CNN Content
18.06.12
EUROPE
(Presenter)
Everyone is saying clearly not all euros are created equal. I’m going to put my money in Germany banks, that’s the one country that can’t default.
(Niall Ferguson)
If one country leaves it stops being a monetary union and it starts being a currency board. And It’s much easier to leave a currency board. Argentina was able to leave the currency board. That’s the nightmare scenario that southern European countries are thinking about. It’s more like Latin America. ‘Latin Europe’. Then it’s game over for Europe.
(Presenter)
Do you think Greece can leave without spreading the contagion?
(Robert Skidelsky)
Yes I think so. I don’t think Spain, Italy, Portugal, Ireland are nearly in as bad a condition as Greece. They’re more competitive, their public budgets are in sounder condition and they can whether the storm. Particularly if there is a big firewall. I don’t think it will break up. But I agree it’s got to be strengthened in all kinds of ways if it is to survive.
AUSTERITY
(Presenter)
Do you think in retrospect that cutting the deficit at a time when the economy was weak was the wrong idea?
(Niall Ferguson)
Well there wasn’t any choice. Keynesian policies are an option if you don’t have an enormous debt-to-GDP ratio. But Britain already did. There really wasn’t an option.
(Robert Skidelsky)
I don’t agree with that. Niall is a wonderful spokesman for the Conservative-Liberal coalition. I don’t think any of it is correct. There was never a chance that Britain was going the way of Greece. It was sovereign, had its own currency and could print money. Very different to those countries in the Eurozone.
BRITAIN DID HAVE AN OPTION. When you have high debt and the economy has just collapsed then of course the Debt-GDP ratio rises automatically. Now how do you get it down. I would say and a Keynesian would say you don’t get it down by shrinking the economy further. That will cause it to rise. You have to find some way of getting the GDP up, then the Debt-GDP ratio will sink. That is very, very, very clear in my mind, events have borne it out. What we’ve had is a great experiment in the application of a particular economic philosophy which Niall agrees with. He says ‘Oh this is a temporary blip’ and in a year or so we will be back to buoyant growth.
(Niall Ferguson)
I don’t think it will be buoyant growth. It is a debt mountain. Debt-to-GDP is up there with Japan. It’s 600 per cent if you include public and private debt. That’s pretty important Robert, it is unprecedented in history. Anybody who thinks you can magically go back to 4 or 5 per cent under such a burden is deluded. Almost as deluded as the people who think Britain had a Keynesian option in 2010.
AMERICA
(Presenter)
You argued the United States could also face these spiralling interest rates and worries about borrowing. That certainly hasn’t been borne out. American borrowing costs have been plummeting. Why do you think that is?
(Niall Ferguson)
The massive flight to safety. If the rest of the world — particularly Europe — which is as large if not larger than the U.S. — is self-destructing. Investors seek the safe haven of the U.S. Treasury. It doesn’t guarantee you much capital but at least you get your capital back.
(Presenter)
Does the U.S. have more leeway to do infrastructure projects?
(Niall Ferguson)
It always has had more leeway. I said that the crisis that was happening, this goes back to two years now, this would spread to the Mediterranean and might ultimately cross the Atlantic.
(Robert Skidelsky)
I don’t think so. I think the United Kingdom has more leeway than America because it isn’t a reserve currency. It can allow its currency to fall, to depreciate without anyone taking countermeasures. In the United States China doesn’t allow it to happen.
(Presenter)
You would want more government spending across the western world to boost growth?
(Robert Skidelsky)
I WANT COUNTRIES TO SUSPEND THEIR FISCAL PROGRAMS. PUT THEM INTO COLD STORAGE. GET THE ECONOMY GROWING AGAIN. THEN FACE THE STRUCTURAL PROBLEMS. If you do it now you will simply get a shrinking economy. That’s my prediction, I predicted it two years ago.
(Niall Ferguson)
I don’t think that option exists for most countries right now. It certainly didn’t for most European countries, it might exist for Germany. The argument made by Reinhart and Rogoff since they published ‘This time is different’ — once you get upto a Debt-GDP ratio of 90 per cent the room for manoeuvre is gone. That is the situation in the world. | 
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