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Features

Eurozone Crisis Explained: Philippe Legrain on Austerity, Greece & the Troika

Added: 2026-08-07

Deep Dive

The structure and function of the Eurozone, specifically the tension between a unified monetary policy (under the ECB) and decentralized national fiscal policies.

The EU Is Expanding Into 7 New Countries Right Now

The EU Is Expanding Into 7 New Countries Right Now

37.2K

The EU separates fiscal policy (government taxation and spending decisions) from monetary policy (control of money supply and interest rates). While fiscal policy remains primarily national, monetary policy is centralized through the European Central Bank in Frankfurt. This separation means individual countries lose the ability to adjust their currency value to improve competitiveness—a key economic tool. The Eurozone combines this monetary union with diverse national fiscal policies, creating inherent tensions between member states with different economic needs.

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Pourquoi la BCE achète-t-elle de la dette française ?!

Pourquoi la BCE achète-t-elle de la dette française ?!

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The euro functions as a common currency with distinct national central banks, creating a fragile monetary union. When French interest rates rise, the spread between French and German bond yields widens, signaling potential euro collapse to financial markets. This triggers ECB intervention to stabilize markets. Northern European creditor nations (Germany, Netherlands, Luxembourg, Finland) view French fiscal policies as irresponsible, reflecting deep-seated cultural and political tensions. These tensions are compounded by French political instability, with frequent government changes and ministerial turnover, leading to perceptions of French political chaos among European elites.

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La DISPARITION secrète des SANCTIONS, et L’EFFONDREMENT de l’UE

La DISPARITION secrète des SANCTIONS, et L’EFFONDREMENT de l’UE

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The ECB faces a dilemma: either raise rates to combat inflation, forcing states to implement drastic austerity that will collapse their economies and end the euro, or not raise rates enough, allowing inflation to install, requiring wage increases and continued state spending, which will devalue the euro and enter a spiral of hyperinflation. The video notes that Greece showed how a small country can create 'unprecedented shock' on the Eurozone.

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DRAGHI E BANKITALIA. E PARTE SUBITO LO SCONTRO (Quello che non dicono)

DRAGHI E BANKITALIA. E PARTE SUBITO LO SCONTRO (Quello che non dicono)

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The video reveals a major crisis in the eurozone involving conflicting monetary policies between Italy and Germany. Italian officials, including Draghi and Visco, argue that the euro requires a unified European state to remain sustainable. Meanwhile, the German Bundesbank demands stricter fiscal rules, limits on state bond purchases, and an immediate halt to ECB quantitative easing. The spread between German and Italian bonds has been artificially compressed to 85 basis points, raising concerns about market manipulation. This conflict represents a fundamental disagreement about whether the euro can function without a corresponding political and fiscal union.

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Inflação recorde no euro pressiona BCE a subir juros arriscando o futuro da moeda única

Inflação recorde no euro pressiona BCE a subir juros arriscando o futuro da moeda única

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Unlike the United States, the Eurozone lacks a unified fiscal policy. Each country maintains its own tax policies, budget rules, and debt management, while sharing a common currency. This creates a situation where countries like Italy and Greece have fundamentally different fiscal profiles than Germany, yet they cannot issue debt at different rates because they share the same currency. The ECB must therefore manage the consequences of these fiscal differences through monetary policy, including controlling spreads between countries to prevent a scenario similar to the 2011 sovereign debt crisis.

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Deep Dive

The concept of sovereign debt, government bond markets, and how sovereign default risks arise.

Do THIS to Protect Your Money From Geopolitical Risk (European Investor)

Do THIS to Protect Your Money From Geopolitical Risk (European Investor)

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Sovereign defaults occur when countries refuse to pay their debts, contrary to the perception that government bonds are safe investments. Historical examples include Russia's 1998 default causing a global market crash, Argentina's 2001 default on over $100 billion in bonds, and Greece's 2012 default on €26 billion in debt, which cost investors approximately 70% of their money. With high government debt levels worldwide today, more defaults are likely in coming decades.

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BONOS DE LA ANSES

BONOS DE LA ANSES

283

Sovereign bonds issued by governments carry default risk because governments may lack the capacity or willingness to pay. The L29 bond issued by Argentina pays 1% interest but trades at only $23 instead of $100 face value because investors believe Argentina cannot or will not pay. This discount reflects the market's assessment of default probability and the risk premium required for holding risky sovereign debt.

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LECTURE 5 | Functional Finance | Prof L. Randall Wray

LECTURE 5 | Functional Finance | Prof L. Randall Wray

2.5K

A sovereign government that issues debt in its own currency faces no default risk. The only risks are potential changes in interest rates or price levels. The total wealth of private units equals the value of real assets plus the value of national debt. Within the private sector, all credits and debits net to zero, leaving only government debt and real assets as the remaining financial claims.

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Minuto Uno: Programa 13/08/2018 (parte 1)

Minuto Uno: Programa 13/08/2018 (parte 1)

1.5K

Sovereign debt default risk is assessed through country risk indicators and bond market pricing. Argentina's country risk of 740+ points indicates bonds trade at rates where markets assume serious difficulties in meeting debt obligations. The video explains how financial markets price default risk and how such assessments can trigger self-fulfilling prophecies of economic crisis. This demonstrates how market perceptions of governmental economic management directly affect borrowing costs and foreign investment decisions, creating feedback loops between policy credibility and economic outcomes.

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12. Determinantes de tasa libre de riesgo, prima de mercado y razones p/e

12. Determinantes de tasa libre de riesgo, prima de mercado y razones p/e

552

Sovereign debt (government bonds) is not always risk-free. Countries with large deficits and political instability may face default risk. For example, Costa Rica's bonds may not be considered truly risk-free due to potential political divisions over fiscal policy decisions.

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Deep Dive

The economic definition of austerity, including its intended goals of reducing national budget deficits through public spending cuts and tax increases.

Kyla Scanlon – “In This Economy? How Money and Markets Really Work” | The Daily Show

Kyla Scanlon – “In This Economy? How Money and Markets Really Work” | The Daily Show

1.1M

Austerity refers to the economic policy approach of reducing government deficits by cutting spending or raising taxes. This approach typically targets major government programs such as Medicare, Medicaid, and Social Security, which represent significant portions of federal expenditures.

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Comentário Diário - 23 de abril de 2020

Comentário Diário - 23 de abril de 2020

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Austerity refers to government policies that reduce public spending and increase taxes to address budget deficits. The speaker defines austerity as a situation where people must live according to their means rather than their desires, essentially requiring them to cut back on consumption and spending. This definition frames austerity as a necessary adjustment when economic circumstances require reduced public expenditure.

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Situation in Europe May 2025 (Part 1)

Situation in Europe May 2025 (Part 1)

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Austerity measures are government policies designed to reduce budget deficits through spending cuts and tax increases. When facing a 12 billion euro deficit, governments must choose between reducing social welfare programs or raising taxes. The video explains that Austria faces the need for additional savings to avoid EU excessive deficit procedures, which would trigger consequences for the country.

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Does austerity work? (MSc Public Policy lecture)

Does austerity work? (MSc Public Policy lecture)

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Austerity refers to reducing government fiscal deficit by cutting public spending or raising taxes. It aims to decrease the debt-to-GDP ratio (the percentage of debt relative to GDP), not necessarily the absolute amount of debt. Before the crisis, many countries had debt-to-GDP ratios around 50%, which increased to about 90% or higher. Austerity is presented as necessary when governments spend more than they earn, similar to how households must live within their means.

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LO SFOGO IN DIRETTA DEL PROF. MALVEZZI ▷ "ORA BASTA CHIAMARCI PAESE DEL DEBITO!"

LO SFOGO IN DIRETTA DEL PROF. MALVEZZI ▷ "ORA BASTA CHIAMARCI PAESE DEL DEBITO!"

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Austerity economics is an economic policy approach that involves reducing public spending and increasing taxes to address national debt. The speaker criticizes this approach, noting that Italy has followed this 'fideistic' economic logic for 30-40 years, resulting in what is described as 'primary surplus' (avanzo primario). The speaker argues this approach has contributed to Italy's current economic challenges and cultural preservation issues.

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Deep Dive

An introductory understanding of the 'Troika' (the European Commission, the European Central Bank, and the International Monetary Fund) and their role in international bailouts.

Grecia: la crisi è finita, ma a quale prezzo?

Grecia: la crisi è finita, ma a quale prezzo?

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The Troika was an international bailout mechanism composed of the European Commission, the European Central Bank, and the International Monetary Fund. When Greece revealed its true financial situation, it was denied further loans and its sovereign bonds were downgraded to junk status. The Troika provided Greece with 300 billion euros in bailout funds, a sum exceeding Greece's entire GDP, in exchange for strict economic reforms.

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Troika | Lexikon der Finanzwelt mit Ernst Wolff

Troika | Lexikon der Finanzwelt mit Ernst Wolff

6.3K

The Troika (European Commission, European Central Bank, and International Monetary Fund) was formed during the 2007-2008 financial crisis to address the debt crisis in Eurozone countries by providing massive loans while simultaneously enforcing austerity policies that included public sector layoffs, cuts to social spending, privatization of state assets, and labor market liberalization, which resulted in reduced living standards and increased social inequality while protecting international financial institutions.

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The Trail of the Troika (Greek Version, HD 1080p) | A must-see to understand the situation in Greece

The Trail of the Troika (Greek Version, HD 1080p) | A must-see to understand the situation in Greece

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The Troika is a joint undertaking of the International Monetary Fund (IMF), European Central Bank (ECB), and European Commission, created in spring 2010 when Greece faced state bankruptcy. These unelected officials were empowered to radically change countries according to creditor will, without accountability to any Parliament. The Troika programs aimed to help crisis countries out of excessive debt but failed: public debt increased, economies sank deeper into recession, and millions lost jobs. In Portugal, 40% of the population left the country. The Troika became a symbol of how international institutions can impose policies without democratic oversight, fundamentally changing the relationship between European nations and their citizens.

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Luis Chataing y Christian McGaffney.

Luis Chataing y Christian McGaffney.

11K

The Troika consists of three international institutions with authority over the same matters: the International Monetary Fund (IMF), the European Central Bank, and the European Commission. These institutions work together to address economic crises in member countries. The IMF manages global financial stability, the European Central Bank maintains Euro stability, and the European Commission promotes legislative regulations and treaty compliance.

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The Architects of Money: Who Decides the Price of Your Life?

The Architects of Money: Who Decides the Price of Your Life?

194

When markets questioned whether the weakest members of the euro area might default or exit the single currency altogether, the ECB faced a choice it had not been designed to make. In May 2010, Greece became the first Eurozone member to require an emergency bailout of 110 billion euros. Ireland followed in November 2010, Portugal in May 2011. Each received loans, each signed conditions written by three institutions acting together: the International Monetary Fund, the European Commission, and the European Central Bank. They became known collectively as the Troika.

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Crisis Origins

Failed Austerity

Agenda Exposed

False Justification

Ideology Rules

Accountability Void

Comparative Failure

Unjust Bias

Abuse of Power

External Coercion

Crisis Origins

0:24

Playing Section

1
Greek bailout, driven by bank interests, violated EU no-bailout rule.
2
Key creditors included French and German banks with 37 billion euros combined.
3
The decision to bail out banks, not Greece, created market panic.

Deep Dive

The long-term socio-economic consequences of the Greek debt crisis, including youth unemployment, GDP contraction, and political polarization.

Greek debt crisis update with Stratos Manolas

Greek debt crisis update with Stratos Manolas

1.1K

The Greek debt crisis was fundamentally a political and social crisis rather than purely economic, stemming from decades of political corruption, mismanagement of EU subsidies, and institutional failures that created a system where political elites, unions, and entrepreneurs formed interconnected networks that diverted resources from productive economic activities; this resulted in severe social consequences including 55% youth unemployment, increased poverty, and capital flight of approximately 100-120 billion euros, while the country's small population of 11 million (comparable to Portugal or Belgium) had significant implications for the broader Eurozone due to its high debt levels and potential contagion effects.

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The Hidden Story Behind Greece’s Collapse – And What It Warns Us About Today #2

The Hidden Story Behind Greece’s Collapse – And What It Warns Us About Today #2

111

Greece's 2010 debt crisis began when the Troika (EU, ECB, IMF) intervened with an 110 billion euro bailout package requiring draconian austerity measures. GDP contracted by over 20%, unemployment peaked at 27%, and youth unemployment exceeded 50%. Despite multiple bailouts (2010, 2012, 2015) and a historic 53.5% bond haircut in 2012, Greece remained shackled by debt. The 2018 bailout exit came with continued oversight and conditions until 2060. The crisis caused profound social costs: brain drain of educated Greeks, political upheaval with Syriza's rise, and persistent debt-to-GDP ratios above 150%.

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Euroshock: Saving Greece and Securing the Eurozone

Euroshock: Saving Greece and Securing the Eurozone

101

The Greek debt crisis resulted in severe humanitarian consequences including GDP per capita falling almost in half, unemployment reaching 27.5%, youth unemployment hitting 58%, and poverty more than doubling. Approximately one million citizens (out of 11 million) left Greece, depriving the country of vast human resources needed for economic rebuilding. The crisis lasted until Greece was expected to regain its pre-crisis income level only recently.

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Greece's debt crisis: a decade of resilience

Greece's debt crisis: a decade of resilience

179

The Greek economic crisis was extremely severe, with GDP falling by over 27% from peak to trough. Unemployment reached over 25%, and youth unemployment peaked above 50%. Unlike the US Great Depression which was V-shaped (recovering within 2-3 years), Greece experienced a U-shaped crisis where output loss has not yet been fully recovered even 15 years later. This prolonged nature created significant economic, social, and political costs that continue to affect Greece today.

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Greek Society Unravels Under Austerity Measures

Greek Society Unravels Under Austerity Measures

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Greece's economic crisis under austerity measures has created a dangerous situation where the country faces potential political instability, as the core Eurozone countries (particularly Germany) will not expel Greece from the Eurozone due to the enormous costs involved, but the Greek state has been severely weakened, leading to political polarization between left and extreme right factions, with the economy contracting from middle-income to low-income status, unemployment reaching 25.1% (55% for youth), and debt becoming unmanageable as it shifted from private to official lenders under British law.

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Deep Dive

The macroeconomic debate between Keynesian stimulus policies and Neoliberal austerity measures during economic recessions.

Impresionante lección de economía explicando la situación actual de España (Julían Pavón)

Impresionante lección de economía explicando la situación actual de España (Julían Pavón)

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The video presents two fundamentally different approaches to economic crisis management. The Keynesian approach, exemplified by the United States, prioritizes fighting unemployment (9% in the US) through demand stimulation, tax cuts, lower interest rates, and increased public spending. China supports this by purchasing US debt to keep rates low. The neoliberal approach, associated with Angela Merkel, prioritizes resolving public debt and deficit problems. These approaches are incompatible because fighting unemployment requires increasing demand and spending, while fighting deficit requires reducing spending and raising taxes. The video highlights the asymmetry between Spain (20% unemployment, 40% youth unemployment) and Germany (6.6% unemployment), explaining why Merkel's policies appropriate for Germany are counterproductive for Spain.

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Economic Schools of Thought: Crash Course Economics #14

Economic Schools of Thought: Crash Course Economics #14

2M

The 2008 global recession demonstrated continuing divisions among economists. Some advocated using Keynesian policies of deficit spending to stimulate the economy, while others supported classical approaches calling for austerity measures to reduce budget deficits. These debates reflect fundamental disagreements about whether government spending helps or hinders economic recovery during crises.

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Should the U.S. Government Balance Its Budget?

Should the U.S. Government Balance Its Budget?

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The Federal Reserve controls monetary policy by managing currency supply through money printing, interest rate adjustments, and emergency lending. During crises like the 2020 pandemic, the Fed created trillions of dollars to fund stimulus programs. Two competing economic philosophies emerged: Keynesian stimulus, which argues government spending kickstarts economies through the multiplier effect, and austerity, which advocates balancing budgets through tax increases and spending cuts. Austerity failed in practice because government income depends on economic activity—cuts reduce revenue while decreasing economic output. The 2008 Recovery Act and 2020 CARES Act demonstrated stimulus effectiveness in reversing recessions without triggering predicted inflation or investor panic.

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অর্থনীতির সংক্ষিপ্ত ইতিহাস- ১৩/১৪ | নাইল কিশটাইনি | A Little History of Economics | Niall Kishtainy

অর্থনীতির সংক্ষিপ্ত ইতিহাস- ১৩/১৪ | নাইল কিশটাইনি | A Little History of Economics | Niall Kishtainy

187

After the 2008 crisis, governments responded with Keynesian policies—increasing government spending to stimulate the economy. European governments later switched to austerity policies—cutting spending and raising taxes. Greece was required to implement austerity as a condition for EU support. When Greek institutions cut spending, protesters took to the streets. The debate between Keynesian stimulus and austerity continues to shape economic policy.

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ARGENTINA FAZ SUPERÁVIT COM MILEI, COMO EXPLICAR? REAGINDO AO FERNANDO ULRICH

ARGENTINA FAZ SUPERÁVIT COM MILEI, COMO EXPLICAR? REAGINDO AO FERNANDO ULRICH

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The debate between Keynes and Raye about economic adjustment: Keynes argued that purging (cutting spending) would paralyze the economy and lead to everyone dying because people would lack access to necessities like food, energy, and medicine. Raye argued that purging was necessary and that letting unemployment explode and inefficient companies fail was acceptable. The speaker argues that capitalism depends on capital realization (demand), so reducing demand through austerity creates a self-defeating cycle. The speaker argues that liberal policies are incompatible with democracy because they require suppressing the poor.

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Deep Dive

The concepts of 'moral hazard' and 'bail-ins' versus 'bail-outs' in international financial crises.

Causas y consecuencias de la crisis internacional por Alberto Benegas Lynch (h)

Causas y consecuencias de la crisis internacional por Alberto Benegas Lynch (h)

300.5K

Bailouts represent what the speaker calls 'the greatest immorality in the history of economics.' Small businesses and workers must finance large corporations, banks, and automotive companies that are incompetent or irresponsible. This creates moral hazard, where companies being bailed out have no incentive to adopt necessary adjustments because they will be rescued regardless of their performance.

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XRP Price +8%, McAfee Says Bitcoin To $50K And Ripple

XRP Price +8%, McAfee Says Bitcoin To $50K And Ripple

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Central banks and financial institutions have written into their policy statements that during the next financial crisis, they will implement bail-ins rather than bailouts. A bail-in involves closing bank accounts for a weekend and shaving off 10-15% of depositor funds to fix problems created by the bank's failure. This approach is preferred over bailouts because it avoids the political difficulty of asking politicians to pass bailout legislation.

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To "Bail-In" Or To "Bail-Out", That Is Indeed The Question

To "Bail-In" Or To "Bail-Out", That Is Indeed The Question

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The IMF advocates for a resolution framework where bail-ins (requiring private investors to absorb losses) should be the default approach to bank failures, with public bailouts reserved only for systemic crises where spillover effects threaten macro financial stability; this framework aims to reduce moral hazard and excessive risk-taking while containing systemic risks through mechanisms like bank buffers, living wills, and credible commitment to bail-in policies.

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#Skytg24 Business Gianluca Codagnone con Mariangela Pira - su Banca Popolare di Bari del 17/12/2019

#Skytg24 Business Gianluca Codagnone con Mariangela Pira - su Banca Popolare di Bari del 17/12/2019

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Bail-in is a regulatory mechanism where bank shareholders and bondholders absorb losses to prevent taxpayer-funded bailouts, which became standard after the 2008 and 2011-2012 banking crises; the loss absorption hierarchy prioritizes shareholders first, then subordinated bondholders (who were often sold to retail clients despite being designed for professional investors), followed by senior creditors and depositors over 100,000 euros, while depositors under 100,000 euros are protected.

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ベイルアウトVSベイルインについて

ベイルアウトVSベイルインについて

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Bailout is a financial crisis response method where governments use taxpayer money to rescue failing financial institutions, as seen during the 2008 Lehman Brothers crisis, which has led to unsustainable government debt worldwide. Bail-in is an alternative approach where depositors and shareholders bear losses through deposit freezes or seizure, as implemented in Cyprus and discussed at G20 summits, representing a shift from taxpayer-funded rescues to loss-sharing among those who invested in the institution.

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Deep Dive

Subsequent institutional reforms in the Eurozone, such as the establishment of the European Stability Mechanism (ESM) and the European Banking Union.

Roubini's Lecture at MIP, Part 2

Roubini's Lecture at MIP, Part 2

397

Four positive developments offer hope for Eurozone recovery: (1) ECB's active role in reducing spreads through the OMT bond purchase program, which reduced spreads by 200-250 basis points; (2) European Stability Mechanism (ESM) operational with 500 billion euros for bank recapitalization and country support; (3) Discussions of Banking Union, Fiscal Union, and Political Union—historical evidence shows successful unifications required more than monetary unions; (4) Recognition that Europe must succeed for geopolitical reasons, as Germany and others realize a disorderly collapse would cause massive losses. These developments suggest the Eurozone is moving from crisis toward institutional reform.

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Eurogroup agrees on European Stability Mechanism reform | DW News

Eurogroup agrees on European Stability Mechanism reform | DW News

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Eurozone finance ministers concluded 18 hours of negotiations by agreeing to enhance the European Stability Mechanism (ESM) to strengthen crisis prevention and resolution capabilities, while reaffirming that ESM support remains a last resort with appropriate conditionality; however, they failed to reach consensus on proposals for a joint eurozone budget and banking system integration, with Italy's public debt exceeding 130% of GDP raising concerns about fiscal rule compliance.

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The euro on the global stage

The euro on the global stage

155

The euro area responded by establishing the temporary EFSF in 2010 and permanent ESM in 2012. The ESM, with 700 billion euros in capital—the highest of any international institution—provides emergency financing through bond issuance at low interest rates. Together with the IMF, these institutions provided nearly 300 billion euros to five countries, enabling them to complete adjustment programs within three years and regain market access. Internal devaluation—cuts in nominal incomes to restore competitiveness—became essential despite textbook economics suggesting otherwise. Banking reforms followed: the Single Supervisory Mechanism overseeing systemic banks, the Single Resolution Board for bank resolution, and the European Systemic Risk Board. European banks doubled their capital since 2010, transforming from contributors to the crisis into pillars of stability.

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President of the Eurogroup eudebates reforms of the European Stability Mechanism - ESM

President of the Eurogroup eudebates reforms of the European Stability Mechanism - ESM

113

The Eurogroup has reached agreement on reforming the European Stability Mechanism (ESM) treaty, which includes establishing a common backstop to the Single Resolution Fund (SRF) to reinforce the banking union's resolution pillar and prevent bank failures from causing financial instability; this reform was implemented two years ahead of schedule, with the backstop becoming operational at the beginning of 2022, reflecting progress in reducing banking system risks through stress tests and enhanced surveillance.

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ADEMU - The role of the European Stability Mechanism in stabilising the Eurozone

ADEMU - The role of the European Stability Mechanism in stabilising the Eurozone

106

The European Stability Mechanism (ESM) has successfully implemented five adjustment programs, with four countries (Ireland, Portugal, Cyprus, Spain) exiting and returning to normal markets. Success came through policy conditionality requiring structural reforms and favorable financing terms, with 260 billion euros provided at low costs. The euro area recovery was driven by strengthened world economy, trade, and structural reforms. Key institutional improvements included enhanced governance with ex-ante policy coordination, expanded scope beyond fiscal policies, and the Banking Union creating a true euro area banking market. The new bank resolution framework breaks the vicious cycle between banks and sovereigns, while resolution mechanisms (EFSF, ESM) provide permanent safety nets.

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Deep Dive

A comparative analysis of the US Federal Reserve's monetary response to the 2008 financial crisis versus the European Central Bank's response.

Perspectivas da Economia Mundial após a crise financeira de 2008 (Aula 13, parte 4/5)

Perspectivas da Economia Mundial após a crise financeira de 2008 (Aula 13, parte 4/5)

524

The 2008 financial crisis originated from banks selling mortgage-backed securities, which collapsed when housing prices fell, causing Lehman Brothers' bankruptcy and freezing interbank lending (LIBOR). The US Federal Reserve responded most aggressively by expanding its monetary base by 270% (from $800B to $4.4T), while the European Central Bank was most conservative with short-term lending, and Japan only began aggressive policy in 2013. Countries that delayed monetary policy adjustments (Europe and Japan) subsequently resorted to currency depreciation (Euro -24%, Yen -62%) as an alternative adjustment mechanism, demonstrating that delayed monetary policy response leads to external adjustment through exchange rates.

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Why the 2008 Financial Crisis Is Still With Us - Bailouts, Austerity and the Crisis of Democracy

Why the 2008 Financial Crisis Is Still With Us - Bailouts, Austerity and the Crisis of Democracy

12.3K

The 2008 financial crisis elicited dramatically different policy responses between the United States and Europe. While Europe embraced austerity, the US initially responded with a large Keynesian stimulus package of $800 billion (the American Recovery and Reinvestment Act). This represented appropriate crisis response—injecting borrowed money into the economy during downturn. However, the stimulus suffered from two critical problems: it was insufficient (economists estimated $1.5 trillion might have been needed), and it lacked public purpose in its framing. When Republicans gained congressional control in 2010, they imposed real austerity. The Federal Reserve compensated with quantitative easing, but this monetary stimulus without financial regulation drove credit toward speculative ends. The US economy operated with one foot on the brake (austerity) and one foot on the gas (monetary stimulus), ultimately recovering while Europe struggled.

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Brexit and Beyond: Europe’s Last Chance?

Brexit and Beyond: Europe’s Last Chance?

6.8K

A comparison between US and EU responses to the 2008-2009 financial crisis reveals institutional differences: The US acted in nine months with three stages: (1) TARP ($400 billion to clean up banks, fully repaid by January 2014); (2) $900 billion investment program (2009-2019); (3) Quantitative easing ($1.2 trillion). The EU, by contrast, has ongoing debates between austerity and growth advocates, a half-finished banking union, a small recovery fund (300 billion euros vs. 900 billion dollars), and defensive rather than offensive quantitative easing. The US had two different administrations but acted quickly; the EU remains stuck in intergovernmental decision-making.

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Efectos de la guerra en la economía española

Efectos de la guerra en la economía española

55K

The Federal Reserve is the only central bank that considers global demand for dollars when implementing stimulus policies. When US Treasury yields rise, global demand for dollars increases because investors seek the safest asset. The ECB lacks this mechanism because European bonds have much lower yields than US bonds, and there is no corresponding increase in global demand for European bonds. The ECB faces a credibility crisis because it is trying to be the 'primo di zucchini' without being the 'primo di zucchini'.

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Zinskurs unter Druck - Schere zwischen EZB und Federal Reserve

Zinskurs unter Druck - Schere zwischen EZB und Federal Reserve

3.4K

The European Central Bank maintained interest rates unchanged while the Federal Reserve is expected to begin cutting rates, creating a widening interest rate differential between the two major central banks; this divergence reflects different economic conditions in the Eurozone versus the United States, with the ECB focusing on France's high debt burden (114% of GDP) and the Fed responding to US inflation around 3% and labor market concerns.

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Crisis Origins

Failed Austerity

Agenda Exposed

False Justification

Ideology Rules

Accountability Void

Comparative Failure

Unjust Bias

Abuse of Power

External Coercion

Crisis Origins

0:24

Playing Section

1
Greek bailout, driven by bank interests, violated EU no-bailout rule.
2
Key creditors included French and German banks with 37 billion euros combined.
3
The decision to bail out banks, not Greece, created market panic.

6.8K views6740:41@HaraldSchumannOnTheTrailOriginal Release: 2015-04-04

The Eurozone crisis was fundamentally mismanaged through political choices over sound economics, where Eurozone governments prioritized protecting German and French banks over Greek citizens, leading to excessive austerity that caused unnecessary economic devastation across Europe; the crisis demonstrates how institutional capture by creditor nations and the prioritization of bank recapitalization over democratic accountability resulted in policies that worsened the recession rather than resolving it, with the IMF's own research confirming that collective austerity cost nearly 10% of Eurozone GDP, while the solution requires honest debt restructuring, fair bank recapitalization, increased public investment, and democratic reforms to prevent future crises.

[00:00:24]When the Euro crisis started in Greece in spring 2010...and the Greek government asked for financial assistance. The IMF staff in Greece said, such emergency loans would make no sense without a prior debt relief. Why did the Euro governments and the IMF not follow this recommendation?

[00:00:44]The IMF staff were overruled by the managing director of the IMF, Dominique Strauss-Kahn, who had ambitions to be French President and didn't want to impose losses on French banks.

[00:00:54]At the same time German banks furiously lobbied Angela Merkel...ahh...that it...it would be deeply damaging to impose losses on them! As a result of that...ahh...the Eurozone governments decided to pretend...ahh...that Greece was merely going through a temporary funding difficulties and to bypass...ahh...the legal basis on which the Euro was founded - the no-bail-out-rule...ahh...and lend money to Greece. Not in order to...ahh...bail out the Greek government but in order to bail out...ahh...the French and German banks that had recklessly lent to an insolvent Greek government.

[00:01:31]Do you know the volume...how much money was involved...from the German and French banks side?

[00:01:37]Well, at the end of...ahh...March 2010 foreign banks...ahh...owned 69 billion Euros worth of Greek government bonds of which French banks owned 20 billion Euros worth and German banks 17 billion Euros worth.

[00:01:54]In the IMF board I was told the Europeans argued a debt restructuring for Greek...for Greece could trigger a domino effect, so that many other Euro countries could be cut off from the capital market as well. Weren't they right?

[00:02:10]The argument that...ahh...Eurozone governments made to justify this bail out of French and German banks...ahh...was that it would cause panic, Lehman Star panic. But there is a world of difference...ahh...between...ahh...the chaotic collapse of a complex global investment bank and the orderly restructuring...ahh...of the debt of a small country...ahh...in south-eastern Europe. Crucially though...ahh...the decision to bail out Greece did not prevent panic.

[00:02:39]On the contrary! Ahh...it created over the next two years, the panic that almost destroyed...ahh...the Eurozone.

[00:02:47]You wrote in your book: in October 2010 you said to the then President of the EU Commission Barroso that there was no way to avoid a write off of Greek sovereign debt. What was his answer?

[00:02:59](laughs)...I...I'm not allowed to reveal private discussions so...ahh... Ok.

[00:03:04]I'm sorry! I can said what I said to him, but no...I...I have a legal contract, I'm not allowed to...reveal the confidence of private conversations.

[00:03:12]Well, it's my duty to ask!

[00:03:13]Sure, but I'm not...they...they hate me enough as it is, I don't want them...I don't want them...I don't want them suing me as well.

[00:03:21]When the decision was taken to grant emergency loans to Greece...ahh...this came under conditions.

[00:03:26]The draconian cuts in expenditures and tax increases of up to 18% of the GDP in only three years. Ahh...for Greece this was an economic catastrophe. Was this an accident or has it been done on purpose?

[00:03:46]Well, clearly...ahh...Greece would have suffered much less, had its debt been written down...ahh...in 2010...ahh...because of that fateful mistake to lend German taxpayers money...ahh...to...ahh...the Greek government. Ahh...Angela Merkel was desperate to trying and get her money back as quickly as possible! Ahh...and as a result a truly brutal program of austerity was imposed...ahh...that has caused a longer and deeper slum than Germany suffered during the Great Depression. And the irony of all this is that this caused so much economic damage that actually...ahh...the losses to German taxpayers are going to be greater...ahh...as a result of this very harsh austerity. Now, why was this very harsh austerity imposed in this way? As I said, the primary reason was the desire the get the money back. There was also based...ahh...on a misunderstanding...ahh...of the economics and the belief...ahh...that...ahh...somehow austerity would be expansionary. If you look at the original EU-IMF-program, the belief was that this would provoke an investment boom which of course never happened.

[00:04:52]Hm. When it turned out that the spending cut and the tax increases made it all worse, as you said now, why did the Euro governments not change the course?

[00:05:01]Well, I mean, they were committed...ahh...to the policies, so they didn't want to...ahh...lose face...ahh....and...above all...the priority in all this was to try and get...ahh...once you've realized the mistake to try and get back as much money as possible...ahh...and minimize your losses. Ahh...and to this day...ahh...as I know from personal experience...ahh...many people in Brussels and indeed many people in the German government...ahh...do not think that they made a mistake. They think that austerity was the right course of action. They see it - in the German case - always in moral terms…Greeks have sinned...ahh...during...ahh...the boom years and now they must repent...and repentance involves suffering in order to obtain redemption. And it's...ahh...economic scarcely comes into it.

[00:05:49]And you think only because of the...this...in order not to lose face or...or because of moral considerations the whole Greek people are sacrificed to an economic catastrophe?

[00:06:03]Well, I think that's the...the horror of all this. Ahh...in that...ahh...the European project is meant to be based...ahh...solidarity...ahh....and instead...ahh...the desire of the Greeks to be part of Europe, the fear of being forced out the Euro, has been abused to...ahh...impose on them, the most unjust conditions and the most terrible...ahh...suffering. Ahh...and...ahh that is outrageous!

[00:06:24]Hm. The German finance minister, Wolfgang Schäuble, explains the root of the crisis in the Eurozone with the words: governments public debts and deficits are too high because their public sectors spent too much; that is why immediate fiscal consolidation is of essence. For many Germans this sounds very plausible. Isn't he right?

[00:06:46]Ahh...it...it's absolutely not true. If you look in the pre-crisis years...ahh...both Spain and Ireland ran budget surpluses, they had extremely low levels of public debt. I think, 25% or so in the case of Ireland, 36% or so in the case of...of Spain. Ahh...so...that simply isn't true! Ahh...even in cases where...ahh...big budget deficits of rising debts existed in 2010...ahh...in barking on austerity at a time when...ahh...the private sector, households and companies are desperately trying to save more...ahh...at a time when banks are bust and therefore not lending...ahh....is actually contra productive. So, even if you accept that false analysis it doesn't mean that austerity was the right policy to pursue collectively across Europe in 2010...ahh...and it has caused huge unnecessary suffering. According to a study by a European Commission official using the European Commission's own economic model...ahh...the accumulative loss of the Eurozone economy of the collective excessive austerity...ahh...is nearly 10% of Eurozone GDP. And nobody has been held to account.

[00:07:57]But why then the Euro governments did in spite of all the available evidence...that austerity would make things only worse...why did they insist to go on?

[00:08:06]Oh...that...there were, I mean, you know...there are always academics...ahh...ei...either for ideological reasons...ahh...or for...ahh...reasons of personal ambition who are willing to tell people in power what they want to hear. And there was an...an italian economist, called Alberto Alesina...ahh...who made a presentation to Eurozone finance ministers...in early 2010 where he made the argument that...ahh...austerity was going to be...expansionary. Ahh...and as a result of that...Jean-Claude Trichet, the President of the European Central Bank...ahh...and indeed other Eurozone finance ministers...ahh...began...ahh...to...ahh...talk in public...ahh...and act as if this was true.

[00:08:47]There was also another piece of research which was...ahh...subsequently debunked which was by Ryan Harton Rogoff which wa...allegedly showed that once debt reached a 90% of GDP with...that growth ground to a hold. And O...Olli Rehn, the EU economics commissioner and other said, well, we need to have con fiscal consolidation now because we are just about 90%...ahh...and if we don't we're going to have a recession. Ahh...the fact is...is...that first of all, that piece of research was wrong and second of all...ahh...in barking on collective austerity caused a...ahh...a much, much greater recession than even that...ahh...piece of research predicted.

[00:09:22]What...that would mean they were only misled by bad economists and... And I said...I said the bad...the bad economist...well...ahh...it was a political choice. It was a political choice. It was a political choice born in parts of ideology...ahh...but also...ahh...the self-interest...ahh...of Germany as a creditor. Once Angela Merkel has made the mistake of pushing German taxpayers on the hook for southern European debt...Europe's debt in order to...covertly bail out...ahh...German banks. Once she made that mistake...ahh...then she has a...a selfish interest as a creditor...ahh...to...ahh...impose as harsh terms as possible... But was the...the apparent necessity to save only...was is not in many cases also an excuse to impose...ahh...a hidden agenda, a second agenda?

[00:10:06]That's why I said, there is an ideological agenda to...ahh...there is an ideological agenda of many people who have been wanting to...ahh...cut back public spending...ahh...for...for many years and who sees down this as an opportunity...ahh...to achieve that objective. You look for example on the speeches of Jean-Claude Trichet and he'd been calling for austerity for a long time and this was...he seized on the opportunity which is quite inappropriate for...ahh...an independent central banker who is a mid to str...stretch to fiscal policy. Ahh...it certainly served the interest of the European Commission because the European Commission...ahh...wanted...ahh...more powers...ahh...for itself...ahh...and as a result of the crisis gained new powers first as part of Troika but also...ahh...over Eurozone government as a whole...ahh...through the enhanced fiscal controls that exist...ahh...in...ahh...the reformed stability and growth pact.

[00:10:57]Ahh...and at time remember, it's not just Angela Merkel...but most leading governments...ahh...were run by...ahh...were conservative...ahh...with politicians who were either suspicious...ahh...or...ahh...completely opposed to Keynesian policies...ahh...and therefore...ahh...didn't see...ahh...that...cutting back the state...ahh...had any economic cost on...on the other hand, on the contrary it served the political objective.

[00:11:19]Hm. And...you've worked with all these commission officials. Have...have there ever been internal debates about, maybe our course is wrong or the results are bad, we should change or something like that? You know, it's difficult to imagine that on the one hand people in Greece and Portugal suffer very hard or even also in Ireland and that on the other hand then there in Brussels their officials who do not care...?

[00:11:47]Well, absolutely, that's the problem! I mean, I'm profoundly pro-European...ahh...at the same time it is clear that having...ahh...unelected...unaccountable...and very often incompetent officials...ahh...in Brussels taking decisions about...ahh...people to...from they are detached and to whom they are not accountable, doesn't work. Ahh...so, you know, if you are Angela Merkel...ahh...you take policy decisions which impose suffering on...you know...Greek people or Portuguese people and also you are only accountable to German voters. Ahh...and if you're working for the European Commission...ahh...you have a job for life...ahh...and...ahh...you are accountable to your boss...ahh...but certainly not...ahh...for any suffering you might cause.

[00:12:32]So, for example, you...you do a program for...for...for Greece. The program predicts that unemployment is going to rise to 15%, you know, it turns out to be 25%...ohh...you just change number in spread sheet and the human suffering way doesn't come into it.

[00:12:48]While Europe turn to austerity, the Americans did the opposite. Ahh...well, at least they did not save while the private sectors were saving. Ahh...have you talked to American colleagues what they think about what the European are doing?

[00:13:05]Oh, throughout the crisis...ahh...I spoke very close...very...ahh...throughout the crisis I spoke a lot to...ahh...officials at the US Treasury...ahh...who like me...ahh...were...ahh...just baring and...ahh...often not understanding the course of action that...ahh...European governments were pursuing. You know, when we are told now, oh look, we have a recovery, actually we hardly have a recovery at all...ahh...but we are told now we have a recovery, it's a sign of success of our policies, remember that the United States had a deeper financial crisis...ahh...than Europe did and yet since 2010...ahh...the...ahh...US economy has been growing. In fact, its economy is now 7% larger than in 2008 which is much better than...even Germany which is about 3%...ahh...its much better than the Eurozone as a whole which is about flat and it's certainly much better than southern Europe which...where the economies have collapsed. So... But America's debt is higher than...than...the one of the Eurozone.

[00:13:57]Ahh...you know, it depends which...which country you looking at but...ahh...cert...in any case...ahh...the...the...ahh...the United States, well, its management of the crisis is clearly...ahh...not being perfect...ahh...has restored growth quicker, restored a bank lending to the economy...ahh...faster...ahh...successfully boosted investment, has unemployment...ahh...down...ahh...to...ahh...below the levels in 2008 and done a much...much better job generally. Crucially, the level of private sector debt...ahh...in United States has fallen substantially and in the Eurzone it has scarcely begun. Which means that...ahh...this period of stagnation we're in now is likely to endure for perhaps a decade as...ahh...the past few years have been wasted in the pursuit of austerity...ahh...instead of...ahh...giving...ahh...with instead of government spending, giving the private sector, the households and companies the space and the scope...ahh...to reduce that debts.

[00:14:51]But doesn't the US government now have a huge problem with very high sovereign debt? Above a 110% of GDP?

[00:14:57]Ahh...that's not...that's not... At least above 100%.

[00:14:59]No...that's...that's not the figure...I need to trick it up...that's not the figure that...well, the first thing is the United States can borrow at extremely low interests rates...ahh...its...ahh...government deficit...ahh...has fallen substantially...ahh...partly as a result of fiscal measures taken last year but mainly because of the recovery...ahh...in any case...ahh...its economy has performed...ahh...a much better as a result of...As I said, not a perfect policy makes...but a much better one...ahh...than the Eurozone. I mean...someone needs to be held to account for the fact that 10% of Eurozone GDP has been thrown away unnecessarily...ahh...by the collective pursuit of excessive austerity.

[00:15:46]And the people who have suffered from this it's not just southern Europe. I mean, Germans have suffered, too. Germans have suffered, too because...ahh...the austerity has depressed growth...ahh...in...directly in Germany...and depressed German exports to southern Europe.

[00:15:58]So, ahh...Germany too has suffered as a result of this and it's gonna suffer in a long term because...ahh...the debts in southern Europe are unpayable and the losses that...or the...the...ahh...exposure that Chancellor Merkel has taken on, by lending to these countries is ultimately...some of that is going to be born by German tax payers.

[00:16:18]You said somebody has to be hold account. Who is someone? Who is somebody?

[00:16:21]Well, I mean, in my experience the crisis effort, the crisis response has been driven...ahh...by Berlin...ahh...and implemented by Brussels, primarily. Ahh...and...ahh...so that's where accountability...ahh...lies.

[00:16:34]Hm. Ok. Next step: the program him...itself. When the rescue programs or the conditions for emergency loans were designed. How did the officials decide the priorities...what needs to be done first? And what second and what third? Ahh...I do ask because when we looked in the affected countries, usually the measures taken at first were those who hit workers, ordinary taxpayers, pensioners. Ahh...all the other things came later on.

[00:17:09]Or not at all. So, what was the driving force behind these programs...these conditions?

[00:17:17]Well, the overrating priority...ahh...has been austerity. Ahh...if you listen to what politicians say, they say that the priority is reform but the overriding priority...ahh...has been austerity. So you see for example in Greece that there is been a hell of a lot of austerity...ahh...and hardly any...ahh...reform. The fastest way...ahh...obviously to...ahh...close a budget deficit is to raise taxes...and so that was...that has been...ahh...the first priority. Ahh...and...ahh...if you look at...I mean...let's be clear here: I mean...ahh...the Greek government is a...dysfunctional in a sense that...ahh...it's not like government in northern Europe where...ahh...everyone pay...more or less pays tax and efficient public services are...ahh...delivered as a result. It is...ahh...more like a client based system where...ahh...only some people...ahh...pay tax and that money is used to provide...ahh...you know, patronage for...ahh...people who either support as a one political party...ahh...or another.

[00:18:14]So, ahh...let's not...it's...the system that exist there is...is clearly...ahh...not ideal.

[00:18:19]Ahh...but neither is...ahh...the imposition...ahh...of...ahh...tax rises and budget cuts...ahh...by foreign creditors who don't have the best interests of the Greek people at heart. Ahh...but rather...ahh...are trying to get their money back.

[00:18:33]Hm...why...why the programs are so...so biased? You know, usually capital owners in Greece, the oligarchs...yeah...the main families who own more than 50% of GDP...ahh...they are not touched! Ahh...and even if...if...if they are mentioned in the memorandum of understanding, those measures are usually not...implemented. For example, in...in...in Portugal...ahh...the Commission realized that all the so called private partn...private public....private partnerships were a bad deal for Portugal and the memorandum demanded that these contracts needed to be renegotiated to make it...ahh...better for...for the Portuguese taxpayers. But in three years this has never happened. The...so, my question is: How it came that the...the missions, yeah, the officials who were sent to...to the countries...why they didn't take care of...to make it more a just and more balanced program? It was even mentioned by the IMF in its evaluation report that this was mistake!

[00:19:42]Sure.

[00:19:43]Ahh...but it never happened. What...what kind of force is there in way? They are only officials!

[00:19:48]But...as I said, I think the...the key...the key aim was...ahh...headline targets...ahh...and...and try to meet those. A...and...ahh...l....much less attention was paid to...ahh...how they were attained. And clearly...ahh...that leaves some discretion in the hands of...national governments who in turn...made decisions based on the political economy of that country.

[00:20:09]So, you’ll see that...ahh...you know, Mr. Samaras's government...ahh...will try and minimize harm to people support his government and very often they are, as you say, the...ahh...the very rich families who control a large part of Greece...ahh...and likewise...ahh...the government...ahh...in Portugal.

[00:20:29]Hm.

[00:20:31]I mean...you know...I...I...I take your point, at the same time...ahh...if you agree with me that we shouldn't have foreign officials...ahh...running countries in a kind of quasi-imperialistic way...ahh...ultimately...ahh...the responsibility for...ahh...reforming the governments and insuring...ahh....justice should lie with those governments and with the people who elect those governments rather than being imposed from outside.

[00:20:57]Yes. But in practice those officials sent to there, they intervened directly in governments work, yeah? Ahh...for example, ahh...we've interviewed a former minister who told us how it was to be called around midnight and asked, or not asked, but forced to sign this and this document otherwise the next tranche of the credit won't be transmitted and...and he said how he felt blackmailed and...I wonder how it was possible to give a...a regime of unelected officials the power to...to blackmail member governments? Has it ever been considered in the inner circles that this might be a power abuse?

[00:21:41]Clearly...clearly it is a...an abuse of power. The Troika was created...ahh...on a ad-hoc...ahh...basis...ahh...it is completely inappropriate that it involves...ahh...the unelected ECB...ahh...it is...ahh...likewise inappropriate that it involves the European Commission which has no competence or expertise...ahh...in these matters. Ahh...and...ahh...the fact that it operates...ahh...in secrecy...ahh...with scarcely any accountability to...to democratic authorities...ahh...is...ought not to be acceptable...ahh...in...in...in modern Europe. In a fact...ahh...they have acted like... colonial masters.

[00:22:21]One decisive moment of the whole development was in December 11 when the Greek Prime Minister Papandreou wanted the Troika program to be decided by the voters. Ahh...in a referendum.

[00:22:34]But this never happened and instead Papandreou resigned. How this has been engineered? Have you followed it in detail?

[00:22:41]Well, what happened and it's...I mean, you know, it is pretty clear that...ahh...Papandreou was in effect forced out of office by Eurozone authorities. As indeed, and it was Silvio Berlusconi...ahh...and not my favorite politician but still the elected Prime Minister...ahh...of Italy...ahh...and...ahh...in the case of Papandreou...ahh...this was achieved by threatening to force...ahh...Greece out of the Euro. Ahh...and...at that point...Samaras...ahh...who had...previously been opposed to the EU/IMF-Program saw this as a means of...ahh...obtaining power...ahh...and...ahh...changed his views or...and...ahh...as a result ended up Prime Minister the year after. Ahh...I think...ahh...the key issue for me...ahh...is that...ahh...the European Central Bank, which is meant to be the central bank of all citizen who use...ahh...the Euro, threatened to deprive some of those citizen of the right to use their own currency in order to obtain...ahh...a political objective which was the implementation...ahh...of an unjust...ahh...Troika program in Greece. And that is clearly a gross abuse of power.

[00:23:51]Now, where there was a similar abuse of power...ahh...in Ireland...ahh...Jean-Claude Trichet...ahh...has refused...ahh...to...ahh...appear... ahh...bef...in...refu...it was a refuse to testify to an inquiry into those events...ahh...and I think that just appitimizes the way that...ahh...the ECB can get away with gross abuses of power...ahh...by claiming...ahh...that is...it is independent.

[00:24:11]But, you know, in a democracy...central bankers do not have a right to pave in that way.

[00:24:18]What exactly happened in Ireland? You said, in Ireland... Well, what happened in Ireland is...is a rather similar thing in that the ECB threatened to cut off...ahh...liquidity to Irish banks... Which[…]and their banking system would collapse!

[00:24:33]…in a fact threatened to force Ireland out of the Euro...ahh...in order to force the Irish government...ahh...to...stick with a misguided guarantee of all...ahh...Irish bank debt. Ahh...the results of which is that Irish taxpayers have...faced 64.000....64 billion Euro debt which is 14.000 Euro for every Irish person...ahh...again a gross abuse of power!

[00:24:57]Now, you know...ahh...it's one thing to say...ahh...that central banks are independent in their pursuit of monetary policy. It's quite another...ahh...to say...ahh...that they can...ahh...act in a nakedly political manner...ahh...they can there...I mean, imagine if they had threatened to deprive German people of their right to use the Euro. Or French people of the right to use the Euro. Ahh...it's a gross abuse of power.

[00:25:24]But probably with Germany or France they wouldn't even try.

[00:25:28]Absolutely. Because... Because they knew that the next day the statute of the ECB would be changed!

[00:25:31](laughs) Well...in a fact then, you know, the...the ECB...in a fact the ECB which is meant to be the central bank...ahh...of all citizens who use the Euro, has acted...ahh...in the interests...ahh...of French and German banks...ahh...and...ahh...the French and German governments which bailed out those banks.

[00:25:50]Today those responsible claim that in spite of all the contradictions you...you...named...after all their rescue programs were a success because the recession in the crisis countries has stopped and...unemployment has started to decrease. Are they right?

[00:26:08]As a result of...ahh...the mistaken programs...ahh...the recessions have been unnecessarily long...and deep. Ahh...in so far there is a recovery...ahh...it is a...the flimsiest, the weakest recovery on record. Greece's economy is still shrinking...ahh...in the latest quarter Portugal's relapsed...ahh...and because of the falling inflation...ahh...nominal GDP is basically...ahh...stagnent. Unemployment is extremely high...ahh...on current trends is not going to fall back...ahh...to a normal levels for 10 or 15 years. Ahh...and crucially...ahh...the levels of...of public debt and private debt...ahh...remain...ahh...extremely high. So, to call this a success...ahh...I think is setting the bar...ahh...extremely low.

[00:26:58]What can be done to improve the dire situation now because it's still very fragile, or no?

[00:27:05]It could...it could happen that...that we fall in deflation and we have a...a Japanse like stagnation for a decade or so. So what needs to be done?

[00:27:13]Well, my baseline scenario is that...we are going to have...ahh...a Japanse sta...stagnation...ahh...and there is a very real threat that southern Europe is going to...ahh...sink into a deflation redebt trap. What needs to be done is what I advised President Barroso at our first meeting in 2010 which is...ahh...restructure banks, fairly and decisively. Write down...ahh...excessive debts, both public and private...ahh...boost investment...ahh...and...ahh...implement reforms to open up...ahh...a healthier future forms of...of growth. And unless we do those four things...ahh...the short term is...is stagnation and in the medium term...ahh...there will be...ahh...bankcrupties and...ahh...defaults. And the political consequences of this...ahh...I think will be dire. I mean, we can see already what happened...ahh...in the European elections...ahh...where there was a collapse in support of...for mainstream parties...ahh...a large rising support of...for the far right. Ahh...at a...ahh...general disillusionment and disenchantment with the European Union. Ahh...and ultimately...ahh...a threat to our open societies.

[00:28:23]But the four points for...you mentioned...ahh...would mean in the first two points that a lot of investors...and bank owners...and...holders of debts of all kinds...would loose a lot of money. And the other two points mean that the whole concept now designed with the fiscal compact and all the laws governing...ahh...how the fiscal operations managed by the...by the governments had to be doing...had be done...all this...is a straight jacket which makes it nearly impossible to do or to fulfill these four demands you...you...you've said. How to overcome this...deadlock?

[00:29:13]Well, I mean, I think it is right and proper that creditors...ahh...pay the price for their mistakes. Ahh...the crisis was caused primarily by the reckless lending...ahh...of German of French banks...ahh...together with local banks...ahh...in the affected countries. Ahh...and it is right and proper that if you lent too much badly...ahh...to people who end up insolvent...ahh...that you suffer...ahh...losses for that. It's not only right and proper, it's necessary for the recovery because the longer that we have...ahh...banks that won't lend to vival businesses and economies that are depressed by...ahh...excessive layers of...debt. The longer that we have economic stagnation which is not just imposing huge suffering...and...extinguishing hope in southern Europe but also its not in the interests...ahh...of northern Europe. If Germany wants to be surrounded...ahh...by...ahh...successful, happy economies...ahh...if it wants to have a viable export market...ahh...then...ahh...it...it, too has an interest...ahh...in encouraging recovery in southern Europe.

[00:30:18]But...but look for example what's happening with the Greek banks! I've dealt intensively with Greek banks and...they have spent nearly a 40 billion Euros, borrowed money from the other Euro countries to recapitalize their banks and...ahh...still the non-performing loans are growing...ahh...and what is happening is now is that these - in practice nationalized banks - are being sold are bargain prices to American hedge fund investors. Ahh...so...this is more or less the opposite of what said what needs to be done, yeah. Ahh...only by and...and by selling them to...to the American and Canadian...ahh....funds...ahh...they say now, look the market again is interested in...in investing in Greece. Ahh...do you...do you know how this...contradictious and to...and ridiculous development came? Why...why this Greek program for example... Personally I think the...the picture underlying all this...ahh...is one: of the capture of all governments...ahh...by their banks...ahh...and two: as a result of the crisis...ahh...the capture of...ahh...EU and Eurozone institutions...ahh...by...ahh...Germany to serve its narrow interest as a creditor.

[00:31:39]In a fact then the whole of the Eurozone is being run for the interests of French and German banks and that is just simply...ahh...not sustainable, it's not right and it's not sustainable.

[00:31:50]So...ahh...of course...ahh...braking those links...ahh...and imposing losses...ahh...on powerful entities is not easy, but ultimately... if it isn't done...ahh...if it isn't done...ahh...in an orderly way, ultimately the people will not accept and will rebel against that. I think, you know, that's only a matter of time.

[00:32:05]And the second part of your program, meaning to increase public investment, isn't it forbidden more or less now with fin...fiscal compact and...and the binding rules for the deficit reduction?

[00:32:16]I...I agree with you. I mean, I think that the fiscal...the...the...the much tighter rules in the stability and growth pact and the fiscal compact which is now...ahh...in...a national constitutions...ahh...locks in a semi-permanent austerity and does not give countries...ahh...the requisite of flexibility...and doesn't distinguish...ahh...between an investment, that creates future growth and future tax revenues...and consumption...ahh...which doesn't, so...ahh...yes, the...those rules are completely misconceived...ahh...at the very least they need to be loosened, better still they ought to be...ahh...scrapped.

[00:32:49]You've even dumped it a fiscal colonialism. What is this?

[00:32:53](laughs) Well, as I say...ahh...if you see what's happened...in...not just in the...in the Troika countries...ahh...but across the Eurozone in almost every election since the crisis...ahh...gov...voters have rejected...ahh...the government and rejected the failed power politics of the government. Ahh...and as soon they elect a new one...ahh...EU...EU Economics Commissioner Olli Rehn...ahh...pops up on television saying you must stick to...ahh...the failed policies of the government you have just rejected. Now, if you are a voter in such country, you go, what's the point of voting? I vote to get rid off a government and end up with the same policies I've just rejected. So what does that do? First of all, it turns people against the Europe Union because if that's...if the European Union stands for...austerity and recession, then I must be against it and second of all it forces people to vote for extremists because voting for mainstream parties doesn't deliver...ahh...change. So...ahh...this is deeply undesirable in the short term and ultimately I think...ahh...unsustainable.

[00:33:54]And colonialism?

[00:33:56]Well, as I said, you know, in...in effect...ahh...as a result of the crisis...ahh...the political economy of this is that...ahh...Germany is imposing...ahh...controls on other but not on itself. So, Germany wants much tighter controls of other countries budgets and that has been achieved through the fiscal compact...ahh...and...ahh...through the tighter rules of the stability and growth pact. It doesn't want controls over its banks and therefore the banking union is bogus.

[00:34:23]So you see...ahh...in effect...ahh...that...ahh...through its control of EU institutions...ahh...that...ahh...Germany is...is running southern Europe or most if they were colonies.

[00:34:32]Ahh...what do you expect...how the European Union will develop over the next ten years?

[00:34:37]Well, I think we need a European spring! We need a European spring of economic...ahh...and political renewal. We need to...to deal with...ahh...the crisis of fairly...ahh...and decisively...ahh...and...we need to create a Eurozone...ahh...that works for all its citizens and we need to create a much more...a democratic European Union...ahh...where all the Europeans have a much great to say...over...ahh...the direction it takes and the decisions it takes. At the moment what we have is...extremely political decisions which benefit...ahh...banks in some countries...ahh...at the expense of everyone else being taken as if they were neutral technocratic decisions...ahh...for which...ahh...political accountability is not necessary. Ahh...and that clearly...ahh...is wrong.

[00:35:23]What you said what is needed is contrary to all what is on the agenda right now. So, my question was...would do you expect realistically? What do you expect is going to happen in the next ten years?

[00:35:34]Well, I think Europe needs to change.

[00:35:37](laughs) Well, if it does not?

[00:35:40]Well...I...I...there are all sorts of...I mean, as I said before I think...ahh...what you've seen since the crisis is a collapse in support of...for the European Union. The European Union used to be associated with...ahh...peace and prosperity, it's now associated with austerity, with recession and with...ahh...German domination...ahh...and you've seen that nationalism...ahh...and xenophobia are on the march...ahh...in Europe again. Ahh...and that is deeply worrying, so a wise statesman will recognize that and say we need to preempt...ahh...a much greater crisis.

[00:36:20]Ahh...if political leaders...ahh...are not wise enough to do that...ahh...and if...ahh...other force are not strong enough...ahh...to force them to...then I think the consequences...ahh...can be...ahh...very severe.

[00:36:28]And... I think it's a tragedy! I mean, I think it's tragedy as I said...I'm...ahh...my book is extremely critical...ahh...of the decisions that have been taken but from a pro-European perspective. I want...ahh...Europe to work and I want the Eurozone...ahh...to work...ahh...and it is a tragedy...ahh...that a series of...ahh...of policy mistakes...ahh...have been made...ahh...that...ahh...are destroying Europe and are destroying the Eurozone. Ahh... We have very much to lose, no? For me...my...my...I'm...I'm the European...generation, yeah? When I compare how Europe was in the 60s, when I was a child to today...there are so many things we have gained and...and many people do not realize what's...what's on stake, hm? Why they have no...no feeling? When...when I talk to my fellow Germans and discuss with them about Europe, they are all negative now. There...there's a negative majority even in Germany.

[00:37:24]Sure.

[00:37:24]But do the people that you've been close...do they just not care or...or what is their attitude?

[00:37:29]I mean, they must...they must see that they...then... That their own institutions is in danger.

[00:37:35]That their own...run it down and...and...run it into...into tragedy.

[00:37:39]Well, I think first of all...ahh...people have short time horizons and they want to...if you are politician you want to win the next election or you just want to get through the next week. Ahh...and if you are working for...ahh...an European institution...ahh...in Brussels...ahh...you are actually completed detached...ahh...from politics. You are insulated from it. Ahh...you have...a...a...a job...ahh...for life...ahh...you tend to only talk to people...ahh...who work for the ins...the EU institutions or who want money from the EU institutions...ahh...or road change to the EU institutions and so what's happening...ahh...in these countries...ahh...is...ahh...far away and...and misunderstood. So, it's a bit like, you know, ahh...Marie Antoinette in her palace going...you know, let them eat cake! Ahh...complete...ahh...lack of understanding and connection with the suffering of ordinary people. Ahh...and that's very dangerous.

[00:38:29]You said, what's desperately needed is more investment, of course. How we can achieve this? How we can achieve more...investment? Private or public - whatever!

[00:38:39]Well, I think...ahh...the need for increased investment is true a...across Europe. One way to do that...ahh...would be...ahh...to increase to capital of the European Investment Bank, to fund a new a wave...ahh...of investments. You could set up...ahh...a specific investment fund...ahh...for that purpose. Remember, that at the moment...ahh...governments can borrow...ahh...at record low levels...ahh...and therefore...ahh...the cost of this investment is low and the benefits at a time of...ahh...depressed economies are particularly large. Not just in terms of boosting spending now but in terms of...ahh...boosting future growth too. Now, Germany ought to play its part. I mean, ahh...if you see...investment in Germany has collapsed since...ahh...2000.

[00:39:22]In the latest budget plans that Ang...Angela Merkel is putting forward there are further cuts to investment. And you can see all around you that Germany is suffering as a result, you know, German infrastructure...ahh...is falling apart...ahh....the Kiel canal had to be closed...ahh...in terms of...global education rankings Germany...ahh...is sinking.

[00:39:42]Ahh...so...ahh...it's in Germany's interest, too...ahh...to invest.

[00:39:45]There are some economists, Yannis Varofakis, James Galbraigth and others who have come up with the so called modest proposal. And one core element in this proposal is...ahh...this investment fund of...run by the European Investment Bank funded by bonds to be bought by the European Central Bank. Is this essential...is this a sensible proposal?

[00:40:09]Well, I think that...it's unlikely that the ECB is going to impart on consetive easing any time soon. Ahh...but it has signal that if it does it is reluctant to buy...ahh...the bonds of national governments. So, an alternative to that might be...ahh...to buy the bonds...ahh...of a European investment fund...ahh...which clearly, operated at an European level...ahh...and which might involve less of the so called moral hazard problems about which the ECB...ahh...is worried. So, yes, I think that could be...a...a...a possibility.

[00:40:38]Ok, thank you very much!

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