 managing partner of Algebra's Investments in the UK and Mark Leonard, director of the European Council on Foreign Relations. It's been quite an incredible year for Europe, as we all know, with quite staggering numbers, hundreds of billions of euros being talked about to avert bankruptcy in key nations. Even then, people say those figures aren't quite enough. I'll be asking the panel their view on whether this is actually a fine moment in European history, unparalleled solidarity of one nation trying to help another. Or is this the beginning of the end of Europe as a union, as we know it? I'd like to start off by asking the Prime Minister of Montenegro how he views the current economic crisis. Well, the title of the panel is quite inspiring. It seems not to be only stress testing in banking terms, it's like stress testing in psychological terms for all Europeans, as it is obviously a very difficult period in which we are, and normally people in these parts of the world are not used to that sort of economic crisis or the aftermath of the economic crisis, and therefore it takes more energy, more visionary leaders to make decisions and come out of the problem. And it is obviously something that has implications on many foreign policy issues as well, not only economic ones. So probably it is, without any doubt, impossible to predict when crisis is coming up. And regardless of many economic pessimists who normally predict disaster and catastrophe and so on, it is logical that a some point crisis will come, and whether we are ready or not depends on how vital our economies are. And that situation very much reflects on what is it we've been doing in the past. Have we been losing competitiveness, shaded by the fact that strong euro performance or banking assets for booming, credit growth, real estate prices, asset prices in principle are booming and so on, or we have led or conducted economic policy which is based on competitiveness. And that's where I believe European economies currently. I don't think it's an issue of euro, it is an issue of competitiveness. And by having euro I believe makes government think more about not lamenting over the fact that we don't have instruments monetary policy. I think government should focus on structural reforms and improving business environment and fiscal financial stability. I think that's the name of the game. Professor Halberstadt. How long will it take for Europe to get out of this current crisis? Do you think there is a plan? Are we going from week to week, month to month? So far we are going day to day. We have had this crisis for two years. So from that crisis we have had austerity measures, we have had emergency lending. Not much has really improved in those two years. And we are in fact, I believe, faced with four crisis which are not going to be solved quickly. We have a solvency crisis. A number of the members of the European Union of the eurozone are essentially insolvent. Secondly, we have a banking crisis. There's a crisis in the European banking system and on top of that the ECB, the European Central Bank, has a big, big issue. Thirdly, we have a crisis of relative competitiveness. Some of the countries, especially the Southern Rim, are not as competitive as, say, France, Germany, the Netherlands, Austria. And finally, maybe the most important crisis we have, that is one of political legitimacy. As we look at the measures being considered and at the policy decisions being taken, it's obvious that the European Union doesn't have a clear mandate to deal with this kind of problems. It doesn't have the legitimacy to transfer resources from the center or from countries to weaker countries. And thus, we are, for the time being, we are wrestling this four crisis which are interlinked and which cannot be solved separately. Mr. Serra, we've had two comments now regarding the competitive nature of Europe and whether it's losing its edge. You do a lot of business in Asia. What is the view from outside Europe? Is Europe seen as a stale environment to do business in? Is it losing its clout? We think, actually, that the crisis is somehow self-inflicted and I would just go back to the basics, numbers. So if we think about European GDP, it's about 10 trillion euro. Wealth in the euro area, so gross wealth minus the debt, it's about 60 trillion euro. If we were to consider the Greece, Portugal and Ireland should have never joined the euro. And we buy back their own debt at today prices. So without any fiscal transfer, just buy back the debt. We will take a loss, or sorry, we will reduce the debt of about three to 400 billion euro. So 4% of GDP or less than 0.7% of European wealth. So the solution is very simple. The European Union last year approved 500 billion ESM mechanism. If only this was to be applied today, buy back the outstanding debt reduced by 40 to 50% the public debt burden of Greece, Portugal and Ireland. Nobody talks about these three countries ever again. Because suddenly the debt sustainability is back on track, the lesson has been learned. Cost, which is irrelevant, 0.7% of your own wealth. Unfortunately, none of the politicians in the respective country wants to admit that one, one of the reason why the crisis exist is because we mixed the currency without actually missing the finances. So somehow there was a theoretical mistake being made in the union. Secondly, I think none of them wants to admit that most of the credit to this country is in their own public institution, in Germany, Landers Banken, the biggest creditor to this country. And third, it's too easy to say, well, I'm a good politician. I didn't put you in this trouble. Look at the great politician, what have they done? And so I think the solution, if voters in Europe were to be told, are you happy to take a 3% hit on your income yearly? Or less than 0.5% on your wealth? And we remove the word European crisis and we get along with business, with investments. Would you say yes or no? I think the majority will say yes. Unfortunately, the case is not presented in this way. It's presented me versus you. I transfer you. And in reality, if you look at the economic wealth that the European Union has created in joining as a single market, everyone has massively benefited out of it. Germany, if it had its own Deutsche Mark today, would have interest rates of 7% to 8%. The Deutsche Mark would be 2 to 1 to the dollar. And I don't know whether export will be as successful as they are today. So I think the analysis is wrongly put towards voters. And hence, I think it's mainly a lack of leadership. Secondly, we compete versus the dollar area. Now, in America, the way they sold the crisis, they printed 20% more dollar. The Fed balance sheet has expanded by 3 trillion. So if the GDP is equal to Europe, they just decided to print 20% more dollars. Whatever they done with it, distributed around. In Europe, to solve the European crisis, you just have to print 5% more euros. And so I think the solution, which is in the ESM, would be to issue a Euro bond for 5% of total of standing euros as GDP. And buy back this debt, which is kept as an asset by European taxpayer. And probably in 20, 30 years time will probably be money good. Enhance, I think, the two dynamics. Timing, secondly, willingness. Third, explain properly the choices we have. I think if voters were to be given a choice, they will make the right choice. Very interesting. Mr. Leonard, do you think at some stage people will actually say enough's enough? And I'm talking about the public. Mr. Serra thinks that people might be able to take a financial hit. The ends justify the means. But at what stage will people say enough is enough and governments will have to respond to that and perhaps we'll see more populism in terms of, and more nationalism in terms of, you know, we'll solve our own problems. Why are we solving other nations problems? I think that's one of the key questions that we're facing. Because I think that the economic and financial crisis that Europe's creating is kind of nested in some other crises which are taking place at the same time as well. There's a three big integrationist projects after Maastricht of creating a single currency, of creating a space without borders in Europe with Schengen and of creating a common foreign policy. All three of them are in a bad state of disrepair at the moment. And the thing which seems to be undermining all three is a lack of political will and a sense everywhere I go in Europe that the elites feel that they are on the defensive, that they're under siege from populist parties, from public opinion that's hostile. And they kind of want to do the right thing. They know what they need to do, but they are too scared to articulate it and to defend it to people. And that leads to this debate about European crisis and European weakness. But the unfashionable reality is that, as Davide said, it's completely self-inflicted. If you look at the fact, you know, Europe has got the biggest single market in the world. We're responsible for more defense spending than anyone apart from the United States of America. Six times what China spends on defense every year. We are responsible with two-thirds of global development aid. You know, we're a great power and our weakness is entirely a result of our own making and our unwillingness to get our act together in different areas. And the biggest kind of challenge, I suppose, in terms of political leadership is about what happens in one country, the biggest country in Europe, which is Germany. And I think that's really the biggest change compared to at the beginning of the 90s when these integrationist projects were launched, is that an abnormal Germany that was willing to pay more than everyone else but not get a bigger voice around the table and that was willing to take a short-term hit in order for the longer-term good of Europe and of itself, because this was the key bit of Germany. That Germany has disappeared and we're facing a new German question. The old German question, which we thought we'd fixed for European integration, was about German expansionism. The new German question was about German provincialism. And I think that the debate that goes on in Germany and how other countries handle Germany will be the key to see whether this situation that we're in at the moment is a short-term crisis which we get over and which we put down as a kind of bad time or a recession, not just in economic but in political and in foreign policy terms, or whether this is the beginning of the end and this is the moment when the European project starts to unravel. And I think it's a finely balanced thing because it is much harder to show the sort of political leadership that Kuhl and Mitterrand were able to show in the 90s because democracy and politics has changed so dramatically. And a lot of the things which have been done, which made Europe possible, were done in a technical way. We're not properly explained to European citizens and the chickens are sort of coming home to roost now. And... Excuse me for interrupting, but I sense more optimism than I had expected on the panel in terms of the future. But if we just look at the numbers, the debt is so scary. The numbers are so huge. Does everyone think there is no default coming? I actually disagree on this basis. If you look at... When you look at Europe, today Europe is the nation with the lowest... As a Eurogroup area, with the lowest level of debt and lowest level of deficit versus peers. Peers, I take G-10, yeah? Let's not add China, Russia, India and Turkey because as you know, 10 years ago they were not part of the G-10. So they're growing faster but they have higher inequality within the system. But most importantly, if you add the non-funded liability, i.e. the pension gap, the aging gap, the U.S. have almost three times the level of debt between here and 2030. Just demographics, yeah? Assuming that they don't open the border with Mexico and they annex 120 million Mexicans into the country because the Canadians are not enough. So actually, the problem itself in Europe is not huge. To the German voters, I think the... Or to any other voters in the country, the numbers should be put forward properly. The ESM, European Stability Mechanisms, 500 billion, Germany 30% cost, Germany 150 billion Euro. German Lunders Bank can have exposure to Greece, Portugal and Ireland of more than 600 billion. So they have two choice. They need to pay 150 billion. And they pay 150 billion in two ways. Either they let the free country default and suddenly being there the creditor, they lose 150 billion. All Lunders Bank and boards appointed by German politicians, they're all making, yeah? Or they decide to buy the debt at current market prices, 50 cents in a dollar, take an asset. Typically when you buy a house of 50 cents in a dollar, you end up making money with time and you resolve the problem of crisis. Now, no one has the courage of say this to their own voters. They say, we're good and you're bad. And hence I think the absolute problem is being blocked by, in my view, weak leadership in expressing numbers. That's why the ECB is so vocal. Because the ECB has actually around the numbers. And running the numbers, it's obvious that between paying the same price to destroy the car or the project and actually saving it, it's obvious. At the end of the day, the bill is gonna be the same. It just depends how you're gonna spend the money. And so here I would actually listen to the ECB much more. And the reason, because they are the plumbers, they've seen the crisis and they have a solution. Unfortunately, the political debate of short-term votes of deciding what's my next election are dictating a behavior. And if only voters were being presented with a real option, I think people are not stupid. In this case, politicians are adding their own distress to the system. Could I add to that, Ian? I think essentially what David is saying is the Eurozone is a monetary union, but it's not a state. And as it has, it's not a state. It doesn't have the appropriate mechanisms, the appropriate constitutional basis to transfer monies internally. And that is the problem which the ECB has understood. That's why it has intervened and been very helpful over the past two years. But it's very, very difficult, and Marc has explained it already, for many governments in many countries to explain this to their own electorate. I think that is partly due to the fact that there is more economic illiteracy around among politicians and media than we wish to recognize. Well, I have to disagree to some extent with the view because I think it's too much engineer-like sort of solution. And unfortunately, I think it, though, it sheds more light on unpreparedness of politicians to inform their voters about all the possibilities, but at the same time hides some other issues because I don't think the solution is in comparing Europe with America in terms of, for example, these figures only. It may suggest that, okay, in the long run, it may be that America has more problems, but does it solve our problem? I don't think it solves our problem because when Lemon Brothers collapsed, it just spilled over to Europe and we were quite frantic in reacting in each and every country. And I remember the time I was in, I was at that point, Finance Minister, I was in Washington and it was like bleak and panic and everything. And every Finance Minister and his government were trying to change the situation, change the psychology of the people in the countries to prevent from the bank runs and so on and so on. I don't think we may be solving the actual problem in terms of, supposedly, we're solving the actual problem with the deaths of Greece, Portugal, or Ireland, for example, but we're not solving long-term structural problems of Europe. But we cannot run away from the fact that Europe's potential output growth is about 1.5%. Is it enough to sustain for the fact that 45, 50% is the public expenditures? And is it enough to sustain the fact that there is a growing trend over time to assume social responsibilities away from the individual? I'm not sure, that's why I like the proposal in terms of economic solution to the practical problem. I don't think it is enough to resolve the long-term challenges of European economy. We see, and the current crisis and the fact that Euro helps us understand that we have a problem is something that should lead us into thinking what to do when in case of another crisis we have a lesser problem. And some of the moves that have been made are probably correct, but there are probably, again, some other moves that are needed to be made but are not happening. So which way will it go? Some people think the European Union might unravel, but from what I'm hearing, there's a sense that this is perhaps an opportunity for the EU to actually deepen its integration. Might we see countries ceding even more fiscal sovereignty, for example? Might we even see a Treasury Secretary for Europe? Could we go in that direction? I'm not sure it's realistic. I mean, who knows in 10, 20, 50 years time, who knows? But I'm not sure it's realistic. I cannot assume that neither of the countries... Can you imagine Chancellor of the Exchequer giving up his... In case of United Europe, or German Treasury giving up its responsibility, or Italian one, Spanish one, in favour of some European one? Again, it may be a rational solution to the problem. To harmonise Treasury policies. But I'm simply not sure whether that's realistic or not. Because probably to some extent, the economic crisis in Europe gave rise to some extreme to the right forces in Europe, in some countries which are now getting more relevance and probably blocking some decisions or even sort of political blackmailing governments in order to sustain support to the minority government and so on and so on. That's why it's difficult. And yet nations like Greece are losing some control over their finances. Isn't that correct? And the IMF, the ECB, can dictate to some extent the terms of bailouts. So aren't we seeing some seeding of sovereignty in monetary financial matters? I think the Bond Vigilantes, how they're called, are the ones that basically give you two options. Either... Why politicians... There's a beautiful book. This time it's different, written by Rogov. And if you go through history, there's a big difference in my view today versus all the previous crises. We had 60 years with no war in Europe. That's something that the book of Rogov is not addressing. This is the crisis of the public debt over the last 500 years. And I think today, as a politician, the easiest thing you can do is open the public deficit. You buy votes. I'm Italian. I've seen happening in the south of Italy. In Greece, in Portugal, to me seems about the same. The fact that you have 5,000 people in Greece that they keep on receiving their pension, it's obvious, yeah? They know it. It's a subsidy. Now, as a politician, the biggest incentive you have is to buy votes. So he says, I help you. I hire your son. Let's make me this road that ends nowhere and we'll create some opportunity. Unfortunately, this incentive has been ex-saturated by some of these countries which had very high real interest rate entering the euro. Suddenly, they could borrow cheap. So what they did in Greece, you had interest rates at 15, you go to five, suddenly they had access to credit, which they never had, and they abused it. The good news is, Ireland, Portugal, and Greece are less than 6% of European GDP. So if someone had told you in America the Wyoming has an issue, would you be worried about holding dollar? No, you wouldn't, yeah? In Europe, because we're making such a difference of a small area, we're creating a panic into the core. The core is what matters. If you take the 400, 500 million people in the euro area, we're talking about less 5% that has issue. So why, for something that has 5% problem, you wanna judge the 95%. And the American and the Anglo-Saxon, hyper pragmatic, they took the solution. They just printed 20% more currency. So when the euro was created versus the dollar, purchasing power parity was 1.2. Now, guess what? America has printed 20% more dollar versus euro. Where is the euro dollar? 145, yeah? Just 1.2 times 20%. So if you were just to issue 5% of euro bonds, lock it for 30 years, the benefits out of it are massive. The failure of giving to young generation the dream that we came together after World War I and World War II, and now we break up for less than 5% of annual income, or less than 1% of wealth, I think if I was a kid being born today at 20, I'll go extreme as my grandfather did 70 years ago. And so the young population that you have, which has no future, because the current generation has decided that for 1% of your wealth, you break up an integration process that will prevent another war, I think it's pure madness. And maybe someone will win the election the next three months, because you have stupid voter but back you up, but in the medium term, it's a disaster for your own voters. And if the strong and virtual country, I think Germany as the best example, was to have the Dutch mark at two, interest rates at 10, I think unemployment will go up, not down, for a simple reason, because it will be impossible for them to sell products they were ever selling. So they're benefiting out of a structural weaker euro, which for 5% of population which play the game, now it's giving them benefits on the export side. So this one has to be recognized. And maybe if in Germany people were told, you're gonna lose 150 billion euro other way, for London's banking or direct help. But if you direct help, you own an asset. If you let them go bankrupt, you just lose bank in your London's banking and your unemployment goes up. What do you vote? I think at that point it will be pretty straightforward. I'd rather keep my employment and have an asset, rather than taking a loss and then we'll see. And as a result, then this should be given in each country. The solution then, having seen the crisis and the abuse, would be further integration or the structural problem which we cannot address. They cannot even agree. On something that is so easy to fix, let alone the structural issue. That one will take time. Mr. Leonard, this is obviously an economic problem. Is it subtracting from Europe's influence in terms of foreign policy? Is it an inward looking crisis? And at the same time, Europe is perhaps missing the boat in terms of combating some major international global issues such as climate change, Iran, et cetera, et cetera, nuclear proliferation. Is it having an effect? I think it's been disastrous in two ways, both because from the beginning of this crisis, Europe has been completely focused on this existential problem for all the right reasons, but it has meant that we have been out to lunch as far as the rest of the world is concerned. And it's dramatic. If you look at earlier generations of European leaders that came of age and whose consciousness was formed, it tended to be big geopolitical events. 1989, the Balkan Wars, 9-11, the Iraq Wars, and that forced them out of their comfort zone. And the act of statesmanship was, in fact, about dealing with these big global issues. But for this generation of leaders, it's been almost the opposite, the big searing crisis which they faced and which defined them was the economic and financial crisis. And until the Arab Spring started, there was practically no discussion thought about foreign policy in European capitals over the last couple of years. And this is a big paradox, because last year was meant to be the year of European foreign policy. We created a new European foreign minister, we had a president for Europe. It was meant to be a year where Europe finally got a political voice that was more in line with its economic voice. But in fact, what's happened is our economic voice has been brought down closer to our political voice. So that's one dimension. But the other dimension is just European credibility. You know, I remember travelling around the world in the early years of this century and people were talking about Europe as a rising power that was getting its act together, that was trying to agree on a constitution that was going to create some institutions that would give it a bigger voice on the world stage. I remember in 2003 the Chinese government declared that it was the year of Europe and there was a white paper published by the Chinese government about how to deal with a kind of rising Europe. For... Since 2005, people have looked at Europe as a declining power rather than a rising power. And it's almost laughable the idea that Europe's a rising power in many parts of the world. I think part of it is a cyclical process. People tend to look at flows rather than at stocks. And as I said before, the unfashionable reality is that Europe is vastly more powerful than China, Brazil, Russia, India, all of the bricks put together on most of the sort of conventional indicators of power. Whereas lacking is this question of political leadership, seriousness and willingness to actually take a stance. But we're paying a price for that in economic terms as well. I mean, as Davide was saying, if you compare the figures for the Eurozone compared with every other economy in the world, they're relatively healthy. But people are basically questioning it because of the lack of faith in Europe's political will to actually solve the problems that we're facing. And that leads to a kind of weird paradox because I think originally the European project was a political project which was solved through economic means. But if we look at the 21st century, I think you need to solve the politics if Europe is actually going to have an economic future in the world. And unless we can actually have a political project to get our act together, to save the Eurozone and to start deploying some of these enormous resources to shape a world which is comfortable for Europeans, then I think we will pay a massive economic price in the future. Professor Halberstadt, how do you think this will affect countries such as Montenegro, Croatia, others that want to get into the European Union? Will there inevitably be nations that say we cannot absorb more? Well, I would think it is still a hell of a lot better to be inside the European Union than to be outside. I haven't heard anyone outside hearing that he wishes to stay outside, including those whom we have told that we had rather not have them in. So frankly, I think the European project, as Mark rightly calls it, was initially a dream. It is a big, big success. And what we currently have is a problem, a problem which we are trying to solve with means which are not tools which are not strong enough and which requires that we rethink our governance because that's what it is about. And that is the discussion about the transfer of sovereignty from the individual nations to the center, Brussels. In most countries, countries which I follow, that is a very difficult discussion because of course members of parliament do not wish an electorate doesn't want to see its sovereignty transferred somewhere else. But in fact, that's what we have done over the past half century. And that's what we did most of all with the introduction of the Euro. And the introduction of the Euro in retrospect should have gone on in a different way, should have been a different construction, but we have done it. And Euro has been a huge success in its first 10 years. Everyone should remember that. Inflation, we kept it down to even below the target. The Euro is a huge success. The payment system is a huge success. There are generations now who don't even know that you used to need a passport and that you used to have exchange rates and that I could not travel to Austria without buying shillings. And yet at the same time leading politicians are openly talking about rolling back things such as Schengen, which is perhaps one of Europe's greatest achievements. And that's very risky. There are two risky developments currently. One is, it's somebody called that I believe in the FT, the unraveling of Europe, Schengen, you know, the passportless community which we have, because in fact, yesterday arriving here in Vienna for the first time in many years, I had passport control flying in from another Schengen country. I hope it was just a test. And of course, the Euro, which is a series of issues and problems which we have discussed this afternoon and which we can manage if we want to. But for that it requires, first of all, that we are all equally literate on what it is about, that we gave the numbers. Secondly, that we all agree that we cannot do it on our own, that we'll have to do it together. And I see, and I think that outsiders, because that was your original question, understand that we will solve that. We are politically strong enough to solve it and there will be political blood in the streets, so to say, because there will be anger in some places. But I do not only hope that I also expect that political leaders will get their act together and decide that they cannot solve this on their own in each of these countries, but only solve it together. And that would imply transfer of resources because in the long run, 10, 15 years, everybody is going to benefit from it and it doesn't really impact our wealth or income per capita at this stage. I think on this point, actually, taking example from the US, it's a simple recipe. They came in, the crisis was fundamentally a house bubble crisis in America which led to $2 trillion losses and this scattered across the financial system. What have they done? The central bank, the Fed, took action. They asked capital called TARP to the government. The Congress had their own political charade. They said, yes, but maybe each congressman had to go on stage and ask their own constituency. It took two, three weeks. They came back, they signed. Gaipana came into action, took the money. The Fed said, I'll use the nuclear option with the head in Japan. I print 20% more dollar by 60% of every debt issue by the US government, I'll buy it back myself. So issue the paper, you buy it back. So they monetized the debt. Crisis solved. The GDP is almost back to pre-crisis level. They still haven't addressed the job issue because it's a global competitiveness. The rising breaks will take job out in America. The law is killed. It's obvious, but certainly they acted. Now, here we have an ECB with competent people which doesn't represent any single interest. It's the European Union with people that have served as central bankers in their own country when they had their own currency. So we're not talking about 25-year-old kids. Average age is 60 plus. And they have a solution. They give it to the politician. Now what are they doing? They argue. And they argue for their own little political votes without understanding that the numbers are clear. And the ECB and the ESM have done the numbers. So the only thing we would ask is for the politician to do what is right. Is it your competence to understand the numbers in the system? No, it is not. So please understand it. Follow the thinking of the ECB and the ESM. And by the end of the day, there's two alternatives. In life, the not free, two roads. Pick the one you want, but at least be aware of the two alternatives. And present them to your own voters. And I think the fact that Obama, last year, had to be on the call in order to create the European stability mechanism. And on the call, he said, I had a tough decision for TARP. I had a tough decision for quantitative easing. I did what was right for the country. I followed my expert and I acted on it. And here, the fact that there is somehow a disconnect between the European politician and the ECB, the Central Bank, which is the technical, competent level that are supposed to advise your own government, this is a breaking mechanism that I think is a failure on behalf of the politician. And actually, in the European constitution, they should delegate some matters to the ECB, to the Central Bank. And it's a question of knowledge, competence, and understanding. And I'm pro taking the 27 Prime Minister and Finance Minister and have a debate in front of the ECB, go through the numbers, and then we vote and we see who understands and who doesn't. Prime Minister, your country wants to get into the European Union. Anybody having second thoughts? And what sense are you getting from Europe in terms of how long it might take? The, regardless of the economic crisis and everything else, there is vast support in favor of European integration. And that's important, of course, as currently we're in the stage when we're actually implementing the action plan to convince European Commission that we're ready for the accession talks. But once accession talks start, it will be, it will take more efforts to explain to the people all the benefits, advantages, disadvantages, and so on. And still, I believe that vast majority will eventually support European integration when it takes place to decide on that, because in some other countries in the region there are some specific issues that may tumble, sort of the overall public opinion about that. But in principle, all the establishments are in favor of European integration and there is in principle support of the people. Of course, the fact that there is economic crisis, that there is Northern Africa, some other global issues, Western Balkans altogether may be losing some attention. And that's why it makes it more difficult for us to, or actually it is motivating or stimulating us to do more in terms of deserving the attention. Currently, as I said, though it is a substantial change of the system we are trying to introduce by responding to the European Commission's recommendation, from the integration point of view, it's a relatively technical question. But at the same time, things that recent developments, such as the decision of Serbia's government to extradite Mr. Malic to the Hague helps a lot, because it turns back the attention. And when the biggest country in the region is complying with the liabilities, then it helps all other countries to be valued adequately and be stimulated adequately to continue working towards the European integration process. So I agree with everything that has been said. I think that it is a lot better to be inside than to be outside. Even some relative Eurosceptics in Europe, such as probably President Claus from Czech Republic, he is not against the European Union. He thinks that it should be rearranged as an extent. So basically there is nobody relevant who is opposing the argument that it is better to be inside and outside. And I agree that for the future of the Montenegro society, it is relevant and vital to be inside, because the European integration process changes the set of values. It's not only about economic integration. It's not only about political institution building. It's also about what matters the most, values, transition and reform. Before the debate started, I was thinking that Montenegro was perhaps in the ideal situation. You use the Euro informally, and you don't actually have to face the responsibilities of being inside the Euro in terms of bailing others out. You're sort of on the outside, but almost in. But so far in this debate, I certainly feel better about the future of Europe. I sense there's real optimism on the panel. Yes, it's a crisis just to recap what we've been saying. But perhaps as Mr. Serra said, the nuclear options and firm leadership, some more action from the ECB and perhaps inevitably countries will end up ceding more fiscal sovereignty, but there perhaps are solutions there. I'd just like to take the opportunity now to turn the questions over to the floor. Would anybody like to pose some questions to the panel? There is one, this. Gentleman on the front row. Ah, do we have a microphone? Thank you. I'm Thomas Pilar from SAS, a US software company. One question for all of you. It's regarding EU budget. The run of discussion is going to start about the new financial perspective for Europe. Knowing that and coming from the IT sector, we always complain that most of the money goes to agriculture, which is great. We need food, of course. But we also need innovation and new technologies. Do you expect great things coming out of the new rounds of discussion about budget or just business as usual? Thank you. Anybody like to? I think, unfortunately, we're going to have a lot of political theatre with some countries calling for being totally focused on not having an increase in the budget. Other countries railing against the inefficiency of the common agricultural policy and the fact that we need to have a future orientated budget which invests in innovation and infrastructure of an inefficient agricultural thing. You're going to have other countries trying to protect their rebates, like Britain, for example. And there'll be a lot of noise and heat, but not very much light. And you'll end up with a pretty miserable compromise, which has an overall figure that will be less than 1% of the EU GDP to make it politically sustainable. The British will keep their rebate, but there won't be any reform of the agricultural side of things. And I don't think that there might be some renaming of different strands, but I suspect it will look very much like the budget that we've all come to hate over the last few years. And sadly, we'll miss an opportunity as well to put the budget at the service of a different framework for the euro and to do some of the sort of things that we were talking about. But it's difficult to see any other situation emerging out of the current political climate if you look at the way that the interests of member states are stacked up. And the way that it's becoming politicized in every single country is an issue, which means there's very little room for maneuver. Any other questions? My name is Klaus Reidel from the Austrian National Bank. I have a question, Mr. Sierra. I agree completely on your analysis about the financial problem, Ireland, Portugal, Greece, 1% of wealth, and 6% of EU GDP. But the problem is, how can you get the political decisions to put that into effect? Because you described very well how it was done in the states and how we are not able to do it in Europe. And when I look at some of the political figures, let's take, for instance, your country, but I don't want to make any things about that. How can you ever achieve the political decision to put that into effect? For, I think here I speak as a taxpayer. And as a taxpayer, I think I'll be given the choice. So in Europe today, I think if people were just to given the bank and international settlement exposure, country by country, that's an official statistic. So you know how much Greek, Germany, is owed by the various countries and vice versa. So the numbers are there. And then you assume, do you help your creditor when you have a company which is in trouble? What does a bank typically does? Help its creditor. It gives financing, it stretches maturity, brings a new head of R&D, changed the CEO. There are steps. And I think here the solution can be changed easily politically. One, it's obvious that the country that have misbehaved abusing debt, there's two-fold. They abuse the debt, but even worse, those that finance it are even more corporate. Because they didn't enjoy any of the benefit. They were just financing someone that should have been financed. And nobody's talking about them. Guess what? At the European Union, which are the financial institutions that benefited the most? German Landesbank, they have a triple A guarantee. And so what happened is they started expanding financing out of Ireland, Greece, and Portugal. Because they were getting paid two, three times more than landing in Germany. And they said it's euro to euro. So the mechanism, the positive effect that euro had, which are massive, created at the periphery some tension. The fact that in Europe we love to talk about crisis. When the social status in Europe is still extremely high, you have countries like Montenegro that wants to join. If it was a crisis, they didn't want to join. Why do they want to join? I bet the wealth and living standards of Montenegro will increase once they join the euro. So the fact that there is this pressure to come in, to me, it's the number one point to tell your voters you have two options. Go back to Swiss Frank, German, Deutschmark, Italian era. Reintroduce Schengen. And what you see is your own GDP goes down by 1015. In Germany, they have about 1.2 trillion exposure to pigs. It's 60% of the GDP. They lose 30% of the GDP in one shot versus five. So you want to lose 30 or five. You decide. If the option is presented, voters will vote accordingly. But right now, politicians want to play the game because it's great to support the local nationalism. And even in Greece, they do the same. There are people that want to return to the drama. I've ever thought what happens day after they are in the drama, how do they going to buy oil? In a country that doesn't export much, and they won't be able to import oil. Good luck. So maybe someone wants to go nostalgic, and there's nothing wrong with it. But you don't run a country on what used to be 50, 70 years ago. And hence, the solution is very simple. Give the economic option. Say option A costs you this, option B costs you this. And in the calculation, assume that by breaking the euro, you go back to your own currency. Imagine, are you going to sell a BNW if it costs 40% more? How many countries can afford the BNW when it only makes 8% margin? Well, 40% more BNW is probably going to be lost making because nobody can afford one outside Germany. So run a calculation and be honest to your own voters. The cost of three countries that have overborrowed three to 400 billion euro, it's done. We can't go back and rewrite history. That has happened. Now the issue is, how do you fix it, number one? And two, how do you avoid it? The avoidance, I think it's the critical point on corporate governance. And I think having a EU budget, for example, for agriculture, is nothing else but a barbell approach in Europe to keep voters in the agricultural sector in Europe happy. To keep the base from being able to compete with North Africa, which they can't on agricultural issues. But I think, ultimately, the solution is, take the medicine, this 3%, 4% of one-year income. Do a Brady Bond extension in Mexico. Even in Mexico, they figure it out. Put the ball forward 30 years. 3% cost you 0.1% of European GDP. Not even statisticians are going to figure it out. And imagine the boost we have next year at this venue when nobody talks about crisis any longer. And every CEO goes back in investing. Company is a full of cash. No CEO is investing. Why, every morning, they open the newspaper. Crisis, crisis, crisis. So the future is fairly rosy? Or am I mistaken? Just do it, yeah. Just do it. Just do it. Do you think that the public wanted more regulation of bankers and hedge funds? I don't think I'll ask Mr. Cerro this. I think I'll ask one of you three. Was it a missed opportunity? To create more regulation, or do you think it was perhaps sort of a vengeful feeling, wanting to victimize and find someone to blame? Yeah, and people will be disappointed. Photos will be disappointed. Media will be disappointed, because it doesn't address the issue, and it doesn't solve the problem. But it does satisfy those who like to regulate. Well, if you asked people about more regulation over the banking, clearly the answer would be yes, because people want that bankers are reigned over and so on, that their salaries are cut down, and so on, and so on. But this is political landscape. The fact is that two or three years ago everybody was happy with Basel II. And people thought that it should be OK to keep with Basel II standards, and everything should be OK. Two years after that, we're now in the process of implementing Basel III. The problem is, at the same time with regulation, is that you can never be for sure. And you cannot rely only upon regulation. However, that is minute and high quality regulation, because it was under ECB standards that stress testing was done two years ago. And some of the Irish banks, which were looked safe at that point, were turned more or less bankrupt. And last year's budget deficit was over 30%. So what's wrong? There's no perfect solution. There's no perfect regulatory framework. You have to take it some time. And normally, regulatory framework changes in the periods of shocks. And that's quite reasonable to expect. It's just that, at the same time, overregulation could overkill the economy. And it's not only about financial sector, it's about any other sector. On this, I have a strong view. If Basel III had been applied, we calculated backwards the North City group, or Ramanco-Scotland, as two of the biggest culprits of the crisis, would have needed a bailout. So my view is not an issue of the rules. The issue is the implementation, law enforcement. How many Fed official or Bank of England official were in Ramanco-Scotland or city group before the crisis? Five. How many there are today? 100. So make an example. On the Italian highway, you have speed limits of 110. All those that drive to Italy, they know everybody drives 160. The issue is not the law. It's, do you have enough policemen to actually enforce the law? And my view is that Basel III, it's a good infrastructure if it's properly policed. So stop spending money arguing on rules, put more policemen on the street to follow the basic rules. Should financial markets be regulated across every entity? Yes, they should. It's funny to see that the FSA in England, which had the biggest crisis in the eurozone, has spent 70% of the money discussing about consumer protection and regulating hedge fund, and 30% regulating banks. Now guess what? The banks cost 20% of GDP to England. And the private sector participant cost none. So again, I think there was a political motivation in thinking that the problems were in the private sector and not in the banking sector. The reason was banks were the biggest taxpayer for 15 years in England. And so the last thing you wanted to do as a politician is call your golden goose that is financing all your budget deficit. And hence, my view is less rhetoric. As a taxpayer, spend the money where the risks are. The rules, as a technician, so I can say they are OK. Make sure they get implemented. And the only way to implement them is have an officer at the premises of this large institution on an ongoing basis. Then the rules are good. But make sure they're implemented. Unfortunately, we only have a minute or two left. I'll just ask a very brief question, which only requires a yes or a no from each person on the panel. Will there be a default? And the euro? Will it survive as the single currency, as we know it, in, say, five years' time, Prime Minister? It will. I think it will survive. About default, I don't know, I mean, it depends. There may be a default, but nobody will speak about default. There may not be a default because there will be something else, I don't know. But I think, I agree with what has been said. I think that people should know about all the possibilities that lie ahead and all the options to try to pick the most rational option. Professor, how was that? There will be no default, and the euro will continue to be a successful currency. Market debt by back, which means paying 60 cents in a dollar for the pig's debt, and euro continues. So technically speaking, no default. Economically, if you had bought the Greek bond 100, ain't worth 100. Would be worth 60. I agree. No default by name, and the euro will continue. I feel better already. Thank you very much for a fascinating discussion.