THE ASPEN INSTITUTE GREECE'S DEBT CRISIS: THE NEW SOURCE OF GLOBAL MARKET CONTAGION? Greenwald Pavilion Aspen, Colorado

Transcription

1 THE ASPEN INSTITUTE GREECE'S DEBT CRISIS: THE NEW SOURCE OF GLOBAL MARKET CONTAGION? Greenwald Pavilion Aspen, Colorado Thursday, July 2,

2 LIST OF PARTICIPANTS: GILLIAN TETT US Managing Editor, Financial Times Author, Fool's Gold ARIANNA HUFFINGTON Chair and President, Huffington Post Media Group Founder and Editor-in-Chief, The Huffington Post NICHOLAS BURNS Roy and Barbara Goodman Family Professor of Diplomacy and International Relations Belfer Center for Science and International Affairs Harvard Kennedy School of Government Director, Aspen Strategy Group, The Aspen Institute LAWRENCE H. SUMMERS Charles W. Eliot University Professor Kennedy School of Government, Harvard University Former Secretary of the Treasury Former Director, National Economic Council Obama Administration * * * * * 2

3 GREECE'S DEBT CRISIS: THE NEW SOURCE OF GLOBAL MARKET CONTAGION? SPEAKER: First off, I want to welcome everybody here, and this is going to be a panel on Greece. A lot of you have been looking at the schedule with Herzog who was going to be the focus, but because of his security team's issue with the tense situation politically in Israel, he was -- he had to cancel his trip to the Ideas Festival. And what we wanted to do was fill it with content that was just as rich. And because of the headlines being with they are, we were able to pull an amazing group of people together and have a session on something that's unfolding real-time. So I turn it over to Gillian Tett, who can introduce the session. MS. TETT: Well, thank you very much indeed. And welcome to what is indeed an incredibly timely panel. My name's Gillian Tett, I am the U.S. managing editor of the Financial Times. And those of you who have been reading all Financial Times or your New York Times or your Huffington Post will know, right now Greece is on the brink. On Sunday, they will be voting in the referendum that is the supposed to be about whether they accept the terms offered to them for restructuring Greek debt. In practice, it's being billed as a referendum on whether Greece stays inside the euro and the eurozone or not. Huge, huge vote, that has great potential for economic contagion, financial contagion and political contagion. Greece may be tiny, it's only 2 percent of the eurozone's GDP, but its importance on the world stage right now is huge. So what we're going to do this morning is actually split the issue of Greece into two parts. I'm going to start off by trying to get inside the head of the Greeks. Because of the behavior of the Greeks in terms of sticking their heels in with the creditors, essentially taking the country to the brink, it's very baffling to many outsiders. Many Greeks see this as a last-ditch stand for democracy, many outsiders see this as complete madness. 3

4 So I'm very lucky right now to be joined with two people who know the lot about Greece and the Greek psyche -- Arianna Huffington, who needs almost no introduction, head of the Huffington Post, which has a Greek outlet. But more importantly, Arianna actually is Greek. So she's going to tell us -- MS. TETT: -- what the Greeks are thinking. She single-handedly represents the Greek nation this morning. MS. TETT: And I also have Ambassador Burns, who is a very longstanding, experienced, highly respected, foreign policies and public servant, who served as an ambassador all over the world, but most importantly between, I think it was 1997 and 2001, you were actually the American ambassador to Greece. So you can also try and disentangle what the Greeks are thinking. And then, because Arianna has to go to the airport in a few minutes, and thank you for joining us, I hope you don't miss your plane, we're then going to have Larry Summers, who was former U.S. Treasury Secretary, part of the Committee to Save the World, as they used to called it, which went around trying to bail countries that were on the brink in Asia out of disaster. I'm going to interview him and ask what would he do today if he was part of the modern Committee to Save the World to save Greece So, let me start with Arianna. Tell us why the Greeks are doing what they're doing? MS. HUFFINGTON: So I think it's really important to understand that there have been years of austerity measures that has shattered the Greek economy, 25 percent reduction in GDP, that have led to a skyrocketing child-poverty rate of 40 percent, over 50 percent youth and employment, and all these austerity measures were imposed on Greece not by the Greek government by the Troika, which is a combination of the 4

5 IMF, The European Central Bank and the European Commission. So there is the sense that the solutions that were imposed on Greece in order to solve their debt crisis have actually produced an absolute Greek tragedy at the moment and no hope. I mean one of the things that Nick and I were talking about is this destruction of hope that is leading to the brightest young Greeks leaving Greece because they don't think there is anything for them, that is leading to a kind of despair. Suicides have increased by 36 percent since the crisis, and the health crisis is also incredible -- we see new infectious diseases, malaria, HIV cases, because the whole health system has been destroyed with these cuts. And what is incredibly important here is there is no way, as every economist including Larry I'm sure is going to say and has said many times, you can cut your way into growth. So it's not as if, yes, we are going to suffer and down the down the road we'll be able to grow and will be able to do all these necessary reforms, but do them in a way that can bring back prosperity and hope. And I just want to stress something Gillian, which is that this is not the left. It's not like just the Tsipras government being really angry and outraged. When we launched the Huffington Post in Greece, I -- MS. TETT: When did you launch it? MS. HUFFINGTON: In November, so just a few months ago. MS. TETT: Great timing. MS. HUFFINGTON: Yeah. So I met with Samaras, was then the prime minister and he had just spent the previous night negotiating with the Troika. He was frustrated, exhausted and had told the Troika that if you continue to insist on my imposing more austerity measures, you're going to bring in a leftwing government to replace me, which is exactly what happened. 5

6 So if the Troika doesn't like Tsipras, they created him. There is no way that a modern democracy is going to put up with those levels of austerity with no end in sight and not either take to the streets or take to the ballot box to elect extremist government. MS. TETT: But the question that many people in the eurozone leadership would ask and I've spoken to a number of eurozone leaders in recent weeks is, do the Greeks not understand that if they say no on Sunday, and I should say certainly according to the FT this morning, the polls are showing a pretty even split right now, if they vote no on Sunday, that is going to plunge them into even more economic chaos, even more economic disaster. I mean, the question that many economists inside Europe are asking is, are the Greeks committing collective economic suicide? MS. HUFFINGTON: Well, I think Gillian, it's really important to understand that they don't see any hope if the austerity measures continue. And they may be seeing some hope that if they exit the euro, they return to the drachma -- and there can be a situation like in Argentina. Remember when Argentina defaulted in 2001, everybody said this is the end of Argentina, they are committing economic suicide. It turned out that after a few months of real crisis, they were able to grow their economy. Right now, there is now way that Greece will be able to grow and get out of this crisis with continued austerity. The other path is very dangerous as well but at least there is hope at the end of it yet. MS. TETT: So if you were voting on Sunday, how would you vote? MS. HUFFINGTON: So I would vote no. And I would vote no not because I want Greece to exit the euro, not because I want Greece to exit the -- Europe, but because there's absolutely no hope when you vote yes, except continued austerity imposed by a Troika which is tone deaf to why this is happening in Greece and shows a kind of intellectual and moral turpitude that is 6

7 absolutely stunning. In fact, thanks to the NSA, we, you remember, WikiLeaks -- MS. TETT: I do. MS. HUFFINGTON: -- put out the private conversation between Angela Merkel and her assistant, in which he actually confessed that there's no way that Greece will be able to repay its debt. And every economist will tell you that, there is absolute no way. So this is kind of a false goal. And could Germany -- incidentally in 1953 when Germany's debt was forgiven, the vast majority of its debt, I mean, why did that happened? MS. TETT: Yeah. MS. HUFFINGTON: You know there's absolutely no connection in the German mind right now between what the world community made possible for them, the German miracle, after a lot of debt forgiveness and what they are foreclosing as an option for Greece. MS. TETT: Right. Well, Ambassador Burns, I'm going to ask you a question that you're not supposed to ask a diplomat and I hope you you're undiplomatic enough to answer, which is, how would you vote on Sunday if you agree today? MR. BURNS: And I'm Greek, I am Irish, but -- MS. TETT: Well, I know the two or three nations on the eurozone. MR. BURNS: But an important one. I would vote, yes, because it's fundamental to the future of the Greeks that they stay within the eurozone but also the European Union. Greece has been the greatest net recipient of grant aid and assistant aid from the EU over the last 20 years. If you go to the Athens subway, the Athens airport, the major east-west roads, the major bridges, all paid for by the European publics to the EU. And I think - - I agree very much with Arianna, we're witnessing a 21st 7

8 century tragedy of epic proportions. The scale of economic deprivation in a last five years is on a par with what we went through in the 1930s in the Great Depression on the United States. But I have to say as a former diplomat when I was ambassador do Greece, I think that the current Greek government has completely mishandled the negotiations with the Troika. In fact, I think they are guilty of diplomatic malpractice because they came in, and this is a radical government, former anarchists and communists, these are not European socialists, these are radicals, they thought they could intimidate Angela Merkel and the Troika. They thought that if they threatened to lead the eurozone, the Europeans would renegotiate the terms of their 240 billion euro debt to the advantage of the Greeks. And I think the Europeans felt we had to -- they had hold the line, and in the first week of the government they tried to renegotiate war reparations with Germany that was settled three decades ago, they reintroduced that issue so that they antagonized Wolfgang Schäuble and Angela Merkel, the two most important leaders. They then also questioned whether the United States and NATO should be sanctioning Russia over Ukraine, thereby antagonizing the United States. We're left with a situation that not a single government in the eurozone is speaking up for Greece, not a single government within the EU is defending them. I think what we're going to see is whether it's no or yes, Tsipras will try to renegotiate next week, start the negotiations again. But I read the Europeans, Gillian, and you probably do too as being unyielding, they've made their decision it's their way or the highway. I don't think that Greece has to play left. MS. HUFFINGTON: But this is -- MS. TETT: Arianna defend the Greeks. MS. HUFFINGTON: -- but, you know first of all, I'm not defending the Tsipras government. As I said, Troika created Tsipras. Everything that you are 8

9 describing the Tsipras government did would not has happened if they had actually listened to Samaras who had warned them that if they continued to insist on austerity measures, Tsipras would be elected. So that's entirely their fault. And with the greatest respect to ambassador Burns, the fact that the European leaders continue to remains so intransigent and so punitive shows how completely tone deaf they are to the dangers of what is happening at the moment. And I don't think a "no" vote needs to mean leaving the euro or leaving Europe. That's entirely up to the Troika to decide. They decide that it means that. They don't have to decide that and it doesn't have to mean that. It simply has to mean, no more austerity measures, that has to be a clear path to growth, both for the sake of the Greek people and for the sake of Europe. MS. TETT: So judging from the voices, and we've only got a few more minutes with Arianna, judging from the voices that you have on Huffington Post now in Greece, and what your friends are saying, your family is saying, if you were a betting person which way do you thinking the vote will go on Sunday? MS. HUFFINGTON: You know, it may very well go "Yes," because the Greeks are terrified at the moment with what has happened with the closing of the banks, with the fact that they can only withdraw 60 euros after staying in lines for hours. I mean I've been having s from friends saying they can't get gas in their cars without waiting for hours in line. A friend of mine said that she was wait for two hours to get 60 euros yesterday. And these are not poor people, these are middle-class people. And they had run out of 20s so they could only give 50. So all of that is making people afraid and so a "yes" vote would be a vote out of fear and "no" vote would be a vote out of hope. I think fear may win. MS. TETT: And if it does win and they do the "yes," how do you think this is going to play out in the next few years? I mean are we going to be dealing with 9

10 the Greece that is so wounded in terms of its national pride in psyche that it starts folding into more and more political extremism and volatility? Is the next step that the Greeks are going to start embracing Vladimir Putin and saying actually we don't like Europe any more, we'd rather look for other friends. MS. HUFFINGTON: I think that's a real danger. I think there's the danger of embracing Putin, there is the danger of embracing the Golden Dawn, the very extreme rightwing party in Greece at the moment that is gaining power, and there is the danger of violence in the streets. As you know, when there is no hope, when there is despair, that's when all these extreme situations happen. And my hope is that the European leaders will come to their senses instead of simply continue to be as intransigent because the Tsipras government is a truly unsophisticated, immature government that, as the ambassador rightly said, played its cards wrong. But that's not a reason to punish an entire nation. MS. TETT: And would you ever consider going to public service back in Greece? I mean they sure as hell need some help right now. MS. TETT: They could do with a good PR campaign or you know -- MS. HUFFINGTON: No, but what we're doing -- MS. TETT: I think you could give Angela Merkel or run for her money. MS. HUFFINGTON: No, but the reason why we launched HuffPost Greece is to help by being a hub for all the good things happening. One of the things we're covered and I'll just maybe want to end on this note of optimism is that, there are amazingly positive things also happening in Greece. They are tiny but there are people 10

11 starting start ups like the new Uber tourism start up around connecting tourists with guides, a start up that is connecting unemployed young people with agriculture opportunity. So all those things are happening. And my fear is that if the hopelessness and the despair continue they will squash all these new attempts to bring back growth and opportunity to Greece. MS. TETT: Oh, that's a fabulous note for us to let you go to the airport, Arianna. Thank you so much representing the Greek here. (Applause) SPEAKER: Thank you Arianna. Nice to see you. But see you soon. I'll write to you, all right. MS. TETT: Well, having had Arianna set the stage so majestically for what is inside the Greek head, and I wanted to get a good chance to understand the Greek viewpoint first because so much of the Greek viewpoint has been drowned out by the noise from Germany, by the noise from the international organizations, by the noise from the Western governments, so I wanted to get the Greek viewpoint first. I now want to turn to the question of what on earth does this means for all of us in the room, because to my mind today, the question isn't simply how would you fix Greece, how do you save Greece. If you're part of the Committee to Save the World or were, what you do about the contagion issue, because we're facing contagion on three levels, financial market contagion of the sort that we saw with Lehman Brothers, economic contagion in the sense that if we have a financial market shock, this could affect economies across the west if not further, but also political contagion, because as Arianna has said, we are seeing the rise of a tremendous sense of frustration, anger, political extremism, volatility, that could spread. And the geopolitical implications in terms of Russia, are very significant. So Larry, if you were in-charge of saving the world right now, what would you do? 11

12 MR. SUMMERS: Before I answer that question Gillian, let me just clarify one aspect of the economics here that I think is very important to understand. I am in sympathy with Arianna's view that there's been too much austerity that has been asked of Greece. On the other hand, I think it is very important to recognize that the austerity has not been imposed from the outside. Greece has borrowed money every year in order to spend. The outside world, the Troika, has enabled Greece to spend $240 billion more than it otherwise could have spent. And that doesn't include the regular foreign assistance payments within the EU. If Greece didn't deal with the Europe, then those large transfers would no longer be coming in every year and Greece would be suffering much more austerity. This is what is said by the hard left every time there's a financial crisis. Every time there is some financial crisis. It's always the IMF-imposed austerity. Reality is actually the opposite, reality is, that countries don't have to come to the IMF, company -- countries don't have to borrow money. The reason they do it is because they know that if they didn't do it and they had to rely on what they could borrow from the market they would suffer far, far more austerity. So the idea that austerity is being imposed is wrong. Austerity is being mitigated by external support. Now there's a very good legitimate debate you can have about the extent to which external support should be provided and how much austerity should be mitigated and should austerity be mitigated by more. And my view is that the European have taken us singularly short-sided and ungenerous approach that is ultimately going to cost them more money rather than less. But you have to understand that the external support and the conditions that come with it are not the cause of austerity, they are the mitigant of austerity. MS. TETT: Okay. So if you were Angela Merkel right now which is a bracing thought. 12

13 MR. SUMMERS: For all of us. MS. TETT: Okay. So you are Angela Merkel, what do you do now? Or Draghi, you can be Draghi instead of her, or a combination of the two. MR. SUMMERS: I think by the way in a situation where almost every policy maker looks like someone in July of 1914, looks like someone who is insisting on prerogative and pride at the cost of a satisfactory outcome with potentially catastrophic outcomes. The exception to that is Mario Draghi who again and again has risen above the petty and the political to do what is necessary to provide the maximum opportunity for the European Union experiment to work. I don't think sitting here right now on Thursday morning, there is no play to reach some kind of deal before the referendum takes place on Sunday. I would make clear as the European authorities that I was determined and desirous if Greece wished of working with the Greek people and their government on a growth strategy, that crucial elements of that growth strategy would involve reform of the Greek economy so that employers had incentives to hire people, so that the private sector was enabled to flourish, so that the banking system was recapitalized in a positive to provide credit, that it would involve recognizing that the burdens of debt the Greeks has achieved were in all likelihood not likely to be able to be fully serviced over time. I would indicate a willingness to continue to provide financial support to Greece in the form of loans going forward. But I would also say to the Greek people that it could not be that they were borrowing forever and never making net repayments, and that there'd have to be a path which involved repayment. Not probably the draconian path that had been proposed by -- that has been urged by a number of German officials over time, but that there has to be a sustainable path and that without a sustainable path continued lending is not possible. And I would seek 13

14 to work with a democratically formed government in Greece to achieve that objective, and that's what I would do if there is "yes" vote and that's what I would do if there was a "no" vote, because my view would be that having Greece leave the euro was an experiment and a sufficiently dangerous experiment that is not want that I would want to run. On the other hand, you cannot expect to borrow hundreds of billions of dollars year after year without understandings as to what you are going to do to strengthen your situation so that's not a permanent state of affairs. MS. TETT: Right. MR. SUMMERS: That would be the broad approach I would take. MS. TETT: Well, I'm going to ask you in a second to assess the economic and financial contagion risk. But before I do that I'd just like to ask Ambassador Burns, do you think it's possible having -- you know, you've worked in the world of diplomacy for years, as an American, you've probably look at the eurozone and been suitably baffled and frustrated by the bizarre structure of the eurozone -- do you -- if you were a betting man right now, do you think it's possible to get the kind of deal that Larry is talking about actually implemented? MR. BURNS: I don't think so. I think in -- MS. TETT: Okay, that's wonderfully undiplomatic. MR. BURNS: Diplomats can talk straight too. MS. TETT: Okay. 14

15 MR. BURNS: I think in the short-term, led by Wolfgang Schaeuble, the German finance minister, the Europeans have decided they need to draw the line very clearly and very harshly. I would anticipate whether it's a "yes" vote or "no" vote, that Tsipras, Alexis Tsipras, the Greek prime minister, will try to engineer renewed negotiations next week. Because of he wants to survive politically in Greece and avoid being thrown into another election which he'll likely lose, he needs to show the Greek people that he has achieved something in these negotiations that he's been able to get something for Greece. So I would think a sophisticated European approach would be to let them have two or three or four days of negotiations next week. If he's going to sign on to the bailout package, give him some compromises so that the Greek people will go along. But I am show the Europeans will do that, because I think they've decided this is a key case for precedence. They're worried that if Spain -- if the populist party -- Podemos wins in Spain or if in a future Italy comes to the EU for some major bailout package, they don't want to create a precedence in Greece that would harm them later. So I think in the short term, there's clarity in the European position they will not budge. They've already decided that they're not going to decided effectively with the Greeks. In the long term I fear what Larry fears that this relentless commitment to austerity gives countries like Greece no hope, and I think in the long term, the EU will be far better of debating whether continued austerity is the right policy, whether certain countries need to be given different prescriptions. But I am sure that capacity through leadership is there right now. And a final point Gillian, I think what Merkel believes, because this is a really big moment for the history of the European Union and the European project -- this was Europe's attempt to surpass several hundred years of warfare. It cemented France and Germany in a peaceful alliance. And they're really worried about 15

16 that, not only because of a Grexit, the possibility and the unanticipated unknown consequences of what happens if Greece leaves the eurozone, they're worried about Britain and they're worried about Cameron's ability to engineer a referendum in the United Kingdom -- MS. TETT: Yeah. MR. BURNS: -- that would keep the U.K. and the European Union. They're worried about the absence, and Larry can speak to this, of a fiscal union, a banking union. And I think for the first time, there is real concern among the European leaders about the long-term prospects for their Union and that should concern us because they're, that's for the NATO alliances -- MS. TETT: Yeah. MR. BURNS: -- they're a large investor-andtrade partner of United States. MS. TETT: Well, that sort of springs back to the point that there are really three contagion risks today -- financial, economic and political or geopolitical. So Larry can deal with the economic and the financial, what about the political-contagion issue? I mean how concerned are you, say, about Greece falling into the sway of Russia next because -- MR. BURNS: I am not very concerned about that and I'll tell you why, there's has been a lot of theater in the last couple of weeks and couple of months. Now there's a long term religious connection between the Greek and Russian Orthodox church, it's going back to the Byzantine Empire between Moscow and Athens. And in a very transparent, very clumsy way, the Greek prime minster has shown up at the Kremlin and he calls Putin as if he can convince Angela Merkel that Putin's a real alternative. Given Russia's economic predicament with falling oil prices and given the fact that the sanctions are hurting the Russians, the EU and NATO sanctions, Russia's in no position to be the lifeline to Greece. I think this is political theater, it's not real. 16

17 Others have said, well, the Chinese might come in as a savior of Greece. Why would China do that? China doesn't want a royal ruinous relationship with Germany or further upheaval with the United States. So it think that it's not realistic to think that there's an alternative for Greece. And I'd just go back, Gillian. When I lived there, Greece came into the eurozone, and I saw these massive infrastructure projects that were rebuilding Greece, all paid for by the European Union. If there's any country and Greece is the poorest country in the EU, that should be in the EU, that should see its future in the EU, it's Greece. MS. TETT: Right. How about all the economic and financial contagion risks? I mean should everyone here be looking at their portfolio today and thinking, help, call my broker -- MR. SUMMERS: Look, I think the best guess is that this is not exactly going to be -- if something bad happens it's not exactly going to be a shattering shock. It has been presaged pretty substantially -- people have made a set of adjustments, the vast majority of the Greek debt is now held in the official sector. So my best guess is that it's negative but is within range of normal market fluctuations. But that's my best guess. Ben Bernanke's best guess was that subprime was kind of a small thing relative to the global capital market. MR. SUMMERS: Hank Paulson's best guess was that, well, people have really gotten ready for a Lehman fair because they've experienced what happened to Bear Stearns, and so it would be okay if that didn't work out so well. And so, I just think there are some experiments you don't want to run and this is an experiment that it seems to me we would prefer, we would very much prefer to avoid running. I think the important thing to understand is that if Greece leaves, everybody is going to get less of what they want. People are worried about pension cuts in Greece? Excuse me, when the Greek currency get -- new Greek currency is worth 50 percent of the value of the 17

18 current euro, pensions are going to fall much more than anybody at the IMF dreamt of ever cutting pensions. Debt repayments, if Greece goes the way of Argentina, the debt relief that Europe is now refusing to offer will look like nothing, compared to the loss that the creditors will take. The IMF is insisting on a little bit more pension here and a value-added tax with three rates rather than six rates there. If this all falls apart they're going to get stiffed for a period of years by their largest creditor in the entire world. And so it is -- that's why I've used the analogy of World War I, this collapsing gets everybody more of what they most fear and that's why it ought to come together. Now, look I think -- I'd say -- I want to say one other thing about -- a couple things mix -- couple of things mix-up. I think a lot of people believe and a lot of people agree and I think the argument Nick made is very much in people's minds that you can't set a precedent that's bad for Spain or for Italy or for Portugal or something, I think that is very much in people's mind. I kind of think it's irrelevant, because I kind of think if you set a precedent, then if you have a 25 percent loss of your GDP, if you fire 30 percent of your employee -- your public sector employees, if you do a fiscal adjustment relative to your economy as -- hear me clearly now times as large as Bowles-Simpson then you'll get some relief, I actually don't think that's going to be a hugely-damaging precedent, is really that relevant to any live situation in Portugal or Spain. So I think they need to worry about that much less. I think they do need to worry -- MS. TETT: And they being the Germans. MR. SUMMERS: They being the European -- yeah. MS. TETT: Yeah. 18

19 MR. SUMMERS: Yeah, I think they do need, and this is where I think the Greeks have taken a position that I certainly would not have recommended that they take, the one -- getting more money, you know, you're in a negotiation -- getting more money, that's something that you can haggle about and you may get more money. Getting your counterpart to describe their strategy of five years as fundamentally ill-conceived and in need of revolutionary change, that is not something you are going to get up a political leader to do. And so Greece has made it maximally hard to give them "yes" for any answer by insisting on an overturning of the European order. If they said, look we need more fuel so our economy can go, that was an argument to which "yes" could have been an answer. But an argument that this whole thing is fundamentally misconceived, that was not an argument you were ever going to get a "yes" for from Germany. MS. TETT: Right. So, very quickly, and then Ambassador Burns, if you were a betting man, which way does the vote go on Sunday? MR. SUMMMERS: I think to say -- I think it's a coin toss. Look, pollsters got Britain, stable country with a long history of politics, with dozens of pollsters in a sophisticated thing, they got it fundamentally all wrong. This situation, no history of referendums, no clear understanding of what the referendum is about, sentiment extraordinarily volatile, I think it's almost impossible to know, and I think could probably the reason is, my bet is that 40 percent of the voters in Greece don't know today which way they're going to vote. So I think this could easily go either way based on some event -- MS. TETT: Right. forward. MR. BURNS: -- that sways the emotion going MS. TETT: Right. 19

20 MR. BURNS: So is as good a guess as any. MS. TETT: If they're reading Huffington Post, they'd know which way they should vote according to Arianna Huffington. But if you were a betting man, if you were suddenly dispatched back to Washington right now, what would you say, yes or no. MR. BURNS: I think it's going to be a no vote, but I think it's very close. The public opinion poll show right now. But here's why. Tsipras came out yesterday in a completely contradictory set of statements, saying he wants to sign on to the bailout package, but people should vote no. MR. BURNS: It makes no sense to have those two opposed -- but that's what he said. But in a larger sense, and here I want to speak up for the Greeks in a sense, Greece was invaded or threatened by all of its neighbors in the 20th Century, was occupied by the Nazis for five years, and they fought back, by the way, against the Nazis. The primary Greek holiday is called "Ohi Day." "Ohi" is the word for "no," in Greece. In October 1940, the Italians invaded. Mussolini gave an ultimatum to the Greeks to surrender and the Greek Prime Minister Metaxas said "Ohi," -- "No." There's a sense of defiance in the national character based on their history, that I think probably tips towards this towards a "no" vote. But here's what's incongruous -- the great majority of Greeks are furious with the Troika, but they want to stay in the European Union and they want to stay in the eurozone, which may tilt it to the right, to a "yes" vote, that's the first thing I'd say. Let me say secondly, Gillian, I am very much persuaded as I usually am by Larry's argument about austerity. And here is the missed opportunity in this great European tragedy. If Tsipras had come in after that victory in January, and if he'd said to the European creditors, I'll play by the rules. I'm not going to 20

21 disavow the EUR240 billion debt, but I need a pro-growth vision for my country, that was Larry's suggestion, that would have been a far more sophisticated strategy. And yet here we've gotten defiance, kind of rookie politics from the Greek government. It's a really tragic missed opportunity. MS. [LAST NAME]: Right, well in the name of democracy, which of course first came from Greece, I'm going to bring the audience in now. We have a lot of experts in the audience, we have economists, I can see restructuring experts, I see Ken Buckfire, who's worked with Detroit and other heavily indebted groups to kind of restructure their debts. We've got hopefully some Greeks in the audience, anyone Greek? Two, great, we should definitely get -- three. MR. BURNS: Come on. MS. TETT: Okay. Well we should definitely get your voice in as well, because this really is a pivotal moment, and I think we need to get a whole range of views and comments and questions. Two quick points, one, it would be courteous but not compulsory to identify yourself, and secondly because there are a lot of you, and these are heated issues, be very, very brief, and I will cut you off if you talk too long. MS. TETT: So, first question in the front. MR. HARRIS: My name is King Harris (phonetic), I'm curious nobody so far has talked about the viability of the Greek economy, even if there are no debts to be paid, this economy that depends on tourism and limited agricultural exports. As Nick said, they've, for years gotten money from the Europeans. Is this a viable economy, long-term, under any circumstances? 21

22 MS. TETT: Larry, would you invest in Greece? MR. SUMMERS: It's all a matter of price. (Applause) MR. SUMMERS: But it's a -- it's a joke that you appreciated, but it's also a serious comment, yeah. Is Greece productive enough to afford its people the standard of living that is taken for granted in France? No. Is Greece productive enough to afford for its people a standard of living far greater than the world average? Yes. And is Greece productive enough to get back to the level of production and income that it had achieved a decade ago? Yes. So I think there is a prospect for a return to more rapid economic growth than Greece has experienced, but I don't think that -- I think it would be a mistake not to recognize that there are -- Greece, as in every country, there is always the mistake made that when there is a financial mess, people think that if you just resolve the financial mess, then everything will be hunky-dory and the country will grow fast. And the truth is that financial people, central bankers, are like anesthesiologists. They can screw things up very badly and become very visible in the process. But nobody got their life saved by an anesthesiologist. There is a set of other things that ultimately the prosperity of countries depend upon the quality of their governments, depend on the hard work of their citizens and depend upon the spirit of their businesses. MR. BURNS: I would just add two things. They need deeply-seated macro economic reform. That's what the last government, the center-right government of Antonis Samaras, was trying to do. This government is bring us back to the neo-communist policies of the '50s and '60s, first. 22

23 Second, they need to collect taxes. (Applause) MR. BURNS: The Greek state has been very reluctant to collect the taxes of the Greek people and that gets back to the profligacy of many center-right and center-left governments over the last 20 years. MS. TETT: Right. And I've long thought personally one of these solutions to Greece could be, and I'm saying this partly in jest, to use all the money that the Germans are pouring, public sector money into the banks, into black holes there, and use it instead to build holiday resorts in Greece. And then use more German public money to give the Greek and German pensioners vouchers that could only be spent in the Greek holiday resorts. And that way you get happy German pensioners, happy Greek waiters and a happy Greek service sector. And you get the college funds that you need, you know, it's no buds (Phonetic). MR. BURNS: Brilliant, brilliant. Yeah. (Applause) MR. HARRIS: One more quick question. MS. TETT: So we have a question down here at the front. MR. HARRIS: Following Ambassador Burns, I was going to ask that exact question, what is the extent of the tax evasion in Greece. Is it apples and grapefruits is it a relevant issue, but what is the extent, is it really like EUR30 billion per year? MR. BURNS: I don't know the annual figure, Larry may know it, but for 40 or 50 years, there's been a great reluctance to collect taxes on a broad level, there's been a lot of corruption in the economy, and there's been a huge state sector in the economy -- nearly 23

24 50 percent of the people who live in Athens work for a government, the central government, the municipal government, local government. So trimming that state structure and trying to get growth into the economy, private sector growth, is the only rational way out I think of this dilemma. MS. TETT: Well I think if you looked at the figures of Puerto Rico it'd be even worse in terms of you know, the government employment. Ken Buckfire, there's a microphone over there. MR. BUCKFIRE: Professor Summers, does the United States have vital national interest in seeing this Greek issue resolved, and if so, what is it? MR. SUMMERS: "Vital national interest" is a term of art that's gets close to being, to signaling that it's something the United States would commit military troops to. By that standard the answer is no. Will American interest be served by the European Union functioning better rather than worse? Yes. Does what happens in Greece matter to the European Union, yes. Nick will know the history exactly but I think I know the history well enough to know that the, perhaps the first important or one of the first embodiments of the containment strategy which guided U.S. foreign policy for 40 years and won the Cold War, was the Truman Doctrine. The Truman Doctrine was declared with respect to Greece. That's a statement that Greece is very important to the United States. But if you ask in terms of the ultimate national security interests of the United States or the ultimate prosperity of middle-class American families, it is unlikely, very unlikely to be defined in all honesty by what happens in Greece. MS. TETT: I think that's supposed to be reassuring. 24

25 MS. TETT: We have a question there and a question -- oh, actually let's take the question over there in the aisle, there, and then there and there. MR. MACINTOSH: Good morning. MS. TETT: And then if there are any questions over here, wave your hand. MR. MACINTOSH: Ambassador and Secretary Summers, my name is Sean Macintosh (phonetic). I'm not Greek but I consider myself a student of economics, so I'd like to go back to the contagion issue, specifically, whether there's a yes or no vote that goes down in the next couple of days. Is there any reasonable expectation for a loss in confidence in the euro, such that there -- we see massive capital outflows and something can go down like the South -- like the Asian Economic crisis or a Latin American crisis? Thank you. MS. TETT: And I guess a flip side to that is should we be braced for a big dollar rise, a big dollar strengthening, if the euro crises do get worse? MR. SUMMERS: I think there are -- look, I think whenever you go into uncharted territory there are risks, there things you don't understand. I was -- Nick and I both were very involved in August of 1998 in -- at the moment when Russia defaulted on its debt. We understood that as a seismic moment for the Yeltsin regime and as profoundly important geopolitically. None of us expected the sequence of events running through long-term capital management that led to a major global liquidity crisis two months later. So never rule out the possibility that there are linkages you don't understand. That said, I think the response of markets to date, where after all we have seen lurches from euphoria to gloom on whether there's going to be a deal -- and you know the euro moved one percent, the euro moves half a percent, the European stocks move three percent, these are larger-than-normal moves but these are not the stuff of financial history books. 25

26 And so my best guess would be that the effects will not be massive. And in fact the effects on the euro are actually kind of double edged. On the one hand this doesn't look very good for the euro area, so you think the euro is going to go down. On the other hand if the euro area is a average of all the countries within it, and Greece is a weak link and there's a sense that Greece is not going to be part of it, that in a perverse sense can be strengthening of the euro. So I would not expect massive effects on the euro, but I would -- again I don't want to run the experiment because the history of judgments like that is that they should be made with great caution, and they may for some interval turn out to be wrong. MS. TETT: Right. To make sure I'm not too biased according to right or left, I want to see -- anyone on this side of the room want to ask any questions? We have a question right at the front over there and then I'll come over here. MS. LAZAR: Nancy Lazar. Thanks so much for your comments this morning. Isn't it really a bigger issue than Greece as you mentioned, that it really has to do with potential longer-term issue with the eurozone structure, banking and finance? And Greece is just a reminder that indeed the structure of the eurozone still has a lot of flaws, and then therefore the bigger risk is what it does to business confidence, particularly in Germany? MS. SUMMERS: Look, the euro system clearly has flaws. I mean this idea of many-governments-one-currency, sort of in 3000 years of human history we haven't had it very much and there's a reason, which is that it tends not to work very well and it tends to be very difficult to make work. And so there is a great deal of work ahead in Europe. Does -- I think the risks that Europe is today where Japan was in 1998, partway through a very long period of stagnation, I think those risks are really quite substantial for many reasons starting with the 26

27 demographic, that they've got a shrinking work force. But those were issues that were with us six months ago and will be with us six months from now. Again, my guess is that Greece is not a catalyst for a major negative reassessment on those issues. I think the thing to be watching is if there is some sign of a substantial reassessment of broad strategy of -- or where things are going in Spain or in Italy, because they are so large that if something major happens there, that really is definitive for the European project in a way that Greece is not and while there -- while I think Spain is at this moment a somewhat happier story than Italy, I don't think either of them look right now to be on the verge of something catastrophic happening. MS. TETT: Ambassador Burns, do you think the eurozone could break up? MR. BURNS: I think that's unlikely. But I think it's a very good question that was just asked and I'd answer it this way. While I served in the Clinton and Bush administrations, we were continually frustrated that the Europeans didn't have a strategic view of Asia or Latin America or Africa. They seemed to be consumed by what was happening in our continent, but that's because this European project is in some disarray, from an economic point of view, because of the unintended consequences of a Grexit, of Greece leaving, and because of your country -- and Britain. And so I think for the foreseeable future, we're going to see an inward -looking European Union, because they've got to rebuild the foundations of what it is, getting to a fiscal union to support the currency for instance, figuring out how strong the political union should be when the European publics are increasingly disaffected from an over-weaning Brussels. Last point, if we had been having this discussion 10 years ago, when Larry and I worked together in the Clinton administration 15 years ago, we would have said that there would have been a Troika of European 27

28 leaders to put Europe back together -- the British Prime Minister, the French President, and the German Chancellor. Remarkable through the eurozone crisis and Putin's invasion of Crimea, the unrivaled leader is Angela Merkel, and the German Chancellor. And I think so whether Angela Merkel, whether the European Union, a lot is resting on her shoulders and I think she's one of the most stable, intelligent, and wisest leaders that Europe could have at this moment and she certainly wants to rebuild the foundation of what the EU is. MS. TETT: Who would have guessed 20 years ago, that the political theater would be dominated by Angela Merkel, Christine Lagarde, and even Ariana Huffington representing the Greeks? (Applause) MS. TETT: That's quite an -- you know, as a woman I feel quite struck by that. We've literally got only have got a couple of minutes left. So I'd like to ask, if any Greeks, I think you are Greek, yes, would like to comment? MR. BULIAS: Hello, my name is Alex Bulias (phonetic). The question is, so it's clear that Greece is in a difficult spot and the people of Greece are in a very difficult spot and so is the government. And we spoke about what could have been done differently since the Election Day. But assuming that Tsipras came here today with you and he said, so gentlemen, what do you advise me to do. Referendum being a "yes" or a "no," he still has to go back and renegotiate with partners that are not very willing to listen to his desires. And so what would you advise him to do? MR. TETT: So if Tsipras had hired you, Larry, as an adviser, well firstly would you take the job? 28

29 MR. SUMMERS: It would have been exciting (phonetic). I think my advice would be to attempt to take all the confrontational rhetoric out, to accept that we're in a practical negotiation around an effective strategy, one. Two, to secure his domestic base at home the sense that he cannot deliver, that he goes and makes promises and explores ideas, comes home and problems within his own party make his offers nonviable, complicates very substantially his ability to extract concessions in Europe. So the second thing I would tell him is to secure his political base by if necessary, changing people in his government or doing something to secure his political base. The third thing, I would tell him is, and this is something we have not commented on and this is something where I think the Greeks do have a legitimate argument, there is a problem about who speaks for Europe. There have been a number of instances when quite generous promises have been made to Greece on behalf of Europe, by officials of the European Union in Brussels. And those promises have become inoperative quite quickly. And so I would ask -- I would encourage him to ask the Europeans to clarify who is their negotiator, who is negotiating on their behalf, and will they stand behind that negotiator. Now, he is in no position to make such a request, unless he is in a more secure basis in his representation of Greece, but that would be the third thing that I would advise him. MS. TETT: Right. MR. SUMMERS: And the fourth thing I would emphasize is that the question needs to be what will make the Greek economy grow. And changing the fulcrum of the negotiation from haggling about primary deficits to the achievement -- to the plausible achievement of growth targets would be the fourth thing that I would advise him. MS. TETT: Oh, it's a pity that Arianna is still not here, because in addition to the wonderful column you write for the FT, it may be -- it would be very timely to 29

30 put those four points in a column for that Greek Huffington Post and actually tell the Greek people what you think on that one, but yes. MR. BURNS: I'm with Larry. It's remarkable the extent to which international politics sometimes devolves to personal relationships of trust or distrust among leaders. And if we could roll back this film and start it in late January and if we could advise Alexis Tsipras, why don't you leave your friend Varoufakis at home, the finance minister, and why don't you appoint a former central bank governor like Lucas Papa--. MS. TETT: Papademos. MR. BURNS: -- Papademos, who was with us at the Harvard Kennedy School. Someone who's trusted by the European Central Bank, trusted by the Germans. And if Tsipras could have taken these negations into his own hands in the beginning and tried to create a relationship of respect, trust with Merkel. I think the German -- I think at least Merkel, maybe not Schäuble but Merkel, would have been inclined to give Greece the benefit of the doubt, tried to make something happen. But what we saw was this erratic, frankly untrustworthy pattern by the Greek government of saying one thing to the Europeans and completely repudiating that when they gave speeches at home -- MS. TETT: Right. MR. BURNS: -- to their voters. And so you're left with I think an absence of trust. So after the referendum, "no" or "yes" vote, I think the EU holds the line because they don't trust this Greek government to actually implement its commitments. MS. TETT: Well, it truly is a great tragedy on every front. And I have one last question myself, which I'd like to -- in fact two last questions -- I'd like to ask all of you. So having heard a variety of voices in the last hour, I'm going to ask you all to vote how you would vote on Sunday. So hands up, those of you who would vote "yes" to accepting the EU bailout demands. Right. 30