 Good afternoon, ladies and gentlemen. My name is Heather Conley. I direct the Europe program here at CSIS and may I be one of the first to say happy Friday. We're delighted that you could join us today for a very, I think, important and interesting conversation about the European sovereign debt crisis. I'd like to begin by thanking our colleagues at the Dutch Embassy for providing you with this delicious lunch and being a co-host of this event. We are very grateful for their wonderful partnership. We at CSIS are always very fortunate to have senior officials come visit us. Many times these senior officials, though, hold the American portfolio on NATO security. They're coming to consult with us. When a very senior official with the European portfolio wants to come to Washington to help us understand what's going on in Europe, I think that speaks to the importance of the issues and the transatlantic nature of this crisis. When Director General De Groot, we were told he was coming, we quickly said this is a wonderful opportunity and we want to seize it. Because it's a transatlantic conversation, I can think of no one better to be the partner than Ambassador Robert Kimmet, former Deputy Secretary of the Treasury, former U.S. Ambassador to Germany, although he does have a current day job as the Chairman of the Deloitte Center for cross-border investment. I'm so grateful that Ambassador Kimmet could provide us with his thinking, both from former hat with Treasury, former hat as his service in Germany, and provide our transatlantic perspective. So we are indeed extremely grateful that you could join us. I'd like to remind everybody that we are on the record. So we will keep that in mind as we ask our questions. What we've agreed to do is Director General De Groot will begin with some opening remarks. We'll ask Ambassador Kimmet to provide his comments and remarks and we'll do a little conversation up here, but then open it up to your questions as well. So let me begin by welcoming Director General Robert De Groot, Director General for European Cooperation. He was also, prior to this position, Deputy Director and Political Department, and he has had a little security policy. So we know we can talk a little NATO too as we extend our conversation and an extremely distinguished career in the Dutch Foreign Ministry. So again, welcome and help us understand the European sovereign debt crisis welcome and we'll have you switch on your mic and I'm going to switch off my mic. Well thank you very much. It's an honor to be here with all of you. I thought I'd start off with stating something which Robert Cooper, one of the senior diplomats in Brussels, wrote down a couple of years ago and it goes like this. He said if you live in another continent you probably muse about romantic Europe and if you're a neighboring country to the Union you probably want to join it. You can only belong to Europe to really hate it. Now that was a couple of years back. Today I would state this last sentence differently and say today this might be reversed in a sense that only those still belonging to European Union actually love it, but that's a change there. Maybe allow me to make a couple of points on the Euro and I'd like to make four and the first one is what about the future of the Euro? Is there anything possible in the future without the Euro? To my opinion no question about it that is not possible. The Euro has brought us so much economic growth, so much wealth over the past decade. It has made us feel more European and altogether on the continent that unraveling it is totally unaffordable both economically and politically. And it's also very valuable to foreign investors like from this country where the Netherlands is the largest recipient of your foreign direct investment. I think also for others outside Europe having one currency with these 500 million consumers I think is worthwhile. The second point which is always under discussion is the word firewall. Is there a firewall to help countries in case of need? And we helped countries like Ireland, like Portugal and like Greece but there might be others and is there enough money around to help these countries? Well I think that is the case. First of all there is a temporary mechanism in place with 500 billion euros. We've only used half for Portugal, Ireland and Greece including the package which has now been agreed on Greece. So only half of that is used. From this summer onwards we'll have a permanent structure, the ESM, the European Stability Mechanism, which also holds 500 billion euros. So that's quite a big number already. The third point is last year the European Central Bank put in 500 billion euros into the European banking system and it's going to do so again this month or next month. So when you add all this up you're over one and a half trillion euros which I think is sufficiently to take care of anything in case of need. And if there is a need at one point in the future I think most parliaments in the Euro area countries could move swiftly to bring in more money which I think is not necessary at all. The third point I'd like to make is about tightening discipline. We can never have problems like we've had in some of these countries again. We cannot afford that. We can have no more statistics which do not truly reflect the situation of a country. We can have no more undisciplined governments with their national budget and their debt to GDP ratio. So what we've done since summer of 2011 is really strengthen the position of the Treasury Commissioner in Brussels. In fact he's almost a EU finance minister today. He's called a commissioner but the powers he has today in comparison to six, seven months ago are enormous. He can name and shame governments and parliaments which are not doing their job right on the national budget. He can sanction countries which repeatedly do not comply with the stability and growth pact which holds all the rules and regulations. When there are macro economic imbalances in a country, a country spending too much on one issue and too little on another, they can publicize it and name again name and shame and the Council of Ministers of the European Union, I'm not going to become too technical, needs a very large majority to be able to block the decision by this commissioner to advise a country and to urge a country to really change its budget and its policy. So that's the third side. Budget discipline is now in place. We've had new governments in Ireland, in Portugal, in Italy, in Spain. We'll have a new one in Greece this spring and they're all getting their act together. I think it is extremely well done what Mr Monti, the Italian Prime Minister, has been managing to do with his parliament over the past couple of months. We have a new government in Spain which is taking all the measures they need to take. But we still have these debts we have to repay and there's nothing possible without regenerating growth on the European continent. We need to change, we need to adapt to globalization, we need to be competitive, we need to invest in research and development, we need to invest in education, we need to save money on 32-hour working weeks which we cannot afford anymore, we need to save money on pension age and not be pensioned anymore at 60 but move to 65 or 67. We need to get out of the social benefit system in a way. We need to get out of subsidies for industry and other parts of the economy and really change to regenerating growth by investing public money into innovative sectors. So this is all going to be very tough. It's going to be tough on the Netherlands, it's going to be tough on other countries too. But we see no other option. If you want to keep up with the pace of globalization you will have to structurally change your economies. It's going to be painful in the short time but it's the only way out of this crisis in the long term. I'll leave it at that for the first comments. Let me thank CSIS, Heather Conley and our European team for putting this event together. It's a pleasure to share the stage with the Director General. I was particularly pleased with the attendance for a Friday and also very nice we have as many students in the audience, one of the great benefits of going to school here in Washington as I did for law school. 20 years ago I was Ambassador in Bonn. Don Bandler was the political minister counselor at the time, later Deputy Chief of Mission. And there were front page articles, very critical of European actions and indeed some concerns about German assertiveness. But interestingly this wasn't about Maastricht which had been signed just the month before but rather what Europe was doing around the European security and defense identity. Was this going to come at the expense of NATO? There was surprisingly little comment about what had happened in Maastricht which was as it turns out far more important but we were still focused as was the case in the Cold War period on those traditional political and security issues. And a formulation arose that became US policy and still is US policy today and that is a stronger Europe that comes together on an outward looking basis is good for Europe, is good for the United States, is good for the global community. We've moved now from an era where during the Cold War nuclear throw weights were a measure of both strength and concern to today when sovereign interest rates are that same measure of strength and concern. But I think that same paradigm and that is that a stronger Europe that comes together on an outward looking basis serves not only Europe's interest but transatlantic and global interest is still the case. So the relationship is broadened to include more economic and financial considerations along with those continuing important political and security considerations but I think it is really important for all of us to understand now how much attention we have to pay to what's going on inside the European Union especially now on economic and financial matters and that's why the Director General's comments I think were so important for us to hear. Both the United States and Europe are on the same path right now. We're trying to lay a firm fiscal foundation upon which policies for growth and opportunity and job creation and competitive economies will be created. In Europe's case I think Mr. Director General that it was really moving tactically from about June of 2010 until November of 2011. I think actually at the summit in November of 2011 Europe took its major strategic step and I think the evidence of that is twofold. Number one the British who had attended all those previous summits and had just gone along with the summit declarations took an exception, their first major exception since Maastricht 20 years before. So something serious had happened but secondly I think that that did send a signal to the European Central Bank that it could start taking steps on the monetary side which as you said were so important to put liquidity into the marketplace in December and especially January a month of significant refunding in European sovereign debt instruments. I think two I would say on the firewall I think there's been a lot of focus on the fiscal aspect of the firewall but I think there's also a monetary aspect to the firewall. My basic rule of thumb is if the problem is in the hundreds of billions of dollars governments can handle that through fiscal instruments. If the problems are in the trillions that's when central banks have to step in and I think right now the coordination between government authorities and the central bank authorities is what is giving people more hope for Europe coming through this difficult period in an even stronger position. My conclusion is that I think there's more to be done but I think Europe is on the right path. I think Germany has made the decision that it is willing to pay the price to keep the eurozone together and the euro afloat. Germany is now in the 67th year of peace, longest period of peace in over 800 years. No one has benefited more from the introduction of the euro than Germany's export driven economy so it's very important that that major economy is committed to this project and I think we're to the point now that a good strategic line has been laid out and the real question now is execution risk and that's both a political question but a political question that's going to be judged in the marketplace which is a nice combination it seems to me that people will be judged on political terms in elections in France this year, Germany next year, Greece you mentioned is coming up, Italy again next year but also the financial marketplace assuming it doesn't go back to some bad old ways will provide some of that context framework and discipline that is needed. Maybe I'll stop there so that we can get into a dialogue but I would say that one major positive development I think certainly since last November and continuing into this year is that there's been a lot less finger pointing between Europe and the United States this isn't a time that people need to point fingers and give lectures each of us has a lot to do in our own geographies in our own economies we need to get our own houses in order and then continue the dialogue I would say enhance the dialogue on how we can benefit each other in that effort both for our individual and transatlantic benefit but also as Director General said to play the important role that we need to continue to play in a globalizing world economy. Wonderful well thank you very much to both of you wonderful opening comments I've been jotting down my questions I'd like to direct two different questions to you both and Director General DeGroot Ambassador Kim has spoke of the execution risk and it seems to me that democracy just keeps getting in the way of resolving the crisis and obviously the French elections the Greek elections the how long it took Greek political leaders to even come to the point where they were ready to provide their their package of austerity measures describe for us how the European Union is addressing this so-called democracy deficit when you see this this growing concern about whether you're a German taxpayer paying more or you're a Greek citizen that's experiencing extraordinary pain as you manage through this process tell me about the the the democratic process and as the United Kingdom the Czech Republic perhaps other countries cannot take the path that has been established what happens to those countries what happens to the broader project I would I would love your thoughts on that and Ambassador Kim it I agree with you Washington and Europe haven't been finger pointing as vocally as they were I think at the end of last year when things looked quite daunting I think in the crisis was reaching a real a real high point but they certainly aren't turning towards each other for solutions when Chancellor Merkel's in Beijing looking for the Chinese to provide relief Washington is saying no way are we going to contribute to an IMF line of credit Europe can take care of this are we not turning away from one another through this crisis not looking at trade and investment opportunities and a us-eu free trade agreement let's take down barriers to our services let's create transatlantic jobs are we not looking towards each other in this crisis so with those two easy softball questions director Dedo de Groft I'll start with you hello thank you very much I think it's it's a good point about the democratic legitimacy on the other hand before we go to each of these European councils which usually last until five in the morning these days for some reason or another I think every prime minister goes to his individual parliament and spends an hour or two hours or in our case eight hours to get his mandate to go to Brussels and into this meeting I think that functions reasonably well I have no there's sometimes you we have seen that with his treaty which was agreed last year where finally at 4.30 in the morning the Czech Prime Minister said well I'm sorry I don't have a mandate to go this far so please leave me out for the moment maybe I'll come back next time so I think that type of democracy works quite well when you're talking about the European parliament that is quite a different issue I think they're also involved not on a treaty because that is a treaty between governments not a treaty with Europe it's a treaty between the 25 we're going to sign I hope at the end of next week so I think democratically speaking I think that is all resolved quite well in in Europe when it comes to the execution where I think the ambassador made an excellent point that is something we all have to do we are not just sitting back in the Netherlands and looking at the the Greek situation or the situation in Ireland we have to change ourselves too so it's not only some who are in bad shape it's all of us even Germany and I think there are some good examples already if you look at Ireland is doing reasonably well and let us not forget what the new member states of the union managed to do to do since 1989 in less than 20 years time they're restructured their economies they're doing fine look at for example the Czech Republic which is doing excellent with relatively low unemployment rates and a real good manufacturing base which they had previously too so I think it'll differ from one country to the other each country has its specifics I am quite worried about the situation in Greece which I agree with all the others about I hope they are going to manage to fix all this I expect them to do so because they really want to be remain part of the euro area but it's tough it's tough on those countries which for the past decade have in fact been able to attract money from the market at interest rates which did not differ from the interest rate in Germany which for economies which are totally different is a strange situation so I think all of us markets governments the commissions made mistakes over the past decades in allowing a situation to arise in which countries which had different economical structures were allowed to borrow for their government bonds at the same very low interest rate maybe if I could just pick up on the question that you gave to the director general I guess the question I have is in Europe is it a democracy deficit or a political deficit in a poll three weeks ago Germans were asked if they supported this is Merkel's European policy and that's really effectively the euro policy 85% said yes that was the highest number any German politician had gotten on any question in Germany's democratic history so I think fundamentally at the level of the citizen even though citizens being asked to pay disproportionately as they were asking the past to pay for German unification and and other matters they understand I think that Europe and the euro have been good for Germany again at peace with its nine bordering neighbors in Italy right now I think the exceptional progress being made by Prime Minister Monty and his government is in large part because the political parties are just stepping back they fundamentally have not been able to figure out how to deal with this in a political sense because Monty and his government are so fundamentally popular with the people and they're going to have to figure that out for next year but again I wouldn't discount the innate sensibility of European citizens not all of whom are the people necessarily demonstrating in the streets US and Europe at this point Tim Geithner before he left this warning for Mexico for the G20 finance minister's meeting said that the US continues to believe that Europe needs to have a larger sum of money for its firewall director general seems to think it's a good number I think there is a difference of opinion on that and he said until Europe resolves that question we don't think the US should support additional activity by the IMF but he said once Europe does get to that point of course it would be appropriate for the IMF to continue to play the important role that they've played in each of the past rescue packages and perhaps to even augment those resources don't forget the IMF question is not just a transatlantic question because when you talk about the IMF you're also talking about countries far from the Atlantic being asked to do more and at the same time asking for more voice and quota inside the IMF structure that's part of a broader question of globalization but I think you're right Heather on one point and that is we have a relative immaturity of economic and financial structures between the US and Europe the Treaty of Paris that was signed in 1990 pledged that the US and the EU would meet twice a year once in Washington once in Europe primarily to elevate economic and financial issues even dealing with continuing important political and security issues first such meeting was in Washington in the spring of 1991 Dutch presidency at the time I remember Hans van der Broek was was helping lead part of the delegation nowadays the meeting just takes place once a year not twice a transatlantic economic council was set up in early 2007 during the German presidency got off to a relatively good start but has gone largely sideways since then I think we should set as a goal that we should put as much attention effort and priority into the transatlantic economic council as we do APEC Asia Pacific Economic Cooperation yes we all have to reach out to Asia but I think the stronger and closer we are in the transatlantic community the better we're going to do as we reach out to the emerging markets and so I think we should look at tech for its principal purpose of removing non-tariff barriers and we should also pick up on Mrs. Merkel's suggestion in Davos to explore a transatlantic free trade agreement if Doha isn't dead it's on life support and actually Europe and the US getting serious about their own bilateral trade agreement as is happening in the Pacific with the Trans-Pacific Partnership under APEC might be a way to send a signal to the emerging markets that if they really want a global deal like Doha they need to put some effort into it or major economies including the two major economies Europe the United States are going to move out separate from Doha those are fantastic points I have one question for you both and I promise I want to bring you into this conversation I understand one of the reasons you were coming to Washington is because Washington's been fairly skeptical about how Europe is going to come through this crisis as we look at OECD numbers recent IMF figures we see Europe some countries you know obviously Greece entering its 50 year of recession Spain teetering on the brink of recession considering the amount of fiscal consolidation that has to occur the the fragility of the European banking system that has to jump to 9% of the core tier one capital by June we don't see the growth yet in fact we see the contraction how will Europe get through this and what will it look like when it comes out of it sort of part one and then the second part Europe had a stability and growth pack Maastricht very clear here's your your your your lines the sanctions what have you convinced me that the fiscal compact have what we see different when we're already talking about exceptions to Spanish deficits we're already talking about exceptions maybe that's why because countries are struggling help me understand how in the short to medium term Europe gets through this phase all right to start off with the last part because that's the easiest the stability and growth pact was a wonderful pact where countries said okay we are going to comply with a 60 percent debt to GDP ratio with budget deficits close to balance but at the maximum minus three and that was all the pact said so the pact didn't say if not then this and this would happen and that is what we have now really changed so governments have far less room for maneuvering on their national budget ceilings will be they will have to show their budget to Brussels in advance they must allow Brussels to comment on their national budgets and then they will be advised by Brussels to change being advised is not very tough but Brussels will only advise once the second time round they are going to put in tougher measures already like they did with Hungary last week where they said okay you are still up for 500 million euros to restructure your economy in the coming years you've now had four years of budget deficits which do not comply with the rules and regulations there were no exceptional circumstances it was just unwilling so we are going to freeze this 500 million line of credit for projects in your economy and that's the first showcase we've had one with Belgium before where we had a new government and they presented their government plans for the next four years and the figures didn't add up and Brussels said well dear guys in Brussels your next door to us but your figures don't add up so please correct that so they had to come up with another one and a half billion euros to really balance their budget so I do believe it's working and it will work this time because the rules and regulations have become so far so much tougher and the markets can see one-on-one if a country is complying and that can translate again like the ambassador said in the interest rate spread between that country's bond rate and what others who are complying with the situation will have to pay so I think this is going to work out in the near term so I'm happy with that when it comes to the the the austerity measures that is the difficult part but I would ask you in return do we have an alternative do we have a choice not to do it if our economies have been lagging behind what globalization has been bringing to Asia and to India and to this country we have no choice but to adapt and the longer you have tried to postpone the moment you will have to adapt your real economy the more painful it's going to be but I believe there is no choice we have to restructure some countries are already doing that some have to catch up some will be fine some are it's going really going to hurt the people and let's not forget how difficult this is for the 10 million people in Greece I fully understand the position their salaries are cut their pensions have gone so it's really difficult for them but I believe there is no way forward except for really changing in the second quarter of 2010 Germany passed a number of austerity measures even though they didn't kick in until 2013 President Obama in his conversations with Mrs. Merkel at the Toronto G20 summit in June of 2010 basically was critical that Germany was consolidating too quickly and in the end that fiscal consolidation turned out to be the key to the spurt in German economic recovery Germany actually grew 10% that quarter and almost 4% for the year why because the private sector which like in the US had been keeping a lot of investment cash on the side said we don't know how much better things are going to get but we know they're not going to get worse in terms of tax and regulation there was a floor off which they could pivot I think to some degree that's what we're trying to do in the US now Ben Bernanke said that the debt limit agreement that was reached last summer is going to take one percent off growth this year but is needed to lay that firmer foundation and I think Europe is doing the same thing and if you take a look as both you and the director general mentioned at the pickup in foreign direct investment moving in the transatlantic space I think part of it is because companies are beginning to feel more confident about making investments into economic environments both in Europe and the United States that do seem to have a firm or fiscal foundation as to the question really about Maastricht I think Maastricht has to be judged as a success on the monetary side European central bank had a record of keeping inflation lower during its first 10 years than the German Bundesbank had during the previous 10 years that was something that Jean-Claude Trichet took particular a pride in because the European central bank has a single mandate keep inflation down unlike the US central bank which has the double mandate of keep inflation down and promote growth I think on the fiscal side it did fall apart and I think as the director general said we have now both a better set of measures on the political side and I think we have a marketplace now that is much quicker to judge and the marketplace the financial marketplace is much less lenient than it was in the first 10 years on slippage on the fiscal side the financial marketplace basically gave the European central bank good marks that's what kept the euro as a stable strong currency during that period I think the marketplace is now going to judge in the sovereign interest rate level who is and who is not paying attention to the rules excellent well thank you let's let's take your questions we have colleagues with with microphones if you could raise your hand and please give us your name and your affiliation and we'll we'll start or if you direct your question please we have one Alex right down here in the front I Chris Bledewski from Manufacturers Alliance I have a more broad question than than the more concrete ones that we discussed today I think it's fair to say that Europe today is looking way beyond the short term and the crisis management it's looking at designing a better political infrastructure to on the one hand make the continent more stable politically but also prevent possible future crisis from recurring at least to some extent and among other things we've heard from many European leaders that political union is one such destination the former ambassador of the EU to Washington and a former prime minister of Ireland went on the record saying the political union is a final destination if only because the 1957 Rome Treaty said so that the coal and steel was just the beginning and the political union is the final destination on the other hand we hear many voices including again members of the European Union delegation to this city that a full federal state a multinational federal state is out of the question the United the United States of Europe is out of the question so a social contract that is based on something that would resemble a political union including a fiscal component an invested power to tax and spend and borrow is one destination that is clearly enumerated and clearly elucidated by leaders and a framework that underpins generally a social contract such as the federal level powers that I just mentioned is necessary for a social cohesion and the for the democratic process to operate so I see a no man's land between these two and something that is not being discussed how do we get to the political union stop short of building building the state infrastructure and maintain the democratic principles that we all talked about today that's an easy one well it's this is there's this very strange I think I think it's an Australian animal the platypus which lays eggs and has a furry coat and looks like a mammal and the EU in itself is a very peculiar organization too so let's not judge it by comparing it to other international entities but looking at the way it has evolved over the past 50 years I fully agree with you it was already decided in 57 where we would like to head but no one ever decided in what time frame so I think if you look at the different countries around Europe today and their parliaments there's discussion all over the place about sovereignty and what has to be decided in that specific parliament and what is going to be decided in European parliament and by the commission and by the council in Brussels and increasingly also because of the pressure many of these countries are under because of the economic situation everybody is looking for room to maneuver so nobody everybody's happy with having to give your statistics to Brussels on your unemployment and on your private savings etc but I don't think we're all very happy with Brussels going to decide what to spend our national budget on so there's going to be a discussion which is going to continue in the coming years in which Brussels might set limits to your national budget but every individual government and every individual parliament will want to decide how they're going to spend that money and that could be when on the labor market situation which differs from one country to the other that's not equal all over Europe we can move around freely but the specifics of labor markets are still very different and I think each of the 27 or each of the 17 in the euro area is still wanting to keep that to itself especially the social side the pensions and things like that the execution risk that I referred to previously is my view primarily a political execution risk picking up from your good question and it seems to me that there has to be sufficient political union to live up to that is execute the commitments that are now being made starting last November and continuing through what hopefully will be an agreement on the ESM very shortly if in fact execution goes well I think this would be a little bit like confidence building measures from the old cold war days where people would start having more faith in one another's ability not just to have proclamations and declarations but actually action plans that are executed well and I think this brings up a wonderful point and I have to weave the security issue in here one way or the other I can't have a totally economic focused conversation but you know we're heading towards a NATO summit in Chicago in May a lot of conversation about defense spending in Europe how national budgets are used and how Europe prioritizes its defense spending ironically Greece spends five percent approximately five percent of its GDP on defense spending that was obviously going to be changed in coming years how can we maintain in this age of austerity and consolidation when Brussels is looking at all numbers and and those defense budgets are very easy to you know that's not as important as the pensions and social security how do governments maintain their commitment to the transatlantic security dimension and as we come to the NATO summit and we have secretary Gates's farewell speech ringing in our ears that congress is no longer going to support us you know so much of a us emphasis on NATO I'm going to bring you back to your old hat and your old job in the security policy department how do we square that on defense spending and security in Europe well it's absolutely true Heather about how much Greece used to spend on on defense but I wonder how much of that was used to be able to be deployed to Afghanistan or Iraq I think most of it was actually spent to be used in their navy close by with their neighbors and on their border so maybe we should not only concentrate on figures as percentages of GDP but look what we are investing in when it comes to the military and we need to agree on what we should invest in I think my country has been in the south of Afghanistan for four years with a quite a significant number of people it cost us a fortune but we had the military capabilities to work side by side with the great US military in the south of Afghanistan so rather than looking at the percentage we should look much more at what we are going to invest in and besides that up to now especially in Europe each country is deciding by itself what to invest in so maybe four countries have decided to buy a c-17 and nobody bought the f-35 or is going to buy the f-35 so I think sharing and pooling the resources and seeing what we jointly will invest in I think is the way forward instead of just looking at the percentage as a figure it's obviously not just a question for Europe it's a question for the United States if you take a look at the significant proposals that have been put out by Defense Secretary Panetta part of it is his attempt to get ahead of what would be automatic cuts on the second half of the debt limit agreement from last year and all of this is part of again putting our fiscal houses in order economic strength is part of national strength I don't think you can be strong or broad unless you have a strong effective base at home that's true both for Europe and the United States I was struck at the Munich Security Conference this year that there was as much discussion of economic and financial issues as they touched upon security as I've ever seen in the past and also I listened very carefully to both what the Defense Secretary Panetta German Defense Minister de Mazir and others said and I think it really did come to the Director General's point and that is around this general rubric of smart defense we've got to find a way to use what will still be significant resources in the transatlantic space but we have to get rid of the inefficiencies the duplications that perhaps inattention to fiscal reality allowed us in the past I think it has to start with a strategic concept I think that's really what NATO has to be very very clear about and then you have to size and structure yourself against that concept I don't think NATO can be all things to all people it has to be clear as to its central role and then we have to find the ways both as national governments but particularly as allies to meet those requirements and fundamentally the message the Secretary Panetta left was yes we are going to be reducing the number of forces in Europe yes we are making moves in the Pacific not as strong a pivot as perhaps as seen by the Europeans but we are going to retain the capability to live up to our alliance responsibilities and we'll look to our partners to do the same hello I'm Chris Shepherd from American University my question is on the future enlargement of the European Union in the last 20 years we've seen a great increase with the Eastern Europe integrating into European hegemon and my main question is we have several other states Turkey Iceland Croatia who are trying to enter do you feel like this economic crisis may stunt the growth of the European Union in the short term or mid-term future the enlargement agenda so critical and next week's council meeting may have some news on beginning accession talks with Serbia yes I think that will move in in the right direction when it comes to the enlargement what we've seen in the past that enlargements moving back further in history were mostly politically motivated decisions while at the same time we had whole sets of rules and regulations everyone entering the union has to comply with which had to do with food security with consumer issues and things like that today especially in my country but also in a couple of others we are of the opinion that we should look at a criteria which we've jointly set to enter the union and we cannot afford ourselves anymore to allow countries to enter the union which do not comply with all these rules and regulations and don't fulfill the economic financial and political criteria that is why we have been so tough on Croatia and Croatia did a tremendous job and it took them much longer than expected to finalize the discussions with Europe because we would like to see and we wanted to see that everything they put into place was sustainable and irreversible and what we mean by that is that adopting a law which is in line with EU regulations is not enough we want to see it implemented and it has to prove itself that it has been implemented so yes it's true we've been tougher in a sense but it's got nothing to do with the economic situation we just want to be sure that everybody who joins the union is a AAA candidate and we don't want to take in those which are AA- to put it that way at the same time we have to look at ourselves too so the Netherlands really wants a commission to be much tougher on all union members and to check now and again if all the regulations which they've applied in the past are still applied in the right sense so we want that to be scrutinized too because our businessmen and our companies when they invest in Bulgaria or in Belgium or Luxembourg want to should be able to expect that when something goes wrong and they go to court that they can expect the same treatment as in Germany or the Netherlands so that is I think what has changed but that we are open to countries in Europe to join the the union is still out there we're negotiating with Iceland we will take a decision on the candidate status of Serbia maybe next week at the end of next week that is what is on the agenda and we'll see if we will get a decision on that so that process still continues but on a different footing than in the past can I ask a question I took your point director general to mean that the political process of accession will not be affected by the political process of responding to the sovereign debt crisis they sort of move on parallel paths but I don't think you meant to suggest there is not an economic component in the decision of when and how to bring someone into the union and I say this because if you take a look at the countries who were the major beneficiaries of transfer payments after they joined the union they were Ireland they were Spain they were Greece there may have been some lessons learned that allowing those people to have that kind of preferential financing to do some of the infrastructural and other work to sort of bring them up to a European standard may not have created some of the best fiscal habits in those countries and of course as you know part of the debate around Greece was whether Greece was allowed Greece was allowed to come in before it was ready economically even if it had all of the rules regulations in place so how does not so much the current sovereign debt crisis but sort of what brought us to this point affect decision making on the AAA status in the financial markets as well as the AAA status in the political marketplace if you see at the countries we are now negotiating with which is mainly Iceland and we have done so with Croatia Turkey is a real long-term issue which is not moving very fast they have been relatively small economies so there is no challenge out there of negotiating accession with a really large economy secondly when it comes to the multi-annual financial framework of the European Union we have always been of the opinion that if there is money to flow it should flow to the poorest regions of the poorest countries and shouldn't flow to Germany which can afford itself to invest in infrastructure and other but there are poorer areas in the poorest countries which out of solidarity should be able to get money from the other partners to revive their infrastructure and create a basis for economic development which moves slowly weird to the European Union average so I am not very worried that in the case of future accession that this economic argument is really going to play into the discussion because after entrance even for Croatia they will have to create an economy which can come along with the EU average they'll have to decide themselves how to structure their economy and they are doing so already the good point I think of us that you made is that with all these tighter rules and regulations on budgetary discipline the gap between us in the eurozone and those first entering the union and then years later are having the ability to join the euro this gap is increasing so what we have been suggesting suggesting together with the Germans is even before accession allowing this country to get used to the mechanisms we are now putting in place so that makes it easier for them to slowly move up to the stringent rules and regulations we have put in place it's the last point I'd make is I've been thinking about the costs to Europe if Greece were to leave the eurozone I don't think Europe is going to expel Greece from the eurozone if Greece were to make its own decision it's a very complicated process and I know you've thought this through but although they would leave the eurozone they would still be part of the European Union and I wonder if Europe has sort of looked at what it would cost Europe to have Greece exit the eurozone but still be in the European Union and therefore eligible for some of the same kind of infrastructural transfer payments that you mentioned well we've done our military planning that's sure always good to have a contingency and that's why I started off with the first point that in our mind there's no alternative to the euro which means that every scenario you can look at it's going to cost money so there's no legal possibility yet of expelling a country to leave the euro area if Greece or any other country would decide well let's go back to another currency it's going to be expensive to us it's going to be I think expensive to them because the simple argument well we'll introduce a new currency devaluate and then we can start exporting again short term that might look very challenging and interesting in a long term you still have your debts in euros so it's not very attractive so whatever the situation we've we've done our our planning and that is why we went to such great lengths in putting together a package for Greece which now offers them a way out if they really want to comply with everything they have to do to change their economy because nobody is looking for anyone to either leave Europe leave the union or leave the euro it's going to be costly what I'd love to do in the couple remaining time I know we have a couple of questions could we bundle them up and then I'll let you both have the final say hi Wayne Mary the American Foreign Policy Council on Greece I'm a veteran of the American Embassy in Athens and I even went through the six months of a Greek EU presidency which I wouldn't recommend anyone I do not exculpate the Greek political elites left and right one iota for the mess they have made of their country though they did have a good deal of help having been allowed into the European Union when they weren't ready allowed into Schengen when they weren't ready allowed into the Europe the Euro when you're a start knew perfectly well the numbers were false but let me put it to you that today the issue in Greece may not be the future of the Greek economy because that's devastation as far as the eye can see it could be the potential failure of democracy in Greece that has happened in my lifetime I put it to you that recent events in Hungary constitute a near miss of a failure of democracy of a European Union country the violence we've seen so far in Athens is the beginning of a process I've seen worse in Greece myself it will get worse and I ask you to consider yes letting a country hard to fault letting a country leave the Eurozone letting a country devalue ghastly for the country very difficult for the European process but would the alternative of having a European Union member state suffer an actual failure of democracy not this time on the right I put it to you but on the left be an even greater cost to the European project which I think every American in this room myself included fundamentally support would that not be an even worse price to pay thank you I just like to address one point on Greece as well I think that there is a bit I see this all the time of a false debate on Greece exiting the Eurozone as the secretary general mentioned and as Mario Monti mentioned quite correctly in his first week in office it's not in the treaty you can't leave the Eurozone as it currently stands what you can do there is an exit strategy from the EU so I think when we're discussing contingency plans for Greece what we really need to be discussing is an exit from the European Union and that's not only because it's not in the treaty itself but because the enormous capital controls the movement controls that you would have to throw up to to mitigate the change from currencies would require a severing from the single market so I think that when we debate this we shouldn't be discussing an exit from the Eurozone we need to be discussing an exit from the European Union itself thank you and I just want to add there's been some commentary that that I've read suggesting that actually the second Greek bailout package and certainly the actions that the ECB and the national central banks did by converting their debt was as some commentator had said it's actually paving the way for a Greek exit for protecting key balance sheets and I'm wondering if you could comment on that and thank you very much for the democracy question it's something that we at CSIS have been extremely focused on the rise of both the left but also populism nationalism extremism and we're extremely concerned about Hungary right now so thank you very much for that question and I will throw the last word to you both well maybe first on Hungary because it's totally different situation from Greece in Hungary what did work is that we have a mechanism where it's the commission which has to look after the treaties of the European Union and make sure that they are implemented and that is what exactly happened the Hungarians came up with three laws which people felt did not comply with the European law the commission acted and said to Budapest please explain yourself and by now already two of the three laws have been changed and one is still under discussion between prime prime minister Orbán and the commission so in that sense we feel very comfortable with the way this has been done and at the same time the commission now and again asked us to change the law because in on the details and the technicalities it is not in compliance with EU law so the mechanism is there it works and it has worked in the case of Hungary when it comes to Greece I I acknowledge what you have said I think it is a very valid point looking at the history of of that country which is quite recent when it comes to democracy and entering the Union and it is something everybody in Europe worries about up to now we have maybe been focusing a lot on the financial and monetary issues and maybe too little on the foreign policy issues but it is being debated all of us including your country is watching very closely what is happening in Athens it's the only country where we have seen serious riots because of the austerity programs we haven't seen that in Italy we haven't seen that in Spain or in many of the other countries not even in Ireland so it's something we we worry about and I share that concern for the moment I think with this package in place we have to really try and keep convincing our Greek friends and EU brothers that there is no way forward but try and and pull through this how difficult it may be for the people in Greece coming to exiting the the the EU we don't want Greece to exit neither the euro nor the European Union and it's not something we like to debate because in our minds there's no question of the of Greece exiting the EU we want them to stay in we want them to be part of this union and we feel as being they are part of Europe so they should be within this European Union itself this exit exit of the EU was created at the last treaty change for some reason or the other so it's there in article I forgot the number 50 or something let's leave it there and let's not use it I think going to your very last question Heather both the political marketplace and the financial marketplace believe now that steps are being taken both on the Greece rescue package the Greek deal with the banks that a good faith effort is being made to keep the eurozone together I think as I said before the real risk there is execution risk not just at the European level but also as director general said at the national level starting in Greece and I would just compliment the director general both on a good presentation on the strategy but the most important thing I heard today was that Europe also is thinking through contingencies if in fact the political democratic system does not allow execution to take place well thank you it has been such a privilege to hear both of you provide such great insights and such a thoughtful presentation please join me in thanking our wonderful panelists for a great discussion thank you and thank you for being with us today and we look forward to seeing you at future events at CSIS have a great weekend thank you