration brought interest rates down, especially in the so-called periphery. Nominal rates converge towards the German level. Credit standards eased pretty much throughout the euro area. And this amount of credit strengthened the economic activity, increased imports, pushed up wages. We all know this story and brought current accounts on a divergent path around the euro area. And this is shown in somehow, apparently, in a critical way in this figure in terms of divergence between core countries, current account of the balance of payment in core countries, and in the periphery. On the basis of the economic matter of facts observation, what came up was a number of more political interpretation. The root cause of these divergence was found in the divergent path of UNI's labor cost. And we see many of the countries of the periphery diverging in the first 10 years of the euro area. Well, we know Germany was capable of keeping UNI labor costs at a pretty stable, at least level or below the rate of increase of productivity. It is the only way to interpret how political economy reacted to the first 10 years of the euro. My idea is that we have moved beyond this static analysis of demand and the effects on the current accounts. What we have introduced is an attempt to interpret the crisis as a divergence in the political capacity of single countries. So which kind of indicator can we use to say how good a government is in reacting to a situation of predicament? Well, I try to use this total factor productivity, which is the way you combine a certain environment of capital and labor. So the way you reform the labor market or the accessibility of capital or the competition on the capital market in order to get an efficient combination of the two production factors. This is total factor productivity. And if you see the variation in the first 10 years of the euro, you see that those countries who had a lower, worse being of total factor productivity are exactly the countries that are suffering the most. So you find Portugal, Spain, Italy, Ireland, Greece, and so on. So apparently the crisis is not only a matter of UNI labor cost. It's a problem of political capacity. But then there is a further step, which is even more disquieting, more troubling in terms of, and this is a second step. Is it not only political capacity? Is it politically inferiority? And obviously it's a troubling question. And how can you get this indication? You use a variation of total factor productivity as an indicator of political capacity. And on the other axis, on the horizontal axis, I use an indicator which I call institutional quality, which is an indicator which is produced by the World Bank, putting together a quality indicator about corruption, transparency, government's accountability, freedom of the press, and so on. I wouldn't buy at face value this kind of indicator at all. I've seen inside this indicator and it's a mess the way it is constructed. I don't rely on it. But still, it's very common to hear it mentioned in technical and politically counter-armic analysis. And the two things actually work pretty well. It's not only a certain delay in political implementation that makes you slow down on the road to reforms. It's really a problem of a society which is not responsive enough. Maybe the media are not good enough in saying it's your time to react to politics, must feel the pressure, and so on. Or maybe the people are in denial, who knows. But the point is, there is something in this troubling picture of Europe as an area with different cultures and different quality in the societies. But as I told you, I'm not sure this is solid enough to be accepted as a conclusion. And in fact, if you take a step back, you see that this old construction is a bit wobbly. This is, again, current account balance in the larger countries. And you see that the explanation about divergence in unilever costs and current account of France and Italy, for instance, is not convincing. France and Italy until 2008 are not really divergent. So how is it possible? How can we put together the two things that we see, unit level costs? This is in Italy. These are two indicators, real effective exchange rates based on the green curve on unit level costs, the one which we have seen diverging so much from the general level, and the other based on the price levels. Two standard indicators that the IMF publishes. And you see that there is this enormous divergence. So unit level costs in Italy were way off the German level. But the price level remained the same. And this is consistent with the fact that the current account of the balance of payment was not really going down the drain. Well, what happened in between? There are many explanations about the compatibility of these two indicators. But unfortunately, there is a nasty one, which is Italy succeeded in keeping its competitiveness at a decent level during the 10 years of the euro, unfortunately, by increasing the unobserved economy. And between this is a table produced by the Bank of Italy, the Italian central bank, that shows that between 2005 and 2008, an incredible amount, 6.4% of GDP becomes unobserved. So in order to keep up with the competition, you need to hide away from official markets, which is obviously very disturbing. But it's not unique. But first of all, how did it happen? Basically, exploiting immigrants, whose number tripled in the period between 2000 and 2008, almost tripled, these two curves show entirely flexible wages and contracts, level contracts. And you see the upper curve is the one pertaining to the immigrants, the other are official Italian workers. So the entire flexibility needed to keep the economy in sync with the competition in Europe is unloaded onto immigrants. And who are immigrants? Unknown voters. They do not vote. So this is a politically very efficient way to unload the costs of adjusting to the global competition onto known voters. And this is exactly what happens in other countries as well, also in a different way. This is France, which grows faster than Germany, almost throughout the whole existence of the euro area. As we know, the difference is basically given by the contribution to GDP growth, given by net exports is plus 0.6 in Germany throughout this period, minus 0.2 in France. So the possibility to grow is granted by domestic demand supported by states' transfers of income. And this is compatible with the fact that also the level of growth in France is persistently above the potential growth rate, the French potential growth rate. The deficit is never balanced. The public deficit in France is constantly too high relative to the stability pact rules. What does it mean? In the 10 years between 2000 and 2010, France buys the equivalent of 20% of its GDP in public debt, which was not justified by the rhythm of growth of the economy. But again, what is public debt and due public debt is unloading the cost of adjusting the economy and making it grow onto future generations, known electors again. This is the same pattern that happens throughout the euro area in different ways. In the south, costs are diverted to minorities of non-voters. In Spain, 2 thirds of the level force has full coverage and safety in the level contracts and the flexibility is provided by a minority, again, a minority of voters. It's a politically efficient way. Similar things have happened not only in Italy, but even Schwarzarbeit in Germany has increased dramatically in the same period. So black market in Germany as well. So you find people who are normally a minority to unload the political costs. In France, we have seen different pattern, future generation. And similarly, it happened with an outsized increase in the public budget in several countries. We are probably familiar with the criticism against Ireland, Luxembourg, Austria, and the Netherlands about a strategy that other countries adopt as a back-of-the-neighboring, adopting regulatory regimes or fiscal regimes that draw away from other countries' taxpayers' money. But what happens in northern Europe and in Germany in particular? Well, in this case, we do not have really a strategy, a gimmick. It's a real strategy, and it's an intelligent one. We know that between the 90s and the 2000s, after 2000s, the addition of expert imports on GDP in Germany grows from 52% to more than 90%. It was lower than in France and Italy. It's now three times higher than in Japan and the US. This produced through an enormous amount of domestic net savings, which was re-invested in high-yielding government bonds in other countries, and produced in a cautionary estimate, would be roughly 1% of GDP adding 1% of GDP to Germany through foreign taxpayers' money paid through the yields of government bonds that was the object of investment by the German banking system. As you may know, according to the Bundesbank, 87% of the German banking system has some relation with the state. It's not private, in a way. And most of it has statutory limit to the profitability. What happens? They collect the savings domestically. They re-invest the money. 1 trillion euro invested in the periphery of the euro area. This brings back, let's say, 100 billion each year. But this cannot remain in banking profits, must be distributed to firms through long-term low-interest trades or through investments in local infrastructure in the lender through the Landesbanking, which obviously increase political consensus. And again, it's a way to preserve political consensus through foreign voters, foreign taxpayers. This system has characterized not only Germany. These two graphs show that most of the euphastas growing countries applied the same strategy have high national net savings. So they live, as we say, below their own means. They save more than we would expect from a standard macroeconomic model. And they invest even less at home. And you find exactly all the usual countries that you mentioned as faster growing countries, among the others. So Finland, Netherlands, Austria, Denmark, Belgium. I can't read because I can't see. And Germany. And you find, again, the same countries on the other graph as countries that do not invest at home. They invest abroad and bring back the yields from outside. So this is my interpretation of the crisis. We were not prepared domestically to understand how interdependent we were, how many effects our political decisions at home had on neighboring countries. And what we have done was trying to substitute monetary policy, which was an extremely powerful instrument to keep consensus, think of how we adjust tradeable and untradeable sectors through inflation or devaluation or recovering competitiveness without making people notice it too much. Simply devaluing, well, this was a very powerful political instrument. We substituted with less visible political tools as we have seen. But when the crisis broke, the system was so fragile because we abused of those tricks. And the system was trained exactly in those points. So German banks, intermediating so much, were almost bust in 2008. French fiscal policy had no margin anymore. Italy's growth collapsed because the economy was fragileized by this bad adaptation to the new production composition required by global competition. Spanish unemployment went through the sky. What does it mean in political terms? If I have five minutes. What is a lesson of this incapacity to adjust to the new environment? Well, basically, we have not been able, in a way, democracy has reacted, but democracy has national borders. And we were not prepared to consider that the effects of our policy choices would reverberate neighboring countries and eventually come back in the shape of such a dramatic crisis. Why? Well, my understanding is you are so kind as to mention the book published in 2012. And now I open an advertising space saying in the next month, a new edition, a larger edition of the book you mentioned is coming out for Brookings Institution. And I elaborated the book is a narrative. So these analyses and these graphs are not contained in the book. It's simply a narrative of the crisis. But I felt the urge to go farther and understand what had happened in a more analytical way. And what this book will present to the public as a possibility is that we are actually victim of the past much more than we understand. Basically, what we have pretended to do was to consider our countries as self-sufficient, as not so interdependent in political and economic terms as they really are. And why that? Because self-sufficiency is a mindset of people who have legitimated the nation-states as the actor of a conflict, of war. In a way, the past, the European past is still with us. If we have a source of legitimation of the nation-state, it's still the defense of the people in conflict that have forged European history. But when you are in a war, you don't want to depend on the other countries. We are still in this mindset. We don't want to open our mind to interdependency. And interdependence has crushed the gates and entered into our homes with this major crisis. And my understanding that we are still far from understanding how interdependent we are and that the solution of the crisis is still hanging on this cultural gap. I guess I'll, oh, sorry. Chacun Sainer is a reaction that the first episode I tell in the book was meeting at the beginning of October 2008 between Chancellor Merkel and President Sarkozy on the stairway of the Elysée. And Sarkozy tried to convince Merkel to put together money and fiscal backstop for facing the banking crisis. As you, more than anybody else in this world, know what Merkel answered and said no. Everybody has to take care of their national problems. And so Sarkozy turned to an aide and said, she doesn't want. She said, Chacun Sainer, each is unmerged. Well, this, in a way, has continued to be the rule during all the crisis until intergovernmental practices have taken over, think of how the fiscal compact has exited the EU legislative framework. And while the very first episode of intergovernmentalism was May 9th and 2010 when the EFSF was established outside the EU legislative framework as an intergovernmental treaty. And I'm not going into the details, but it's a long story of breaking the idea that we can all decide on the majoritarian principle, both in the majority. And what has taken over is hierarchy between creditors and debtors that Mario Monti dubbed as creditocracy. Unfortunately, this fits with the intergovernmental structure of decisions. And this, again, is often a way to deny the interdependence of consequence. I'm not going further. I had a few things to say, but this is basically what I wanted to discuss with you.