 Hello and welcome to Newsclick. Today we have with us Professor Jyothi Ghosh to discuss the Greece crisis. Jyothi, we have discussed the Greece crisis a number of times. Now it does look like there is going to be an impending default which is almost an offing and there is a possibility of a financial crisis on a much bigger scale like happened after the Lehman brothers. Do you think this is an immediate possibility? I think it's an inevitability. I don't think it's a possibility anymore. But let me in fact step back a bit and say that it's no longer just Greece. What's happened now is a sort of enlargement of the horizon shall we say of this crisis. It's now about Europe but it's not just about Europe, it's about the financial system. And I think one thing that is not coming out clearly in a lot of the media reports about this is that this is not a crisis about public debt, about fiscal overspending and you know the problem of sovereign debt. It's really a problem of finance and it is a financial crisis in exactly the same way that the previous crisis was the financial crisis. If you look at that in fact that's a very important point that you're making is essentially that the banks have lent a lot of money. Of course you had the private debt of Ireland being taken over by the government being guaranteed by the government. Similarly the private debts of some of these countries are being guaranteed by the government. So it's a crisis of also the banking system and therefore the French and German banks who have also extended all these loans. So essentially the crisis would be the Greek defaults then this banks could be in trouble and then the entire financial system therefore would be in trouble. Is that what you're really saying? Well two things I'm saying. I'm saying one that the crisis occurred because of finance. It didn't occur because there was some government that was misbehaving and being very bad. In fact the Italy and the Spanish case is even clear and they were not overspending. The Italians were but the Spanish certainly were not. So if it is Greece, Ireland, Spain and Italy which is what the country is now that seemed to be involved in out of this overspending was not the issue. So that's the first part but the second part is that you see now actually Greece defaulting is really not anymore such a big deal because the markets have actually accounted for that. The markets have assumed that the Greek debt will not be paid in full. There's very little of it is now held by private banks. Most of it is now held by the ECB, the European Commercial Bank. So they really taken over most of the debt. A little bit is left and the banks have more or less accounted for that. They have effectively the secondary market has discounted for the possibility of Greek default. The real problem is that now people realize that Greece is just the first domino and that once bond markets start aggressively behaving with Italy which they already have, with Spain which they're on the verge of doing, they have certainly already started doing this with Portugal then it can go anywhere and the ECB simply doesn't have enough reserves to actually deal with all of that. We're talking of something like two trillion dollars required to really stave off the crisis and that would mean a financial commitment of that order by the European governments and primarily Greece and France and Germany. Well you know again that that's one way of looking at it which is the if you're looking at the current valuation of the Greek of the debts. Many people would argue that current valuation is wrong and in fact the major and extraordinary thing about the last three years is that in fact all the people who have paid all the agents that have had to suffer none of them has been a bank. In fact all the banks that have lent to Greece to Spain to Portugal etc their debts are intact. None of that has been actually none of them has been forced to take a haircut in any significant sense. There's a little bit of a haircut that some of the Greek creditors were offered very very small. So really they have had to pay nothing for their irresponsible lending. Now if we say that in fact if you have lent irresponsibly then just like a debtor that has borrowed irresponsibly you have to take some of that pain then there is no reason to say that that entire amount has to be repaid. I would argue that let's say half would have to be discounted. Fifty percent haircut as it is before. Fifty percent hair but you know they will present it as a fifty percent haircut but what are they doing? They're adding all the unpaid part onto the principal and then compounding that. So basically bailing out in this sense would be protecting irresponsible financial system which is behaving this fashion. Now the other side of it well the banks are not paying the cost of what they have done but the people are. So there's a huge austerity measures. There's asset stripping and in fact one of the proposals the French are making is take away all the Greek public assets and put it away into a holding company which therefore becomes effectively privatized. These are huge. These are huge. There is an even worse proposal from Finland which is saying that they want natural resources in return for the credit that they're willing to offer. So it's a it's a really major we're talking about a massive massive corporate takeover of everything. Now it's an interesting issue here is it that the private banks lend irresponsibly. You have a crisis and the net result is people have austerity no jobs deflation of the economy huge recession that's going to continue and the loss of all future possibilities of coming out of it by a loot of the public resources. Amazing thing about these measures in Greece and everywhere else is that they're not even giving you any signs of hope. What happens in a normal developing country crisis? You go through absolute turmoil and pain and disaster and you suffer and the people suffer but there is hope at the end of it because your currency devalues. Here there's no such hope. They're being told that you have a lost generation not just a lost decade you have to keep suffering and suffering and suffering. It's extraordinary because every one of these austerity measures is completely counterproductive. It makes all your debt ratios your fiscal deficit to GDP ratios worse. So what's the point? In fact it's an interesting headline summit is given. Germany and France riding on the chariot pulled by the pigs. Yes absolutely it is but okay you know when you're looking at the resolution of this crisis there are two aspects to it. There's the stock aspect if you like and the flow aspect. Now the stock aspect is what you just said the size of this debt and as long as there's this huge debt overhang nothing will happen. So that has to be restructured that has to be reduced even then there are going to be big problems but that has to be reduced. But there's the flow problem which is that look these are countries in deficit why because there are other countries in surplus. So obviously if they have to rectify their deficit reduce it or turn it into a surplus the surplus countries have to be willing to reduce their surpluses and convert them into deficits. That's Germany the biggest surplus country is Germany willing? No. So again it's a problem that can't be resolved. Here you have a Germany saying you increase yourself deficit you reduce your deficit you increase your surplus but I will not reduce my surplus. How will that work? It doesn't add up. This is in fact the problem of the Eurozone which we have discussed again earlier that effectively a Eurozone can survive if there's a political will to do these things in which case in this case there isn't and neither Greeks political will can continue indefinitely to go into recession the people continuing like this not the German people allowing for this their surpluses to reduce. So really in that sense solution is a dissolution of the Eurozone if you really look at it. It's yes but even that is not a full solution and I'm really beginning to see that within the current architecture of the international economy there are no solutions things are going to keep breaking the Eurozone will break other things are going to break we're seeing the beginning of a major implosion. So what you're really talking about that this brings out like the 2008 crisis did the larger crisis of the financial system itself and what we're really talking about is not just a housing or a mortgage crisis or a debt crisis but the much larger crisis the financial system which is not actually going to be resolved by any of these measures. Yes absolutely in fact you know these are not two separate crisis this is a continuation of that crisis. What started in 2008 isn't over we had Act 1 we've had a little bit of an intermission this is Act 2 it's going to be three or four acts and it's a tragedy. It's an interesting issue that the island crisis in fact is the private banks in Ireland had taken by bad or had been involved in the housing crisis earlier and that's what the island government build them out of and that's what now is again going back into the US market. Exactly these are all very very closely interlinked and for the United States to sit back and say oh you know this is your problem you better sort it out it's ridiculous they were instrumental in creating the European crisis. Thank you Vijayati I think this has been very interesting discussion as we as it unfolds thank you very much.