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The Financial Crisis: The United States And Europe After The Storm

Speaker: Giuliano Amato, Prime Minister Of Italy, 1992-1993 And 2000-2001; Minister Of The Treasury Of Italy, 1987-1989 And 1999-2000
Presider: James F. Hoge, Peter G. Peterson Chair And Editor, Foreign Affairs
April 15, 2009

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JAMES HOGE:  Okay, I think we're all here now.  So welcome, good evening, and welcome to this session, this meeting of the Council on Foreign Relations.

Just a few procedures.  First, as you notice, I have a little red light on here.  These mikes operates this way.  When you have something to say -- (inaudible) -- and when you're finished, press -- (inaudible).  And then the next speaker can -- but we'll get to that after we've heard from our distinguished speaker for awhile.   Many of you know, I think, Giuliano Amato.  If you don't know him personally, you'll certainly know him by reputation.  He's one of the most distinguished public servants and scholars in Europe.  He has served twice as prime minister of Italy, twice as the Finance minister.  He's held a number of other government posts.  He's held commission posts, and he's also quite a scholar.  He's written several books, and he teaches both in Europe and here.  In fact, he's here this week, I think, at Columbia University teaching a seminar.

So Giuliano is going to speak for, you know, a few opening remarks, then we'll have a couple of questions back and forth, and then we'll go to the room for discussion.  And we'll be out of here at 7:00.

Giuliano, the floor is yours.

GIULIANO AMATO:  Thank you, and good evening to everybody.  I can speak of whatever I love --

HOGE:  Yes, that's true.  (Laughs.)

AMATO:  -- because as far as you said, I mean -- now, the topic remains as expected.

HOGE:  The topic remains as expected -- The Financial Crisis: The United States and Europe After the Storm.  As you can see, Giuliano is very much an optimistic.  He's telling us that the storm, at some point, is going to end.

AMATO:  Well, now, of course, it will.

HOGE:  (Inaudible) -- right?

AMATO:  I'm not saying that we already are after the storm. I'm thinking of what we can do for the future for facing not the so- called emergency but the rebalancing of the unbalances that were the origins of this crisis.  Let me touch upon three points and then we can discuss among us some of these things.

First of all, will we have socialist regimes?  Or will we remain liberal democracies, et cetera?  I consider this kind of discussion completely silly, and I don't take part in it.  And I think that there are (transparently ?) reasons for some people to raise these sort of issues for the simple reason that there is now a sort of overindulge of public intervention.  Quite clearly, we have never seen so much money and so many public actions interfering with private activities that we are, let's say, conceiving now.

But the reason is quite clear.  There is an emergency, quite an emergency, and this is an exceptional kind of intervention that is typical of similar moments when, let's say, the last resort, when a last resort is needed. Necessarily, the last resort is the government, the state, public finances independently of the economic regime of the country.  This is what tends to happen.

And it is quite clear, therefore, that any kind of discussion about the market versus the state, et cetera, tends to be more ideological than realistic and useful.  (For sure ?), my opinion on these, I tend to be very, let's say, candid and sharp, is that due to several reasons that we might also explore if we want to together this evening, the financial market was much less than a market in the sense that several activities were allowed in that market that in no other market would be admissible.  In other words, there was and still there is a very, let's say, lenient, benevolent regulation that somehow authorized supervision authorities to be very much, let's say, in a sort of self-restraint in using their powers, due to which lack of transparency, excessive risks, financial products that should not future rate that were future rating among favorites, et cetera. Several things happened in relation to which an excessively deregulated market had somehow deemed the cause of an excessive public intervention to remedy the consequences of that kind of market.

What will remain?  What will remain, I would say, well, a financial market that will be much more similar to the other ones than it previously was.  And therefore, not a known market but a market with better regulations.  As I happened to write about the first consequences of what happened in that market while all of us were concerned for the Chinese milk where glue was found, and I simply underlined that while it was prohibited to producers of milk to put glue in it, it is not prohibited to producers of financial products to do the same thing.  And I did.  I mean, so, I don't think that communism is needed, just regulations no different from the ones applicable to the milk market.  And this would be more than enough for the future and very (expected ?) for the future to happen.

At the same time, I'm noticing something new.  There is somehow in the kind of public intervention we are having now, which is somehow the legacy, the interesting legacy, of the previous, let's say, let us call it Reagan-Thatcher era, we owe to Reagan-Thatcher the fact that since they arrived, nobody dared increasing taxes anymore.  You may read the lips of your leaders, but even that might be objected to. And increasing taxes has become a sort of exceptional and possibly to- be-avoided kind of action.

If the money of the taxpayer is somehow used, transparency is required even more than in the private sector.  What are you doing with my money?  Years ago, we privatized in Europe several publicly owned companies and activities because the perception was that public officials could waste the money of the taxpayer with no transparency at all; and therefore, private is better, private is more transparent, privacy is the no-waste kind of system.

If you think of the stock options, bonuses and these things and the reaction that there was against them immediately after the money of the taxpayer was involved or could be involved in paying these benefits, you get the impression that nowadays governments using taxpayer money are forced to be transparent and accountable more than the management of private companies in using the money of shareholders.  In other words, there has been something nowadays in corporate governance that is the source of (sure countings ?) in these areas worse than the ones that we might have in the use of the taxpayer money in the public sector.

This is something new.  This did not happen 30 years ago, and it's an intriguing mixture of Thatcher- Reagan philosophy and the renewed need of public intervention, so I leave it there.  But it might be the source of interesting, let's say, implication.  The second point, very shortly.  Where these shortcomings were in the financial market only or also in the economy?  This is the more interesting point than the dilemma between the market and the socialist economy.  But it is equally, let's say, not very problematic in the sense that it is quite obvious that there were several shortcomings in the financial sector, but there were economic -- (inaudible) -- this, undeniable economic rules.

And therefore, I found it a little bit funny that the G20 was initially so, let's say, controversial, Europeans on the one side and the Americans on the other side, fighting on this point.  Frankly speaking, I found the Europeans and mostly France and Germany a little bit (perilous ?) in asserting their points.  We want finance to be punished for what they did, you Americans only care about the surplus countries, et cetera!  I mean, this was a complete nonsense in my view also because those who read reports, papers, et cetera are well aware that when the G20 began there was already an agreement both in the U.S. and in the U.K. for the kind of measures that had to be taken to reach towards some sort of some regulations in the financial sector. And eventually, the G20 took note both of the need of the these regulations in the financial sector and of the reason that the Americans wanted to state for the crisis.  And in the final communique, there is something that refers to the export surpluses of some countries with enormous export of capital which flood in the deficit countries.  We know that this is.

But if these are the reasons really, we had, I think -- and I go to my conclusion -- quite clear ideas as to what to do, as to what has to be done in relation to financial activities, to better regulations in the area, much less in relation to the economy.  Because of sheer, let's say -- if I read the communique of the G20, I understand that the Americans rightly succeeded in giving the necessary priority and attention to what is called the fiscal stimulus.  Of course it's needed because without, let's say, pumping resources into these weakening economies, so many economic activities might literally die, disappear, be erased.  And it is not easy to restore lives after that. It is a little bit easier to, let's say, take care of a sick economy than a dead economy.  This is absolutely obvious.  And I think that what is being done in this sense makes a lot of sense.

But what we are doing at the moment, what this country at the moment is doing, is transferring private debt toward public debt which, again, it's acceptable.  It's a price to be paid.  But what about the future?

In an article that, frankly speaking, I deeply share, that he wrote in the Financial Times a few days before the G-20 Martin Wolf was really pessimistic as to the possible outcome of the meeting and he happened to be right.  He said, the Americans are right, the basic reason of this thing is the unbalance between the mostly three surplus countries -- China, Germany and Japan, and the deficit countries, mostly the U.S.

So, now we care about correcting financial regulations.  Now we care about fiscal stimulus to keep our economies alive.  But, he wrote, "The world economy cannot be safely balanced by encouraging a relatively small number of countries to spend themselves into bankruptcy."  Now, I don't think that the U.S. runs the risk of bankruptcy because of the high public debt, but the sense of this sentence is correct, we cannot rebalance the imbalances by keeping the U.S. at the same level of debt and simply transforming the initial private into public debt, because this means that the surplus countries remain surplus and that the U.S. remains deficit, and here we are -- and here we are.

There are at least two points that we should care, and I find only a, sort of, promise that you understand, at least, I understand, due to my long experience in public affairs, when a sentence in a communique is speaking of facts that are occurring, or is just words. And the core, the main points that Martin Wolf is touching here are dealt with by words.  And the words are, "We will conduct all our economic policies (cooperatively ?) and responsibly with regard to the impact on other countries of what we do, and promote a responsible and stable monetary system.  We will give support to a candid and even- handed IMF surveillance."  This is the U.S. speaking, and saying rightly, we are ready to accept the IMF surveillance, which is a good thing -- which is a good thing in itself.

But, these two points emerge:  What will our countries do to reduce the deficit (prevention ?) of the U.S., to reduce the export (reliant ?) kind of (prevention ?) of Germany and China mostly -- how they reorient their economies?  The only one doing something is perhaps your president in this country.  But, it does not end this point here, if he really does something to redistribute -- let's say, domestic income, by what is being done in the taxing sector, and by reforming the health system.

It is a widespread opinion that too many American families have to use, necessarily, debt, and not real income, to satisfy their needsbecause most of their income goes to basic needs that, in Europe, are covered by our welfare institutions.  And, therefore, education and health are too expensive for many families and, therefore, only the credit card remains.

Rebalancing here means increasing the purchasing capacity of the American family by increasing their income and not their indebtedness capacity, which is very crucial for it.  But, China and Germany, what are they doing?  I don't know.

Final point, which is fascinating, indeed, is the point that was raised by the governor of the Chinese central bank weeks ago in a famous paper devoted to the reform of the monetary system.  He says something -- that, in this country, is difficult to accept and discuss, but something probably not realistic, but it's a problem that does exist:  When the dollar was linked to the gold, the main currency had a sort of impartial kind of linkage, that also made the job of those who owned the currency easier, because that job is substantially impossible.

If you are the reserve currency for the world, and you are not linked to anything that is, let's say, objective, there is the dilemma between preserving the value of the reserve currency for the world, and somehow satisfying your national economic interests that might lead you towards another direction.  Now, there are moments in which you can say the dollar is my currency; your problem.  But, if you keep on going like that, the word might be sent, this kind of position.

Now it is quite clear that things are not working, because the U.S. -- and they are, sort of, mixed in a very harsh combination because the U.S., (nowadays ?) and for the future, would need a weaker currency, necessarily, to reduce its domestic consumption and to promote its exports.  But, reducing the value of the dollar also reduces the value of the credits of China, that owns so many Treasury bonds of the U.S.; plus, implies a higher value of the Chinese currency, with the consequence that China would reduce likely its exports, but they are not at all happy with it.

So, everybody seems to be happy with a value of the dollar that is somehow against the interests of the U.S. economy, even though it is in the interest of the Treasury bonds.So, in this situation, the president -- the governor of the Chinese bank says, you know, there were divergent positions in Bretton Woods between Keynes and White.  White won.  But, perhaps we now understand that Keynes was right.

Can we go back to Keynes?  Well, it's a wonderful question. Quite likely we cannot.  But, I think we should discuss whether there is something we can do.  And this gentleman, quite nicely, in his paper -- that I suggest you to read, if you have not, you can find it in the site of the Chinese government paper -- he starts saying, well, a reasonable return could be, in the short run, better monitoring by the IMF of the system (fine ?), including also the U.S. (fine?) --this is accepted, using these Special Drawing Rights, not yet (to the banker ?), the imaginary currency of Keynes, but should we use the SDR?  Should we amend the charter of the IMF in order to allow not only the U.S. and Japan as the main shareholders, but also the others to have their share of the SDRs?  Should the IMF (be able to rise ?) to manage parts of the reserves of the members, et cetera.

It's a fascinating kind of prospect.  And these things, in my view, deserve attention for the future.  In other words, a better macroeconomic coordination between the main economies, and the surpluses and the deficits, and consequently, and at the same time, more coordinated monetary system.  The G-20 said a few words about it, and we should give a hand to our governments to say and to decide more on these things.

HOGE:  Giuliano, thank you very much.  That's putting an awful lot in front of us that we can play with here for awhile.

But, first let me just recognize that we have with us tonight the ambassador from Italy, Giovanni Castellaneta.  Thank you for being with us.

Giuliano, as you mentioned, the Chinese have let us know that they are not happy with the prospect of their rather large investment in American currency to be depreciated.  And one way they kind of underscored their warning to us, I think, was to suggest that the Special Drawing Rights would be a very nice place for a second reserve currency -- or a third, if the euro makes it all the way up.

Now, it's been dismissed here pretty quickly as not practical, but that's only for the immediate future, I think.  And my question to you is, is this a good thing or a bad thing that we start, are beginning to contemplate -- a world in which we'll have maybe two, maybe three reserve currencies?  Is that a -- is that going to lead to a more stable financial situation or not?

AMATO:  Well, Keynes expected to be right, and he happened to be wrong.  Can you imagine what can happen to me and not Keynes? (Laughs.)  And, therefore, I don't even dare to give an answer.

For sure, it is more consistent with the expectations we have on the future world.  All of us say that the future world won't be unipolar, as it has been up to now.  It might not be multi-polar, but at least it's going to be "unipolar-minus," as somebody says, with, let's say, others playing a more active role -- (inaudible) --, if not at the same level of the U.S.

When we have created the euro, I must admit that the expectation has always been that it could become a reserve currency, and it was more if you want -- let's say, appropriate as a reserve currency than as an actual currency without a state, as it happens to be.  If we think of these two currencies not yet competing -- but the euro has been gaining positions throughout the year, having also something above both of them might be, let's say, the natural consequence of what we call a "basket," because if there is a basket of currencies, instead of one only currency, there is an average value, that is the value you referred to.

At that point you could set the SDR as the average of the basket. And these could be exactly what is needed also to give the maincurrency the necessary flexibility.  Because, at that point -- and this is what has to begin, this is really expediency versus pride in the States at the moment.  I still remember that the pound had its (years of pride ?) in the early 20th century before accepting that the dollar was overcoming.

Now it might be convenient because you -- China doesn't want you to devaluate the dollar -- you need a little bit of devaluation to promote your exports.  If our treasury bonds -- yours and ours, are denominated in SDR, at that point you might (have ?), below the SDR, the room to give away to a little bit your dollar without putting the Chinese credit into -- (off mike) --.  So, it could be more stable. Okay, I've said it.  (Laughter.)  It could be more stable.

HOGE:  As you pointed out, if you take a long-term view, one of the real fundamental disequilibriums that has to be dealt with is that we have supplier countries and we have deficit countries, and it's too lopsided.

But, to get from here to there, on both sides of that equation, there are all sorts of obstacles to get over and it's going to take some time.  On our side, we've got to consume more intelligently, which means less.  That probably means taxation, which, in this country, we don't like much.  That's going to take some time, I think. On the supplier side, the Chinese immediately stepped up and said, yes, we have to start developing a domestic economy -- domestic consumers.  That's a decade or more to do.

In the meantime, we've got some potential threats, and I'd be interested in your thoughts about how serious we -- are we going to get out of this great recession without a major "protectionist-in- fact," so to speak, internationally?  The G-20, all the members spoke out against it, but 17 -- the 20 have already enacted one item of protectionism or another.  Social unrest is already beginning to pop its head up.  There have been a number of political protests in Europe -- in Latvia, in Greece, in Bulgaria, and there's probably more coming.

What is your sense of the intermediate period that we have ahead of us, where we're still trying to tamp down the recession; trying to -- and are beginning to talk a good game about some of the big changes that need to be made, but maybe are having trouble coming up with the political will and the public support to make those kinds of changes?

AMATO:  These are risks that we are running, really.  There is no, let's say, optimistic answer that might rely upon undisputable facts -- that I can see, and that you don't see, but I know that.  No, I don't know.  I don't know, and I'm very doubtful about the future.

What I have in mind is that we can make -- we can make it, in the sense that this deep, let's say, "crisis," as we call it, will last for some more months perhaps.  But, if we, let's say, don't havesocial unrest levels difficult to withstand, we can overcome the major difficulties of the moment.

Our, let's say -- of course, there is this risk of stagflation now.  But when, necessarily -- I can't imagine a huge debt like the American one without some inflation after awhile.  I mean, unless in Washington they sleep, and I don't think that they are sleeping.  They are not sleeping at all.  Piling up billions of debt is something that forces you to think, how will I get rid of it?

And you perfectly know that there is one only way out after awhile, and this way out is not difficult because it comes by itself, it is creating liquidity.  It means creating the natural environment for inflation.  And most of this debt is transformed into new liquidity.

Now, people are saving their money now.  They don't invest, creating a crunch, other difficulties -- lack of trust.  I don't give you my money, because I want to keep the liquidity I have, because tomorrow I might use it better.  I mean, banks have -- (inaudible) -- you told me the other day that this is one of the main reasons for bank -- not that they don't tell it -- but tomorrow, we might have better opportunities.

Okay, fine.  So but if I see that inflation is going day after day, this kind of reasoning falls immediately.  Because keeping my liquidity for tomorrow means keeping it for devaluation, which is against my interests.  So inflation is an immediate anti-goal against the current freezing of the financial resources.

Keeping them in my pocket means preserving certainty against uncertainty.  But tomorrow, keeping them might mean the worst certainty -- the certainty of losing value.  And that finds the risk of investment is a much better choice.

So I mean, in my view, this is going to happen.  This is going to happen.  It won't solve the problem of imbalances, because in the immediate -- and this is exactly what the fiscal stimulus itself is trying to do; just to keep the economic activities alive.  I must tell you that, let's say if I look at the difficulties of my country now, well, there are so many activities that are losing ground, but you don't have the sense of a crisis so deep as we saw in the '30s.

Certainly, in Europe due to welfare systems, to social protection, et cetera -- to incomes around that keep existing -- people are not so, let's say, heavily desperate as they were or at least a number of those who are desperate is not so astonishing as it was in the '30s.  Perhaps the situation is different here.  But here you have the let's say highest fiscal stimulus that is being introduced in the world and sooner or later the impact of it will arrive.

What I might be more fearful of is that protectionist measures might be part of these governmental reactions to the crisis -- not all over Europe.  Certainly France.  France is a funny country.  I mean, because they keep defending the setting of our European matters.  They want a commission to preserve competition, not to change, et cetera, et cetera.  But if they are involved, another rule applies.

So I have one only explanation when I try to explain is that France is properly conceded the mother of the European Union and she   is the mother.  But being the mother, she obviously thinks that the rules apply to the children, not to her, because in every family the rules exist for the children but the mother is free.  The mother complies with the rule if she thinks she has to do it.  And so is France at the moment.

But besides France, I must find there is a sort of, we know, a network in the world built with bilateral agreements or regional agreements.  So in a climate like the current one, either we succeed with all -- which seems quite difficult -- or these bilateral and regional agreements will create areas with different shapes and regimes -- almost naturally, I would say.  And therefore, not necessarily national protectionism, but regional protectionism might be one of the outcomes of this season, which might -- thinking of the future -- worsen the imbalances we have.

HOGE:  I want to make sure we get some questions and statements, if you will, from the table.  So we're -- from the roundtable here.  We have about 20 minutes left.

Push the button before you speak and when you've gotten finished, push it again and turn it off.  Give us your name and affiliation and let's try and keep it one question per person and concise at that.

So the floor's open.  Bill.

QUESTIONER:  Bill Drozdiak, the American Council in Germany.

I wanted to ask you, Giuliano, a question about the political consequences of this crisis for Europe.

We've been reading about how Central and Eastern European members -- the new democracies -- are the ones who are suffering the worst. And most economists say the crisis is going to hit Central Europe like a hurricane in about six month's time.

And the way I understand it, a lot of the Western European banks have loaned a lot of the money.  They're now pulling it back.  And this is leaving these countries in Central and Eastern Europe high and dry.

Since you worked very closely with Giscard d'Estaing on Europe's constitution, does this give you pause and anxiety about whether Europe -- the European Union itself -- will be torn apart?

AMATO:  Yes.  I don't think it will be torn apart, but it's going to be a serious problem.  You are perfectly right.

Most of the financial resources that had, say, be exported -- that had gone there are going back toward Western Europe again, not only from banks, but also from private companies in terms of FDIs -- direct investment's very must reduced at this moment.  Hungary is in the worst position at the moment.  It needs aid.  It is being aided both by the IMF and by the European Union.  The lesson that I might draw for the Union is the following, very shortly:  That when we created this integrated market, we mostly relied on the process of economic convergence among our nation states, justifying through economic convergence the reduced "federal" -- in brackets; in quotation marks -- budget that we have at the upper level.

You remember when we created the euro that several American economists told us it's a very risky venture for you.  And a single currency might not be sustainable without stabilizers -- financial stabilizers to be used by the central government in case of asymmetric shock. And we responded:  Don't worry.  There won't be asymmetric shocks in the Union, because due to our convergence and integration, there won't be, let's say, significant differences between our national economies and no shock can be asymmetric in that context, which is true at the theoretical level.  Should you have an integrated and really convergent system of economies, you wouldn't have asymmetric shock.

But the fact of the matter is that the rate of convergence is limited.  And being it limited, it is demonstrated that those economists were right:  We need central stabilizers.  And actually, there is an interesting discussion now -- interesting because in the last -- yeah, it was the last meeting of the European Council, the Hungarian prime minister was the wrong person in making the right proposal.  He proposed a European fund for interventions in case of need.  And of course, he was the wrong person, because people said, well, I mean -- you want 180 billion euros.  Look, look, look where you are.  Take care of yourself and we'll see.  I mean, this was the answer, but the idea was very good and we are discussing it confidentially and Germany is discussing it.

Take note that at the moment, the opponent of the idea is Germany, because whatever you build at the central level, Germany is the main contributor, because it's the biggest European country.  So before the election, Mrs. Angela doesn't want to hear about these things. And she said, no, no, no.  But there are German scholars and experts that are working on this matter -- on a sort of European fund with very rigid conditionalities to be maneuvered at the European level.  This is something that might turn out as possible, after the German elections.

QUESTIONER:  (Off mike.)  It's actually a follow-on question that is always somewhat anticipated.

If we take your analogy of France being the mother, then Germany is the father and you have some of the children in Europe being Greece, Ireland -- countries that are having major economic problems today and some people are concerned -- going back to your point just now -- as to whether or not they have the capability within the euro of sustaining themselves.

How do you view that?

AMATO:  It is a serious problem.  I would say that in principle, I think it can be solved.  Greece is a country where, let's say what we call structural reforms tend to be very difficult.

I still remember that they asked me a couple of years ago to give a talk on reforms just explaining how reforms can be done -- in the sense of the a, b, c -- a process of reform seemed to be needed in terms of explanation.  They have a very weak political system.  Both parties tend to be weak, and therefore, in case of need I don't know whether they have the necessary strength to change what has to be changed.

At the same time, there are clauses in the treaty according to which solidarity is the clause for financial emergence that -- of course, we lack the central fund I was referring to -- but there might be enough for the Union to create a safety net around our weak countries -- depending, however, on external conditions.  Depending on external conditions and which are these conditions?  The market of public (bounce ?), basically.

We don't know as yet what will happen in this market in the following months and periods, because of course, China will absorbmost of the American new tide of bonds -- and it will be quite a tide, huh?  But not necessarily all of it, because there remains a substantial part for the rest of the market.

And also, the others will be more aggressive in this market.  At this point, the market might be very selective in buying, and therefore, the U.S. comes first, then the U.K.  Of course, German bonds -- the few want, because they tend to be very wise, very prudent, et cetera -- but a few German bonds.  But the others -- there will be room to the end for all of these bonds to be bought.

What could happen should some of these emissions of bonds remain uncovered by the market?  So this is the question mark I have no answer for, but it's the fragile framework of the future of these weak European countries.

QUESTIONER:  Yes.  About England and the U.K.:  There was a while ago a talk of possible further integration with Europe and joining the European monetary system.

For a while, the talk has disappeared.  What is your feeling about that, particularly with this crisis?  Any hope?

AMATO:  You know, my feeling is that I get amused whenever I think of my British friends for several reasons.  It's a history of, you know, they say something and the opposite happens, which I enjoy enormously!

Now, I'm considered one of the best friends of the Brits of the European continent. And I am -- frankly speaking -- and I am, but I still remember it was a Sunday, September the 9th or the 10th, 1992. In order to convince Germany to revaluate their damned deutsche mark, we had to accept a devaluation.  So I called around saying to the others:  Listen, guys, I'm ready to devaluate the lira alone, because it's healthy anyhow from my economy and for myself also, but a generalized realignment would be healthier for all of Europe.

No way to convince them.  France had the referendum on Maastricht a few weeks later; and therefore, my colleague, Beregovoy, at the time told me:  No, I can't do anything like that, because it would be an aid to the "no's" and I can't do it.

The U.K. -- the U.K. that was with the lira and the franc, one of the weaker currencies of the moment -- well, I mean, we tried to convince them.  On that Sunday, I called John Major -- not easy to find him, because he was with the queen.  I don't remember which of the venues where the queen spent the weekend. And eventually, I found him.  It was 11:00.

And I said to him:  John, we are ready to devaluate vis-a-vis the deutsche mark.  They will immediately reduce their interest rate, which is something that we have been looking for for weeks.  It will be new oxygen for Europe, et cetera. What do you think?  Because if werealign the lira and the deutsche mark, it might not be enough and we need stability for the future, don't we -- expecting his answer.

And he said:  No, Giuliano, there is nothing we have to do.  We are satisfied where we are.  The pound is stable.  Stability is not at risk as far as we are involved.

Okay, so am I to proceed to with the lira only?  Yes, Giuliano, go ahead with the lira.  Good luck, Giuliano.  I still remember, "Good luck."

Okay, we devaluated the lira -- the only currency -- the day afterward, of course.  Italy -- I still remember cartoons with me flying with a very light lira with the wind, et cetera.

And three days afterwards, the chancellor, the British chancellor called my minister for the treasury, we are lifting up our interest rates to 15 percent.  There'll be something you can do to give us a hand?  I don't know whether my minister responded with love, but something like that.  (Laughter.)

A few minutes afterward, the pound was thrown off the monetary system.  Really thrown off.

Of course, the lira went after the pound.  This is quite obvious. But good luck, Giuliano.  That is -- (inaudible).  (Laughter.)

Now, to finish with this, we have yearly a conference, British- Italian, in Contignano.  And in the latest year, it's the economic unit of -- the economist opens the conference by giving us the main figures for the future of the two countries.

And one of the already-constant figures is that the -- was that the British GDP will be the double of the Italian in 2015.  (Now ?), 2015.  (Now ?), 2015.

When I saw the guy, I said to him, will you repeat it this year? He said, no, because the British GDP might be lower than the Italian one this year, not double.  So that's why I find it amusing.

Having said so, I don't think that they are going to join the (EUDO ?) in the short run.  They really can't, because it's against their nature of islander.  It's -- they have the elections very soon, so it might happen afterwards.

Now, the two conferences are close to one-to-one, so times would be (ripe/right) for them, because Gordon said -- (off mike) -- at least to -- (inaudible) -- one of the conditions.  But I don't expect they to do it.

Perhaps the pound will be much lower than the euro.  They won't do it anyway.

QUESTIONER:  Hi.  I'm Michelle Balfour (sp) -- (inaudible).

What are -- you talked a little bit about this transference of private expenses to the public sector.  Specifically, you discussed education and health.What are the economic inefficiencies created in the European system as a result of that absorption by the government?  Because there's always this discussion of the European taxing rate not being that much higher than the U.S., within a certain floor and a ceiling.

And yet -- I don't know how the United States spends its money, relative to the Europeans, but I do see that the levels of static unemployment are a little bit higher in Europe over time, and that many of our friends who really want to move quickly and grow businesses leave Europe to come to the United States to take advantage of more -- like a fleet-footedness in this country.

So what are the costs of that transfer?  I think I understand the benefits, but I'm not an economist.

AMATO:  He gives me 30 seconds -- (laughter) -- which is not enough to answer to a question like this.

But I would say that, limiting myself to the health systems that we have, first of all, we spend less than the U.S.  Which means that having a universal, as we call it, system reduces private expenditures.

We too, even though we have a universal health system, have private costs that might be contributions that are asked for to the citizens inside the system.  If you buy drugs, you'll give the person a contribution that we call ticket, as you know.  I don't know why it is called ticket, but it's part of the price of the medicine.

If you undergo tests, also the expensive ones, you'll give a contribution.  But independently of it, you may be hospitalized in a private hospital, in which case you'll pay the wider part of the cost of the hospital, and the system contributes less.  So --

But despite the private part of our expenditures, on the whole we spend from 8 (percent) to 12 percent of our GDP in Europe, while you are above 16 percent in this country.

Second point, and I limit myself to the second point, it's not governmental.  So the fact that the public system exists does not necessarily implies that you give the money of the taxpayer to the government, and the government spends it for the health of the citizens.

First of all, the (broad ?) mandatory contributions, so when you pay your taxes, you pay taxes plus the contribution.  It's not a tax. It's called a contribution.  It's mandatory, but it is earmarked.  It goes to the health system.

The health system is a decentralized system.  The government does one only thing -- collects this money and distributes it to the regions and then go to -- in the case of my country, but the U.K. is very similar -- to the health units.  The health units are organized as companies.  So they have an industrial organization; they have their balance sheets.  They have the indicators of performance, as any company should have.

There is one only, let's say, difference from the private sector -- very significant in Italy, not necessarily in other countries -- that there is too political intrusion into the appointment also of the technical figures in the system.

And this is something that goes to -- you remember when Ronald Reagan was injured and in the hospital, before being surgeoned.  He asked the surgeon, are you a Republican?  And the surgeon responded, no, I am a Democrat.

Well, this is very frequent in Italy.  Not that people ask -- (laughter) -- but that the credentials of, let's say -- (inaudible) -- of the officials in our system are political and not only technical. This is a distortion.

But in terms, let's say, of organization, it's not a governmental organization.  And therefore, if there are limits to efficiencies, these are limits that you may find also in the private sector.

HOGE:  Giuliano, I want to ask you a broad question to sort of close out tonight's session.  It has to do with our new president.

A lot of people thought the first extended trip he would take would be to Asia, because that's supposedly the forum for the great economic and political issues of this coming decade or so, or more.

And instead, he went to Europe, and he said lots of soothing things that Europeans seem to accept with a certain amount of gratitude.

But critics of the president's trip are saying he came home with a few things, but essentially empty-handed in substance.  No real give on more support in Afghanistan; a major difference on how much stimulus is needed; some big differences on whether regulatory stiffening ought to be done at the national level or at a higher level.

My question would be this:  Are the fundamental differences, personalities aside, nice rhetoric aside, growing between Europe and the United States?  And if so, could we expect this administration, like some in the past, to sort of, after making a good try, so to speak, turning its attention elsewhere, essentially to Asia?

AMATO:  Well, this turning the attention elsewhere might happen for other reasons, for other reasons that have nothing to do with the important points you touched upon now.

Turning the attention to Asia might be the consequence of Europe remaining somehow lagging behind in the economic recovery of the future, where essential for the U.S. will be an agreement with China, an agreement with the (main ?) surplus country.

Don't forget that Europe is the area that has been growing less, also, before the crisis.  And therefore should we continue to be,let's say, the last one in the pace of our growth, we might remain outside of the big game of the future.

And therefore it is in our interest, actually, to speed it up and to change what has been changed.  But we might remain a little bit outside.

Having said so, I think that the criticism that the president is meeting here has only political reasons.  The opposition has to oppose, and therefore it does oppose.

But I can't see -- opposing what Obama has been doing means not understanding the great damage -- let me be candid -- that the U.S. received in the latest years, in the late eight years, when several mistakes were made.

Among these mistakes -- not only Iraq.  IraQUESTIONER:  was a mistake easily recognized also by those who (didn't have to go ?), and President Bush was  very honest in saying afterwards -- you might say too late -- but he admitted, I made a mistake.

And a double mistake also, because it was technically a mistake, the troops that were sent there, et cetera.

But if I think of Russia, if I think of Iran, if I think of Afghanistan itself, we cannot easily repair those damages.  I am convinced that with a different position, abandoning this axis-of-evil kind of (thing ?),  now we would have an Iran much less intractable than it is, much more involved in some sort of negotiation with us than it actually happens to be.

So Russia -- Russia and the Georgia thing that happened, I can't imagine the same thing to happen without that bizarre idea of putting in Poland a ballistic missile platform aiming at fighting southern countries like Iran once more, and the others.

Now, Poland is close to Russia, not to Iran.  How could Russia react?  What was the sense of it?  Encouraging Ukraine and Georgia itself, on the -- and being in Afghanistan only militarily.  Because militarily we have to be there, but also with a strong, significant, meaningful civilian presence, working for the population of Afghanistan.

Every people who sees us as soldiers, as military forces, cannot sympathize with us.  We are unavoidably the forces of occupation.

Now, the U.S. is -- let me -- I'm not an American, but I love this country, because this country has really spread the sense of freedom and democracy around.  By behaving like this, it has given the sense that freedom is against the U.S., not with the U.S.  Now, this is an enormous damage.Now, he's trying to repair these things, and he's actually doing it.  So the first round, in my view, was a very successful round, in this sense.  In this sense.  He has defused the Russia-kind of thing already.  And this is the result already.

Hopefully, something might come out of Iran.  He's running a risk, of course.  Everybody is running risks.  But Europe understands this, these things a lot.  And yeah --

Despite these, it might happen that our military contribution in Afghanistan won't be as respected, and I understand that this might be a reason to complain with us.  Because your president could say, now we understand each other.  We are based on the same political platform.

But still, the soldiers have to be my soldiers (some day ?), and Europe is older and therefore is more cynical.

HOGE:  Giuliano, thank you so much.  It was a very productive hour.  (Applause.)  Thank you all.

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