 Hello and welcome to our special TV debate here from Istanbul at the World Economic Forum. I'm Francine Lacqua. Well over the next hour we have a lot to discuss about. We'll be trying to answer this question, will the Eurozone puzzle continue? Will we be able to survive? And if we don't survive as a Eurozone, what will the impact be not only on the Eurozone area but also on the borders outside the continent? Well I'm very pleased to say that we have a great panel with me to try and discuss this very difficult question. On my left, Mr. Abashah, the Governor of the Central Bank of Turkey, Giuseppe Reiki, Chairman of A&E, Andre Kostin, Chairman and the Chief Executive of VTB Bank, George Papa Constantino, the Minister of Finance of Greece, 2009, 2011, really in the eye of the storm, and Alexander Stubb, the Minister for European Affairs and Foreign Trade of Finland. Thank you so much guys for joining us today in this very topical debate but also very difficult debate. Now before we start, I just wanted to put a question to the floor. I want to see how many of you actually think that the Eurozone will survive in its current format, meaning how many of you think that the Eurozone will still have all its members 12 months from now? And I want to see some hands up. All right, at least our panelists are more or less optimistic. I think it's about 35% of you out there thinking that it will survive in its current form. Maybe whether that changes by the end of the panel. Now Mr. Papa Constantino, let me start with you because you were really in the middle of what became or what is one of the most difficult tasks for Europe and for Greece. Do you have any regrets that actually the austerity measures imposed? I know hindsight is a great thing, but that the austerity measures imposed were just too harsh for your country. By giving it in, so you were reducing the debts, but actually it doesn't make the situation any easier for Greece today. Well, the regret is that we got to the place where we started. If measures were taken much, much earlier, and by that I mean years earlier, we wouldn't find ourselves in a situation where a deficit of 16% and a debt over 300 billion. Having gotten there, there was no other option than a quick attempt to reduce the deficit. That involves a lot of austerity and very difficult measures. Wages down 30%, 40% in nominal terms. This has never been done before. I do regret the fact that even though Europe rallied, it took some time for this to happen. And I do regret the fact that we were in a fire brigade mode and we're not looking ahead two or three steps to change the architecture. And I think what we've seen these last two years is Europe discovering as we went along and making it up a little bit. It's a good thing that Europe got its act together. I wish it had done it a little bit earlier. In the same sense that I wish that my own country had faced its own problems, both fiscal and structural, way earlier than it did. Alexander Stubb, it was interesting Mr Papak-Constantino likening the European leaders to a fire brigade because they were trying to put out the fire instead of preempting what could happen. Are the European leaders still too slow? Or is it just the way that democracies work? That the markets are very quick to react. But actually democracies need that much more time and able to take the harsh decisions. Probably a combination of the two. I think the fundamental problem is that you cannot have monetary union without some kind of an economic union. In that sense, this whole debate about growth and austerity, I find it quite absurd. I think you actually need both. This might sound awkward, but you need gross charity. If you look at the countries that have both taken austere measures, such as Germany, Finland, why not Sweden or even the BRICS countries, which all fulfill the Euro criteria, they are the ones who are at the same time growing. The big problem is that previously in the European Union, we've dealt with institutional crisis and enlargement crisis. Now we're dealing with a fundamental or an existential crisis where two things are under attack. One is the Euro and the other one is the Schengen. But for the past two and a half years, I think we've done pretty good ad hoc measures. Yep, democracy lags behind. Yes, our heads of state government lag a little bit behind, but they don't have the real instruments to deal with it. That's why we have to play it day by day. Governor Brescia, you know, when you talk about growth and austerity, which I never heard of, which is actually an interesting and important concept, is there not a problem that if we are already in recession or nearing recession and you put extra austerity measures, then that's when we're really in trouble? I mean, it depends. It depends, I should say. Our experience is in line with what you call growth-starity, difficult to pronounce, but there is a literature on expansionary fiscal contractions. So fiscal discipline may help. But it depends on the circumstances that you have. Turkey, for instance, in 2001, had extremely high real interest rates. The debt burden was 90%. It was not as high as Greece. And there was an inflation problem and extremely high interest rates problem. So in Turkey, austerity really helped by reducing the interest rates and thereby helping growth, actually, by building confidence and helping growth. But it may not work everywhere because each country has a different circumstance and one should very carefully study the consequences. Mr. Reykjavik, how concerned are you that now Italy is in the eye of the storm? Of course, you know, we talk about financing and when you hear a lot of Italian politicians, they seem to suggest that actually these yields are so high, not really because of what Italy is doing because they aren't taking deficit cuts and putting in austerity measures, but because actually they're concerned about Greece, they're concerned about Spain. And so it's very difficult for a politician to control what happens, of course, outside your country. It is correct. And I would recall that Italy three years ago had more or less the same economic scenario. The total debt cost is about 4.2%. We had an inflation of 2% and growth rate below 1%. And under this scenario, the forecast of the debt curve was to be at 95% debt over GDP by 2030, so going from 120 to 95, which is still high, but what the markets buy is the trend. So Italy was showing that having a primary deficit surplus, Italy was able to pay and to services debt and to correct this total amount. And the old world was stable at the moment. Then suddenly, because of the Greek situation, as it was put up by the Germans, the point of view changed completely. And instead of focusing on a debt service, the world started focusing on the total amount of debt. And so it asked countries to consolidate their assets and liabilities. So Italy was sustaining that service because they had big assets enough as savings of the families compared to big debt. And that was more or less in good balance. And Italy was exporting and was growing. Once the market asked to lower the debt, this consolidation became a requirement. And that means going to the pockets of the citizen asking with taxes to put the money to pay out of that. And this is creating the austerity we're talking about, which is having an effect on the economy. How much does this actually affect your business and does it affect Russia? Because it seems that a lot of the times European leaders think of themselves, think of whether the Arizona will survive. But we tend to forget sometimes the impact this could have outside our borders in Russia, but also the emerging markets. If I may, a quick comment on what my colleagues said about integration, just a few words. I think what we have now situation, it came from the fact that over the last decade or so, the European Union focused on expanding rather than deepening the integration. So what we have now is half done integration. We have monetary union, we don't have fiscal union, we don't have a united economic policy, and we don't have united government, which you said about democracy, but if there's a more power to the some kind over the European government or European management, then the decision might be taken much quicker. As far as the banking sector is concerned outside, first of all, of course, the European banking sector is very much under the threat. It may be not so much concerned Russian banking sector, but I recently met, participated in the debate when 40 CEOs of European banks were present. They look like a people who were sentenced to death and just waiting for eviction. The first date is the 17th of June when Greece would vote for the new government. And I think there'll be an extremely bad effect on the European banking. And if you add, I think, a very unwise policy on part of regulators, I think we effectively might have a situation of nearly killing the European banking sector, which much strong participation of American banks or emerging market banks like Russia, China, and some others. But Mr. Castan, on the banks, what would you, what is the solution? Would it be the European Central Bank helping directly banks, the ESM fund, accessing funds directly to the banks without going through the sovereigns? I mean, how do you deal with this banking? Well, I think the European Central Bank might play, of course, a much more important role and take a bigger, or governments, or central banks should take a bigger, maybe burden when writing of the Greek debt if the situation to be resolved one way or another. In addition, I think European regulators should be much softer on battle three at a time when banks experience extremely difficult situation for themselves. Alexander Stav, do you agree is the banking system, what worries us the most at this moment? Because if they're not lending, then this grinds to a halt any possibility of recovery. It's one of the problems that we have. I mean, I think we should isolate the Greek problem from, for instance, the Spanish problem. In Greece, it's essentially a problem of debt. And in Spain right now, it's of course essentially a problem of the banking sector. But the banking sector in Spain is very different. For instance, from the banking sector as it was in Ireland or in Iceland, where in both cases you had many times the GDP over was the banking sector, whereas in Spain it's quite a lot smaller. So what we're trying to do is manage all these crises. But if I just come back to one point that's often made is that we are not helping Greece enough. Here, one figure that I find quite mind-boggling is that martial aid post World War II from the United States was approximately 2.5% of the GDP of the whole area. So far, so far, if you take European help, IMF help and others, in terms of bank loans and guarantees, we have helped Greece with 170% of their GDP. So all of those who come and tell us you're pushing too much austerity, not enough help, I think that argument falls away. Mr. Papak-Konstantino, 170% of GDP. And yet, I mean, your argument would be what, that it's not only Greece, but it's a European problem. Because I guess how you rebuke that is like Greece is within a European Union. So you don't have control of your currency, obviously. We've been saying from the very beginning that yes, Greece has particular problems, but it's a broader systemic problem. And I think whoever was saying this has obviously been proven by the facts. It is, one thing is to look at the level of support which has been very, very big. The other is to look at whether what is being done at the moment is by itself enough to get Greece out of the crisis and therefore help the rest of the eurozone also get out of the crisis. And there you do see at the moment the limits of austerity. You do see the limits of fiscal consolidation. We have in two years reduced our primary deficit by eight percentage points. This has never been done anywhere in two years this large reduction in the primary deficit. And the problem is that we're in the fifth year of recession and going back to the banking issue, it's clear that in Greece this was not a banking issue. However, the fact that the recession is much deeper than what we thought has to do with the fact that banks are completely dry. There is no liquidate into the system. There is a continuous flow of deposits out of the country as there is a flow of deposits coming out of Spain and other countries flocking to safe havens. And safe havens are the strongest members of the eurozone. So it is clear that austerity is not enough to resolve the issue. There's a broader systemic and banking issue at stake here. So do we talk about fear? Mr. Bashe, you as a central bank governor, I have to manage, I guess, the fear in, you know, you have to manage an economy but also manage the fear that the markets could have or that the people could have. What kind of advice, if any, would you give to Europeans, maybe to the European Central Bank, how do you stop this fear on the markets in the banking sector? Well, I mean, the European Central Bank does not need any advice. I mean, they know what to do. But the essence of it is life becomes very difficult, extremely difficult if there is even a small probability of default for central bankers. So that's why ECB has repeatedly said that, I mean, sovereign signature should be under it. So if you have one example with private sector in one involvement, that should be debated, I think, whether PSI was a good idea or not. Then why not there could be others? So that's priced in and then life becomes extremely difficult for central bankers. They can do the best that they can. But then eventually it's a fundamental problem. So should we not be talking about the possibility of Greece also exiting the euro? Because the problem is that when you say something, a lot of the times, it's self-profitizing. Is that you say people are concerned and then it becomes priced in? That's the second problem. I'm not talking about exiting the eurozone. This is about paying your debt. So one alternative would be to take over 100% of debt of Greece. So that immediately you have sustainability and you can proceed further. And Greece pays it over time, slowly and slowly. So the second alternative would be to pay it fully, but then with 140%, 150% debt burden, it would be questioned, it's not easy. The threshold there, I mean, master criteria has been very wise, 60%. So you should not be over 60% to start with. But as George has said, if this was addressed in year 2007, 2006, when Greece had 100% debt burden, with fiscal austerity alone, they could do it. But with 140%, it may be infeasible. So then if you bring in the private sector involvement, problems become worse and contagion naturally occurs. Can I come in on the signature issue for a second? One of the biggest European mistakes was the famous Deauville decision in November 2010. To remind us all, Deauville decision said, this was a decision taken by France and Germany in November 2010, said, in 2013, those countries whose debt is not viable may have to see it restructured. And if it is restructured, private bondholders will be the last of the queue. So the message sent to private bondholders is you will lose your money in two years' time. So the incentive to hold Greek, Portuguese, Irish, Spanish, peripheral bonds was zero. And while you saw from the beginning of the program May 2000 until November, a steady decline of the spreads, about 350 basis points. As of November, the spreads went way back up and then Portugal went in, Ireland went in and it became fully systemic. So there have been some serious European mistakes in this whole process as well. I guess the counter-argument would be why should the taxpayer pay and have all the burdens. If you wanted the destruction, you don't announce it three years ahead. You do it. Mr. Kostin, I think in Deauville, they basically announced it three years ahead because they realized possibly that it was a mistake because if they said from now on, then that's a serious trouble, isn't it? Was that a mistake? Well, I would rather agree. But as I said, what we had in Russia in 1998, we destroyed nearly the majority of Russian private banks when the government just refused to pay its own obligations. I think investment in government bonds considered to be one of the less risky for any bank starting from US Treasury going down. So I mean, when the state refused to pay its obligations, it's completely demoralized the market, of course, and it leads to a huge losses for banking sector. So I think some measures should be taken more than now in order to rescue the banking sector in Europe. What do we need now, Mr. Reiki, to put the banking sector back on its feet? I guess it's giving a message of firewalling if someone were to leave the eurozone or at least try and stop this systemic risk spreading to also the banking system more than it already has. You know, it's all a matter of connecting perception which turns into reality. So this is the rule of the word. Your reality is other people's perception. And when perception goes as it went for the eurozone in terms of capacity to sustain its obligation, turning back to the real reality which is sustainable takes more effort. So everything that the countries are doing now, and my country has been starting with very harsh measure to try to correct this perception, really fix the national perception. Now the point is how to fix the European perception of its own capacity to rule and to protect the system. I think that every measure that has been taken so far has always focused on savings in particular. You remember that the central bank uses capacity of playing with interest rate, focusing on saving to protect savings. That's why they were a bit late in reducing the interest rates when the markets were demanding for a reduction. And now it's focusing again on saving because they need to protect the banking system. And all the money that is coming from ECB into the banks remains in the banks. So I think that the focus of the economic circle is the enterprise, is the corporation. Because if the corporation doesn't grow, it doesn't create employment, which doesn't create wages, which doesn't create spending capacity, consumer, taxes and so forth. So I think we need a very strong and very fast measure to give the sign that the European zone under political decision is a unified zone with one rules which apply to everyone. What kind of, we talk about the ECB either putting extra money or buying extra bonds. What kind of message do we need? I mean, I know you say we need something strong a unified voice, which we haven't really had so far. No, the typical instrument for nations to boost or slow their economy was their monetary policy. And as I said, I don't think that the European Central Bank is playing a monetary policy for growth at this moment and for the enterprises. So I think it should be let go to play the interest rate game for boosting the economy and for the creating growth. And this is forbidden in the mission of the Central Bank which is trying to find side measures to give some liquidity to the market but it's really prevented by doing the real game. Mr. Stammer, we know what the ECB's mandate is but certainly in these extraordinary times maybe they can have a bit more wiggle room than they say they have. I think you're putting me on a very uncomfortable spot. I'm just a humble minister. I would never give any advice to our great leaders in the European Central Bank. I would argue that the European Central Bank has basically been doing its job, I would say for the past two, two and a half years. As a matter of fact, ever since the 9th of May 2010 when we started the rescue operations and I wanna keep my hands off the European Central Bank. I think we had two game changers about a year ago, half a year ago in Europe and both of them are called Mario. Mario Monti in Italy was the political game changer, calm things down at the time and Mario Draghi was the banking game changer in the European Central Bank. What they have done, the measures that they have taken are of course within the limits very close to them of their powers but they've been doing the right things. I would not be blaming the ECB, I would be perhaps blaming us the politicians for slightly slow movement. You earlier mentioned the fear factor on the markets. Do you by the way notice that there's a very close correlation between the organization of an extraordinary European council and tremendous market mayhem? They seem to go hand in hand. Hopefully we can calm things down by the 28th of June. We've had 18 meetings so far. 23, you've counted. Ever since Lehman Brothers, yeah. Alex, talk to me a little bit about what needs to happen for Greece to stay in the Euro. I mean, apart from the voting on the 17th of June, do you think that... Just a quick point because I'm an ex-humble minister and I can say whatever I want on the ECB. I actually agree with Alex in the following sense. The ECB today is a completely different animal from what it was two years ago. Without saying so, it has shifted its position. And I think it's one of Jean-Claude Richet's legacies that he actually moved the bank while pretending not to. And while saying to the politicians, you guys do your job because you're not doing it. And you're forcing me to take it upon me to save the Eurozone. And I think it is now time with the new leadership to take the following steps. But it's clear that the following steps are coming to the limits of what the treaty says for the ECB, which means we need to look at that treaty again. And I think it is about time. And perhaps we'll get there in the next round of discussion. Do you think Greece will stay in the Eurozone? Yes, I do. More seriously. And what happens if it doesn't? I don't even want to entertain the idea. There is a very good study from the National Bank of Greece came out a few days ago that shows that an exit... First of all, I don't think there's such a thing as an orderly exit. This is fantasy. I think every exit is disorderly. And it brings chaos and mayhem. And it halves incomes and it produces inflation at the order of 30-40%. And it reduces GDP by another 20-30%. And then the country finds itself in a difficulty to buy medicines, which we import most of them. Oil, which we import all of it. And foodstuff, which we import about 60% of what we need. So it's not an option. And it is... And we will do whatever it takes to make sure that it is not an option. Alex, is it an option? I don't think it's an option, but it's all up to the Greek people themselves. In other words, they have elections on the 17th of June, and you basically have two opposing parties, if you will, one coalition with the socialists and the new democracy. And on the other side, you have Syriza, which is a radical left-wing party, which has basically said that it will not stick to the programs created by the IMF, the ECB, or the Commission. If that is the case, I think the buck will stop. And in that case, we will go into a disorderly way. The interesting thing, of course, with the Greek elections, and I made the observation that I think it's the first time in the history of European integration that the Greek elections are much more followed and much more interesting than the French national elections. Andre, do you have contingency plans in place if we were to see a Greek exit? I know if you speak to a lot of the European leaders, they say, we don't have a plan B. We still don't have a plan B because we don't want to think about it. But as a businessman, you must have things in place that if Greece were to go back to the drakma, you're ready for it. Yeah, I mean, first of all, though I still believe that Greece will stay, I think that the option is becoming, it's becoming more and more option because there's no solution. If there's no solution, there should be some options to resolve the issue one way or another. And I still don't see the political unity or enough political will to resolve the issue. Though, of course, the departure of Greece would mean practically the failure of the whole European integration for the last 50 or 60 years, which will be, of course, a disastrous result. But for Russia, it's a little bit broader term effect because our Russian banking sector financially not directly exposed to what's happening in Greece or even in the European financial sector. Of course, for Russia, the key issue has always been the price of oil. If the price of oil is our analysts in the bank forecast can go down to $80 as a result of the Greek departure, then Russia might lose 2% of the GDP growth and with effect on the banking sector, on our clients as it happened in 2008, 2009. So I think yet we do have contingency plans. We already started to be much, much more conservative in our policy of lending than we were before. We already considered the risk of situation going from bad to worse. And Europe going in reception and so on and so forth. What is the risk if Greece were to actually leave the euro? We're gonna see mayhem on the markets. I mean, that would certainly affect VTB Bank. Our concern, of course, definitely the global recession, recession in Europe, which will lead to, for us, the problem is our exporters. It's our major clients in corporate lending. If exporters started to lose their income, if the prices and commodity goes down, if the demand goes down, and the oil prices go down, that will affect the whole Russian economy, all sectors, including banking sector. And so from this point of view, as I said, we are very much conservative on capital adequacy, like other banks, especially why they're not lending money to the real sector. They do have liquidity now. The ECB, I agree, provide enough liquidity for banking sector, but they don't have capital now. They're selling assets. They're not lending no money. They have concerns about recession, and they have concern about their capital. So that's the key points for European bankers. Mr. Recky, if Greece were to leave the eurozone, will Spain need to bail out? What happens to it? Is this going to be a sequence of events like the Domino's? And if we don't see Greece exit, how long are we going to hear about this crisis? In another two, three years, because it's a slow-burning crisis, which is really hurting the markets and confidence, possibly much more than if it were a quick event. I'm a humble energy guy, so you're asking me a question that you should ask to economists, but I would say that the reaction of events is uncontrollable, and I'm surprised that no economist can really put up a number because there must be a number of the worst case, and we should be able to compare what's the worst cost between that case or sustaining Greece and sustaining all the country. So this is not happening because evidently the consequences are so open and so unpredictable that nobody can make a math out of it. But what we see now that is happening is referring to companies management and companies turnaround. Every country's trying to apply the typical action that you do in a turnaround. So they're trying to stabilize their system, and that's why we have the measure mounted that the first Mario is doing this greatly. And the second round is how to implement with the resources you have available the next strategy, which is the growth. So every country is trying to do it. Some are more successful, some less, but at the end you need, as we said before, one key action that convinces the markets that all these measures have an effect, and this is still not happening, and that's why the Greek election, I don't think, will be a turning point. I think the turning point should be one strong political decision taken by the leading countries that the new governance has been set, and governance is about ECB, and it's about the European political system. Mr. Stavano, you wanted to react to something? Yeah, I mean, one of the problems that we have in this debate broadly around the world is that we are mixing things. One thing is dealing with the crisis as it stands. Everyone is playing it day by day. A second one is the structural changes that are needed in each and every member state. A third one is how do we find growth, and then the fourth one is the future institutional structure of the European Union, and the problem why the markets are reacting the way in which they are is that they are not able to see the difference between these debates. So in that sense, what you usually want from a European council is a clear decision on X, Y, and Z, and then a few pointers on the future. Whether we'll be able to manage that, I really don't know, but just like Mr. Kostin said, this has then re-implications for the global economy by and large. Whatever happens in Europe will hit the rest of the world. One thing I find a little bit frustrating is that we are ourselves creating this hysteria and this market mayhem. We keep on talking it up. The closer we get to a European council, the more columns, the more statements we see that, oh no, Greece is gonna go out. Oh no, we're gonna have to bail out Spain. Oh no, the banking sector is not doing well. And no one has really a clear vision of what to do at the end of the day. So I would suggest that three instances of people need to calm down. One, politicians, two, bankers, and economists, three, the media. The media, actually, we did have a survey that said that for, I think, every 20 headlines on the European Union, the year fell a touch. So there is a correlation. But of course the media has to do their job. I mean, Mr. Reykjano, you want to react. We need to talk about the council. Again, we are really creating a problem. We're creating this perception, which is creating a reality. Because all the fundamentals trading of the, fundamentals of economic KPIs of the world remain the same. We still have huge areas of the world which need to grow and have capacity to grow and need the technology transfer from the developing countries that help that. And so the world hasn't changed, but suddenly this perception created a whole in Europe which is giving a sense of uncertainty and a sense of unsustainability, which doesn't have the real motivation to be there. But you can't be telling me that it's the media that forces countries to ask for bailouts. I mean, it would be absurd. We wanted to put you on your back feet. We were saying that it's a combination of these three. And human nature is such that we always glorify the importance of the time that we live in ourselves. And right now I have a feeling that we see this as the deepest crisis in the history of mankind. And of course the truth is that we are far from it. Just one final point on this. In Europe, there is a little source of happiness as well. We are still by far the largest economy in the world. 28% of the world GDP is with us, 23% the US, 10% China, 9% Japan, 3% Russia and so on. We forget these fundamentals. We are still relatively speaking doing quite well. I want to ask just Mr. Bacovic, is out of the five panelists, you were the only one not to raise your hand when I asked, do you expect the Eurozone to survive in its current format in the next 12 months? Do you think Greece will leave? I mean, why I did not raise my hand is related to you said in the current format, survive in the current format. The format definitely has to change. So that's my objection otherwise. But you still see all the members. Eurozone better stay intact. Better because otherwise the impact on emerging economies in Turkey will be... I mean, for the whole world, but the biggest cost will be within the Eurozone. Because then we have to start from scratch. I mean, the reason is if one country exits the Euro, there's a possibility that other countries may also exit the Euro. But we outsiders have already exited, we are not in. So that kind of contagion will not be there. But within the Eurozone, there can be a huge cost of contagion. Yeah, because you're saying that basically if one country leaves and all bets are off for the others. For the members, yes. Yeah, for the members. Mr. Krastan? I just wanted to say that I think the world did change. It changed in 2007, 2008, when we actually overlooked the crisis. And that's probably now... Well, I'm talking now so much because we overlooked the crisis in 2007. We don't want to overlook it again. And I think that's changed a lot. So I think what we have now is a continuation of what happened in 2007. So I think that's why at that time we didn't have any contingency plan. That's now we are talking about this because we want to get ready for the next wave. I think it's just quite understandable. Are we ready or are we not ready for the second wave? Well, I think definitely much, much better ready. At least in Russia, we have all the contingency plan which we had in 2008. Plus, we have additional measures. And I think today, I hope that most of the government and international institutions are much better prepared for the second wave of crisis. Mr. Papa Constantino? I actually want to agree with what Erdem said in terms of the, in its current form. It will have to change. There is no question about it. This is not an issue of how many members are in. I think they will be the same members. But it is that the basic rules of engagement have reached their limits. We are now in a state where the basic tenant which was the irreversibility of the process is being called into question. And it is not just being called into question because of Greece. It is called into question in a broader sense. The story of these days may be the Greek election because on the 17th. But it's also and primarily Spain. That's the biggest issue in the moment. The Greek elections, if I may give one element of counsel to everyone listening is be a little bit cool about it. It's hanging in the balance. Obviously, I would personally, just like Alex, would like a coalition of the real reform-minded European forces to prevail. But we live in a democracy and you'd never know what the result of election is. And the rest of Europe should react to whatever result with a bit of sans-froid, okay? And a little bit of distance and waiting to see how things develop. But we have an urgent issue at the moment which is that you have a country whose fundamentals are okay. If you look at the Spanish deficit and debt fundamentals, they are okay. They're not out of whack and which is facing tremendous pressures. This is not due to Greece. This is due to broader systemic issues which need to be faced and they need to be faced now. And in that sense, even though I agree with the compartmentalization that Alex was making before, fiscal structural growth and systemic, et cetera, I think time is now compressing and we now need to do the extra steps in the banking sector, talking about the banking union and the European guarantee on deposits. On Euro bonds, we need to do the extra steps. Yes, on the fiscal compact as well, which is the necessary step to get to some kind of mutualization of debt and to finally a growth package which is worth its name because we've been talking about it but haven't been seeing anything. So we need to very, very fast now move ahead. If we don't, then we'll find ourselves in a very difficult place. I mean, I fully agree and the thing is we shouldn't create the impression as if we have not done anything for the past four years. We've done a lot of stuff and the ex-finance ministers and current finance ministers know that very well. We have a six pack piece of legislation which gives tremendous powers to the European Commission to survey our budgets. That's a huge federal step, I would argue. Secondly, we've had the fiscal compact which is in the process of being ratified, which is a step towards economic union. I would argue and on top of that, we have created both interim and permanent crisis management mechanisms to avoid spillovers to other economies. Now we're taking the next step which is basically going to be a debate between France and Germany. Germany pushing for the austerity measures and being quite careful on Euro bonds, project bonds, ECB intervention, structural funds and et cetera and France taking the opposite stand. And I think the compromise that will emerge will be some kind of very careful fiscal federalism. Even in Euro bonds, it's not only about dishing money into bad economies. You can find different types of Euro bonds for AAA rated countries or at a 60% margin or whatever. So we're doing a lot of stuff. Some people are just arguing it's not enough. Politicians are not as fast as markets. But so the point is that what you need then is to talk with a common voice, I guess. Because that would give the impetus to markets that they're asking for. Yeah, and I think a lot of finance ministers and heads of state and government in Europe are trying to do that as well. It's never easy. A lot of people always talk about European foreign policy or monetary or economic policy. We need to talk with one voice. Well, the system is a little bit like the system created post World War II in Germany. It is not a system which wants to centralize power. That's why we have one voice from the European Central Bank, one voice from the commissioner for economic affairs, one voice from the president of the European Council, and one voice from the president of the European Commission, and one voice from the president of the Eurozone. So you're probably never gonna get one voice only, but at least they need to speak in chorus. Mr. Reykjavík, do you think politicians have done enough? I remember I had an economist on The Morning Show this week, and he was interesting to say, the problem with European leaders is that they do do a lot, but they really sometimes wait to stare at the abyss to come up with something. And we have to make sure he was quoting Nietzsche that the abyss doesn't stare back. Are we at that point? My word is made of different type of organization and different type of governance. So a company is a vertical governance. At the end, you ask for the best solution, but you take decision based on time and long-term effect. The democratic governance of the Western world, as it is built so far, is proving not to be fast enough for crisis in particular because it needs constant consensus and is not long-term driven enough because by definition is driven by the term of the nomination of the cabinet. So the word today needs long-term strategies and that's why we're not really adapt to tackle this particular moment. And this is emphasized by the fact that there are 27 cabinets that have to decide 27 leaders. So I would say that there is a big lack of leadership. I hope that two Marios can bring up to show away, but still is work in progress. So I'm very concerned. Mr. Brescia, it seems to be three worlds colliding. Of course, businessmen, European leaders or leaders and policymakers. How do you see all of this panning out from a policymaker point of view? The ECB, as we were saying before, has maybe changed the mandate but certainly gotten a bit more elbow room and this is, I guess, a very difficult decision to take on their part. No, I said that as a central banker. I mean, the life for ECB is extremely difficult right now. I know that from heart. So, but we see the Eurozone problem as a family affair and we better let the family decide. I better not comment much about it. Maybe Prudence. Mr. Acosta, again, from a businessman, I know you're not really within the Eurozone family, but do you feel that the leaders need to do more? Mr. Stubb was saying that they have done a lot and they have taken steps, but you need to put an end to it, I guess. But they're human beings, of course. Over the last two years, we saw the change of seven governments in seven countries. So definitely, I think from internal point of view, from domestic policy, they also limited on what they probably can make. And another very, I think, very concerning feature is that we see the social discontent in many European countries, which should be taken into consideration. But that's the situation when, to stay as it is, I think the worst decision. So one or another way, the politician should move. And of course, the change of leaders doesn't necessarily help. Like to have a new leader in France probably needs more time for debates and so forth. But I agree with the previous speaker, saying that they should do more now. I mean, they should find some solution. And for this, I think, first of all, Madam Merkel should probably make more steps. And France as well, which is difficult decision, I agree. They did a lot. If you look at what the leaders were agreed to do five years ago and now, we have a huge difference of spending the state's money. I mean, that's a huge difference in mentality, in ideology of spending money. But I'm afraid that you can't stay halfway. I mean, you should move for further. If you want to rescue the United Europe. You have to do it. Mr. Rappach, I just wanted to ask you a very quick question, something that you had said a long time ago. You're saying we are steering the Titanic. This was almost a year and a half ago. How would you describe the situation now? And would you also urge Spain, if they need a bailout, to ask for it sooner rather than later? Because it seems that every country that has applied for help, did it a couple of days after they said, no, we don't need a bailout. And actually, if you access that fund quicker, then maybe it comes market a little bit. What I had actually said is that we were heading straight for the iceberg and the previous captain was asleep in the cabin. And there were elections and the new captains actually turned the wheel. And we still are not, we haven't fallen on the iceberg. I would not want in any way to give advice to another Eurozone country at which point it should or should not ask for the support mechanism. It is a very difficult decision. A lot of countries have said that they do not want, Portugal did not want it. We did not want it. But we were faced with markets that closed very, very quickly, whatever we did. And I think this is a lesson that needs to be kept in mind and that you can take measures and you can have austerity, but it is beyond that. Clearly fiscal consolidation and sometimes in a very abrupt way like we did it is a necessary condition, but it's not a sufficient condition because the problem is broader, it's more systemic and it goes beyond fiscal issues to other. And Portugal found itself in that position after having taken austerity measures for years. Ireland, Ireland's problem was very different, but it had also, it was not an issue of fiscal consolidation. Again, my view of the Spanish situation is that the fundamentals are not such as to warrant the kind of spread that they're facing in the international markets at the moment. They're not, clearly. If you look at the debt level and you look at the deficit level, they shouldn't be facing 6.5% interest rates, but they are and they're doing what they can to face it. The question is, will that be enough? And this is why I think that even though I agree with Alex, we've done, there's been tremendous work in the last two years and I have a lot of respect for governments. I think first of all, it's up to each country, first of all, to do its own menage and deal with its own problems. However, and I have a lot of respect for coalition governments. Alex is a member of a six-party coalition government. It's not easy to pass through the Finnish parliament as it's not easy to pass through the German parliament measures to give taxpayers money to other countries, even though they're loans, okay? So I do accept that. However, it is clear to me that even though we've moved a lot, we haven't done it at the right pace and we're not there yet. And I think in a certain sense, this is the moment of truth because it's gone beyond peripheral countries to what is much more of the core of the eurozone. Do we not need a federal European state, federal states of Europe? Because as we're saying, we're treading around politicians. I remember interviewing Mario Monti at the time who's just, you know, I'd say just a professor a couple of days after Greece actually asked for bail and he was saying the problem of fundamentally is that politicians are too polite to each other. So even for the deficit, although some of them were breaking the rules, no one actually took charge. I guess the only way to take charge is to have United States of Europe. Well, to be quite frank, I've come out of the closet personally many years ago. I am a federalist there, so I'll say that straight away. I do think that at the end of the day you cannot have a monetary union without economic union probably filled in with some kind of political union. While I'm a federalist, I'm also a realist. I understand the limits of sharing sovereignty or pooling sovereignty on a supranational level. So I personally think that the European Union is always going to be more than an international organization, but less than a state. And what we are seeing now are the building blocks of what I would call fiscal federalism. We see it with a six-pack piece of legislation. We see it with the fiscal compact. We see it with the whole debate on project bonds, on euro bonds, these types of elements. But we are probably never going to see a full-blown European federation as such. The interesting debate here, of course, is that we've gone into a world of localists versus globalists. There's no left-right divide anymore. Localists are anti-European, anti-euro, anti-immigration, anti-globalization. And globalists look for solutions, pro-European, pro-euro, pro-immigration, and pro-globalization. And at the end of the day, we're gonna try to have to find a balance between these two. Final point on this, I find it rather amusing that a couple of decades back, and even in the last decade, everyone talked about, let's bring the Union closer to its citizens. I would argue that the European Union is closer to its citizens than it's ever been before. And that is because of the financial crisis. In, for instance, Greece, people are frustrated that the EU is forcing it to do austerity measures. And in a country like mine up in Finland, people are frustrated that we have to pay to other countries. So the EU is really under your skin right now. It certainly is. Just a couple of minutes to go on this debate. I wanted to see if the panel was able to change some of the minds, and then we'll come to questions a little bit later on. But has anyone changed their minds about the question that I asked before, which is if the Eurozone can actually survive in its current state, if you have changed your minds, raise your hand. Right, so no. A rather pessimistic, so I think it's still around 35 to 40% of people think that it won't survive its current format. I think that was your pessimistic calculation. For me, it was like 65% said that the EU will survive the crisis. It's a bright light. I want a new opinion poll on this. It's the bright lights and journalists are known to be maybe more critical. I wouldn't use a word pessimistic. Mr. Basch, we just have to wrap things up, but very quickly, do you think that Turkey will ever be within the Euro? I mean, would you feel uncomfortable if actually your currency were not to be managed by you but from someone else in Brussels? No, I mean, our experience is especially the mass strict criteria for Eurozone membership was designed correctly. The only problem was with the enforcement of those rules. So Turkey is a very good example, which shows that especially on the fiscal side, if you obey these rules, you have good performance. So therefore, the problem is not implementing what's on the paper. So therefore, I mean, if that time comes, we will look into the situation, but for the current key community there, once you are a member, European Union member, eventually you will have to become a member of the Eurozone. So maybe that will change in the future, but we will have to wait and see. All right, thank you so much, Mr. Basch. I want to really thank all the panelists for this very interesting debate. Mr. Abash and Mr. Recky, Mr. Kostin, Mr. Papas Constantino and Mr. Stubb. Thank you for joining us on this Bloomberg TV debate. It's a big round of applause to you all. And I guess we'll see in the next couple of weeks, months and years what happens to the Eurozone in general. Great, guys, thank you so much. So we'll continue now the session with questions also from the audiences in just about three to four, two to three minutes. So we'll start with questions from the floor. If anyone, yes, now a question from the, so if you please stand up, we'll get your microphone, I think, and then also say where you're from and who your question is addressed to, and this is from the global shapers. Microphone, I think we need a microphone. Yeah. It's a land of great scenario where we're either betting that the situation will resolve itself or we are, like, instability faster and with unperceived longer consequences, do you think this is equivalent to U.S. banks being too big to fail? Your question is to the entire panel. All right, we still have, I wish we'd had an extra two hours. Okay, you know, the President's dilemma has a suboptimal result where you end up and everybody's worse off because you haven't actually found the strength to cooperate. So I hope we're not getting there. I see some very clear parallels to the U.S. And I think that the fact that the U.S. has been so vocal in this whole debate from the very beginning is because the U.S. has been through Lehman Brothers and knows that you need to move fast and you need to put a lot of money on the table. Money's not enough, but you need to be very clear on the power that will convince the markets that certain outcomes should not be even envisaged. And it's a shame that the Eurozone didn't take that lesson early on. I think it's getting there. But again, as I said before, I think you should have gotten there a bit earlier. Question? Let's wait for the microphone. Yeah. I'm also with the shapers here in the forum individually with the open funding grace. I would like to ask, and when you're here on the panel. In my country, the elephant in the room is the impending election, which has degenerated, unfortunately, and we're more or less over due referendum between the forces that say that we should renegotiate the loan agreement and by extension, perhaps immediately exit the Eurozone. And the ones that say that we should implement the austerity measures that are provisioned in these agreements, which are more or less like a cancer drive. You have to get a lot worse before you get any better and you might still not make it. So it would really help the choice that my people are facing if anyone here could indicate that by following these austerity measures in the next five years, Greece will be able to return to raising money from public markets and that Europe would not require any further firewalling. Thank you. Alex, does anybody know the answer? I don't think anyone can give you that promise. I mean, was it church who said that you can promise you only sweat blood and tears? And I think that's pretty much the line in which all of us are right now. I think in Europe we should wake up and smell the coffee. We are looking for an extended period of low growth. We're looking at an extended period of where our welfare benefits will be cut down. The bottom line and the big mistake that we did was that with the Euro, when your economy is doing well, you're supposed to save. When it's doing badly, you're supposed to use those savings. Now we have all excessive deficits. We've been basically trying to grow and sustain our welfare states on the base of debt and this just doesn't work in the long run. Now the situation is very difficult. It's very uncomfortable and it is so for all of us. I'll give you one example. Finland in the early 1990s, heavy-duty banking crisis, the breakdown of the Soviet Union led to the collapse of our exports and what we had was 18% unemployment combined with 20% interest rates. We took our lessons. We put down some... Oh, apologies for that. I think we'll get back to you in one second. Can I add? I don't know that. Just to finish off with, at the end of the day, those measures had to be taken and the standard of living had to be reduced. Whether this is easy to do politically or not, and this is a big worry that I'll have when I come back to Greece as a final point. I think the choice in Greece is obvious and I can't, of course, say this publicly because I can't support one or the other, but I can only give the option. The option is Syriza, attempt for renegotiation, and collapse. And the other option is to vote for a new democracy and then Pasok, who will continue with the program. The buck stops here. This is the only option that we have at home. It's as simple as that. I have full sympathy with the Greek people, but this is where we stand. Can I add on to this and temper it a little bit because the blood-sweating tears and allergy may be correct at the same time. You need to give some prospect to people. And it is true that the choice is between a difficult road and a catastrophic road. And the difficult road is difficult, but you need to convince people that at the end of this road, there is something for them to hope for, because otherwise they'll say I have nothing to lose. So why not go for the alternative? See what happens. And I do think that the road we've been taking has some very correct elements, but we need to tweak it because we're in the fifth year of recession and it doesn't seem to people that it's leading us anywhere. So whoever comes to power will want to also tweak the bargain and look at certain elements like a longer adjustment period or certain other elements to complement the current package. And yes, within the agreements that we've already made, at least that's my position. I think this is a crucial question because you can ask any effort to anybody in a company and then specifically to citizen in a country, but people can go through hard times if they have a vision of what is gonna be next. And this has been proven in my country because when the new government came in place and made a reform of the pension system which was tried and attempted to be made by many governments before with no results. And this was done in 20 days. Why? Because there was a big expectation that under some good behavior the situation would have been corrected. And now it's kind of a losing momentum because the overall scenario is getting confusing. So in people's mind is building up the concept that okay, I'm suffering a lot, I'm sweating and bleeding, but what for? I might be worse later on. And I think this is the typical role of politicians. The leadership like I was quoting before is where it should play now because giving the vision is the most difficult thing but that's the challenge. Question, the gentleman. Good afternoon, I wanna give you a personal example. Two summers ago, 2010, I served with about eight friends. We were cruising between Greece and Turkey. We stopped in Wickenos and all of us wanted to do expensive shopping but we couldn't get VAT back from any of the shops. And among us was a Greek couple. They said, here, nobody pays VAT so you're not gonna get VAT refund because I live in India. Don't wanna get my VAT back. In the end, none of us did shopping in Wickenos and we had to go to Turkey and get products where we wanted and got VAT back. So as you were the finance minister during those days, did you get VAT from your retailers? Like most of us do. And because obviously they didn't wanna declare. We wanna spend 10,000, 12,000 pounds and none of them wanna take our money because we wanted VAT refund. So... First of all, may I say that you were very lucky sailing between Greece and Turkey two years ago that I hope you'll be back doing the same thing because we need your money. If you... I'm coming to the question. I'm actually sure that if you go back today, given the difficulty of this situation, people who want your money will give you receipt. And even though tax evasion is a chronic problem in my country, a lot has happened in the last two years to try and get compliance up and change the rules of the game. We've been putting people in jail for tax offenses which was not done before. We've changed the legal environment. We've changed the justice system, the way it's been treated. We've given carrots and sticks. However, it is very, very difficult to increase compliance at the time of a deep recession. And this is not an excuse because compliance is actually up. But the more people are squeezed, the less likely they are to obey the rules that are down for them. And from my point of view, and from the point of view of the government that I was part of, we very much realized that tax evasion is a crucial element in any fiscal strategy, not only because it's the revenue that you're missing out, but also because it is a basic sense of justice for citizens because we're hitting on wage earners and pensioners. And we cannot be hitting on them and letting people off the hook that are not paying taxes or have expensive yachts and they're all tax free, et cetera. And this is why a lot of emphasis has been given to this, we haven't resolved the problem. Just like Italy, if I may, has not resolved it either in other countries. But I think we've made great strides but still there's a long way to go. During the austerity time, I understand from my Greek friends, this is a norm in Greece, even in the good times. This has been going on for many, many years. But only in the last two years, if I may say so, have we actually started doing something about it. Lady in the front row. Hello, okay. Shepnam Kalemnioskin, coach university and Harvard University. I'm a professor of economics and finance. I'm actually surprised that we focus so much on Greece and not enough on Italy and Spain. In the academic world right now, the consensus is the real risk is Italy and Spain. There is a serious contagion going on and they are too big to bail out. There's a background going on, there are a couple of outflows, sudden stop. Everything is going on right now and it's masked by Germany financing it and the target to system of Europe. Any other country went through this, Argentina, Mexico, Turkey, Uruguay, Korea, Malaysia, you name it, they end up collapsing. So the only solution we see actually is inflation in the short run. Yes, fiscal union, Euro bonds, these are a great solution. I'm sure Eurozone is going to get there. But in the short run, this situation has to be fixed. Academic world might be slower than markets but clearly we are faster than politicians, I would say. So I would like to ask you, this is to enter our panel. What do you think the possibility of allowing some inflation in the short run which comes back to Germany, of course. I'd ask the bankers here. I'll just give you a short term answer on that. It's a bit of a taboo and I don't see that happening. The only thing I guess as a minister of trade that I can celebrate is that the value of the Euro is reducing and that way we can get export driven, perhaps growth in one way or another. But for me it's to start meddling about inflation and extending the powers of the ECB and changing its task against the will of some of its member states would be a little bit risky. So that's why I hand it over to either ex-ministers or central bankers who are much more informed on this than I am. My short answer is yes. My answer would be no. I mean, my answer would be a clear no. That would only add to the problems. Now all we need is a maybe. Spain and Italy's problems cannot be solved by means of inflation. So that's a different sort of problem. There are only two people debating. Imagine if we were 27. Do you want to elaborate on that? I just want to ponder a little bit why we're talking so much in Greece. I think if we find a comprehensive solution for Greece, it will be much easier to resolve the issue of Italy, Spain and other things. If we find the common political will to resolve this issue, it will be easy to do anything. But inflation, I hear the voice of the Russian governor of central bank. No inflation. So I think central bank is always against inflation. I think we like growth. So even at the expense of the low inflation. So I think we also want to come back to creating hysteria. I mean, economists, academicians, or politicians, or media. It doesn't matter. But if we look at the raw figures, and again, I'm a humble political scientist, not an economist, but what is so different with the raw figures between France and Spain, for instance, on debt? What is the difference between the raw figures of, say, the United States and, for instance, Italy in terms of debt? Perhaps a little bit more. So I mean, I think sometimes unfairly, we create a lot of market and political pressure on bigger players, such as Spain or such as Italy. Spain, for instance, is every Friday in the government sessions taking very tough measures for structural changes. Their problem is quite different, as I said earlier, from many of the other problems. It's linked to the banking sector. So we should, I think, give them the benefit of the doubt and then take measures to make sure that neither one of them collapse. I also think whatever happens with Greece, and sorry to come back to Greece again, we are much better prepared than we would have been two years ago. It will not, or it would not be an orderly exit. I fully agree. No exit is ever going to be orderly, but the firewalls that have been created are at least a little bit more solid than what they were a couple of years back. George, and then I'm just going to take one final question and then ask everyone to wrap up. Do you want to answer that? Just to find my guess, but before I do that, just a quick one on Alex's last point, because I don't think it should be misinterpreted as I'm sure he didn't intend it to be, but firewalls have this bad habit of being swept away by tides very, very quickly and without you even noticing it. So let's not put too much faith on existing firewalls. My guess had the following sense. Okay, I wouldn't expect the central banker to say yes for a bit more inflation. I think he would be excommunicated on the spot. But I think that there is some room on the part of certain countries and Germany is one of them, which has been in austerity for a very, very long time. And if you look at wages there, they've been flat for some time. There is some room. And I think that that little rigorum would allow you a bit more of a push at the moment when everybody's putting on the brakes. If we're all pushing putting on the brakes, then the whole system just stops. So, I mean, this is basic economics. And I think we are beyond the point and a little bit of stepping on the accelerator at the moment on certain countries, certainly not on my country, would be very helpful. One last question from the gentleman at the back and then I'll ask you just to quickly wrap up the session. Ilya Kasych, I'm a global shaper from Moscow Hub. I have a question to Mr. Stubb. Finland has done a tremendous job fighting the crisis two decades ago and you guys have initialized that and you grabbed the power of all the processes, including money supply, by the way. And then you have started implementing a number of structural reforms in the housing market, in banking, in direct investments. And obviously your experience here is much more valuable than the experience of Germany or France because those countries just didn't have to face those challenges. They just don't have that background. And my question is, why cannot that experience be portable to some other countries? Why that does not happen? Well, probably because the laws of crisis are not exact, the natural laws of crisis are not exactly the same. Our crisis, yes, was a systemic one and it was linked to the collapse of the Soviet Union and also linked to a, I would argue at the time, rotten banking sector. So on the export and structural side, it was a specific case. On the banking side, I think Europe has taken a lot of the measurements that were taken in Finland or why not in Sweden at the time as well, which had a very strong banking crisis. So I think a lot of the measures have been used throughout but the problem is that a small Nordic country up in the periphery of Europe comparing that to 27 member states and the banking system doesn't work. I think banking regulation is in the pipeline right now in terms of legislation. Now people are even talking about a banking union and if we start creating something like that, I'm sure that some of the measurements which we have learned about throughout this crisis will find in those measurements. So we did fairly okay at the time but remember that we also made catastrophic mistakes right for the first two or three or four years into that crisis. We just don't wanna live through that period ever again. Guys, thank you so much. We're running out of time. I'm just going to ask each of you in 45 seconds to maybe sum up what we've discussed and what you're taking away from the session. I mean, this Eurozone discussions have been going on since July of last year so it's almost one year now. So the only element that's needed right now is to eliminate uncertainty. So if policymakers just can eliminate uncertainty regarding what will be done, that will be doing most of the job actually right now. I think the outcome was that Eurozone market is still the most powerful in the world. We have a number of people. We have the GDP size. So it's just a matter of a political decision. We need some courage to look forward on longer term and no turnaround is possible without monetary policy. And I think that we're not just talking about a crisis. We're talking about a real reset of the way we know things should work. And so to go through this transformation, we need a new political governance for Europe. I think we expect a difficult time ahead of us. I think we'll see more challenges coming from different sides. But I believe that Europe will manage to take necessary decisions, first of all to keep the unity, and then to make further changes in order to provide a better management of the European economy. The Eurozone is a work in progress. I think we all knew it had some very serious weaknesses. We've lived them in the last two years. We've done a lot to address them, but not enough. It is now time to take the next steps, and that involves a fiscal element, an element of growth, structural reforms, regulatory changes, and the move towards a political union. Look forward to a decade of an economic crisis, but be optimistic. It shall be solved, a solution shall be found, and at the end of the day, we will have more countries in the Eurozone, not less, and we will have more integration, not less. Well, thank you so much for being part of this Boomburg and Boomburg AT debate.