SKY NEWS – JEFF RANDALL LIVE – 4.10.11 – 20.00 – INTERVIEW WITH GEORGE OSBORNE

JEFF RANDALL:

Angst ridden markets were given even more reason today to fret over the Eurozone crisis.  An emergency meeting of European finance ministers has delayed a key decision over whether Greece will get the next instalment of its multi-billion euro bailout.  The announcement has raised fears that Greece could soon default on its debts.  Fears that the Eurozone’s problems are about to enter a new and more dangerous phase sent shares tumbling again, at the same time France and Belgium were forced to guarantee the finances of troubled banking giant, Dexia, after its shares slumped on talk that it will have to  be broken up.  All that helped push the FTSE100 down by 2.6% while the DAX in Germany fell by 2.9% and France’s CAC Quarante lost 2.6%.  On Wall Street the stock market trimmed losses after the US Federal Reserve Chairman, Ben Bernanke, said that he would take further action to help shore up the American economy.  Well within the last hour I spoke to the Chancellor George Osborne and began by asking what, if anything, had Europe’s finance ministers decided to do about Greece?

GEORGE OSBORNE:

Well it was a long meeting in Luxembourg and we of course talked about the situation in the Eurozone, particularly the situation in the banks in the Eurozone and today we’ve had the news of the problems of Dexia, the French-Belgian bank that has got itself into trouble.  I’m not pretending that we had by the end of the day a solution to the Eurozone crisis, much to my frustration, but I think we did take some steps forward, I think everyone now of course is aware of the gravity of the situation in the Eurozone.  I think there is particular focus on the challenge of making sure the banks are strong enough in the Eurozone and it is a confidential meeting so I can’t tell you all the details of what’s discussed but I am confident we are moving forward and for the UK Chancellor, not being in the euro, I am more and more convinced that the biggest single boost you could make to the UK economy this autumn would be a resolution of the Eurozone crisis.

JEFF RANDALL:

Do you think your fellow ministers understand the state of mind of the markets because every time you emerge from one of these meetings and say no decision yet, the markets crash.

GEORGE OSBORNE:

Well I think what people understand is that they have been behind the curve.

JEFF RANDALL:

Ministers have?

GEORGE OSBORNE:

Ministers, well the Eurozone governments, let’s not personalise it, the Eurozone governments have not done enough to convince markets … They only have to convince markets in a couple of respects, first of all that they have got the fire power, the financial fire power to deal with the situation and …

JEFF RANDALL:

And do they have that, because without German backing they’re not going to get it are they?

GEORGE OSBORNE:

Well I think they now need to maximise the impact of the so-called EFSF, the financial bail-out fund that they are creating and that the German parliament for example just voted for a few days ago. They understand they need to create a bigger firewall, more fire power and …

JEFF RANDALL:

That is 440 billion isn’t it?  Do you think that’s enough?

GEORGE OSBORNE:

Well I think they need to find ways of making it a larger fund.  Now there are ways of doing it, you don’t necessarily have to put more money in, there are ways of leveraging out and in the end Britain has kept itself out of that fund so Britain has to respect the right of those who have put their money up to work out how best to maximise the fire power of that fund but second, there is an understanding now that more needs to be done to strengthen the banks and frankly get some capital into some of those Eurozone banks.  Now obviously that can be done through raising capital privately as well as having national backstops but I think those things are understood.  The final point is that there is still Greece sitting out there and …

JEFF RANDALL:

Precisely so.

GEORGE OSBORNE:

And what I say to them in private is actually what I said in public to the Conservative conference yesterday which is whatever they decide on Greece, and again you’ve got to respect, it’s their currency, they’ve got to make their own decision but whatever they decide on Greece, they have got to make that decision now and stick to that decision instead of this endless speculation about whether or not they’re going to change course with Greece.

JEFF RANDALL:

Well tell us about Greece because it’s expecting the next tranche of bail-out money, €800 billion, the markets hoped for some news on that today but the decision has been put back, why?  

GEORGE OSBORNE:

Well the decision was put back by the Euro Ministers who met last night, they’ve always met separately from the EU27 that Britain is part of, and they are still awaiting the report of the so-called Troika, this is the IMF and the European authorities who are in Athens assessing the situation but look, if you are telling me do they need to get on and make decisions about Greece, I completely agree with you and that was my message today to them.  We’ve got to end all this speculation, this week by week story of what’s going to happen next, they have got to make those decisions and stick to them.

JEFF RANDALL:

But you can see where this story is going because the so-called Troika want action from Greece, Greece is not meeting its obligations, the deficit is not coming down as fast as people had expected or demanded so the money is not forthcoming.  This is now almost a vortex sucking Greece into default, it’s going to default isn’t it?

GEORGE OSBORNE:

Well I don't think we are there. What I would say is …

JEFF RANDALL:

Not yet but we’re heading there.

GEORGE OSBORNE:

That ultimately has got to be a decision for the Greeks themselves and the Eurozone.  What the Greeks are saying and what the Eurozone is saying at the  moment is that we have a plan, we have a programme.  You say that Greece is doing nothing but actually the Greek government has taken some unbelievably difficult decisions on taxation and …

JEFF RANDALL:

I didn’t say they were doing nothing but they are behind the curve. 

GEORGE OSBORNE:

… they have taken some decisions on public expenditure in the last couple of days so I think it’s easy to sort of sit here in Manchester and say the Greeks have done nothing, they have done some unbelievably difficult things for a government to do but if you are telling me, have they ended the speculation about Greece?  Clearly they haven’t because here we are talking about Greece and they do need to bring that speculation to an end, they need to make their decision.  Now if their decision is stick with the programme, Greece is doing enough, the Troika thinks they are doing enough, fine.  Let that be the decision but let’s not find ourselves in a situation in a couple of weeks’ time when we are speculating again.

JEFF RANDALL:

Can Greece simply run out of cash?

GEORGE OSBORNE:

Well Greece has got a programme, in other words it has got a …

JEFF RANDALL:

Yes, but it’s not meeting the conditions of that programme.

GEORGE OSBORNE:

Greece doesn’t run out of cash if the Eurozone and the IMF go on providing it with cash.

JEFF RANDALL:

And will they?

GEORGE OSBORNE:

Well that’s the decision that is currently being assessed by the Troika …

JEFF RANDALL:

But you’re an insider, you get a feel for these things.

GEORGE OSBORNE:

I’m not going to pre-judge the decision of the Troika but in the end it would be a conscious decision of the international community not to provide the latest tranche of money to Greece.

JEFF RANDALL:

I must say, Chancellor, you don’t sound very confident that Greece is not going to go bust.

GEORGE OSBORNE:

Well, look, what I’m confident of is that the international community recognises, particularly the Eurozone, recognises the gravity of the situation.  They are gripping it, these are decisions that require political will and that political will is there.

JEFF RANDALL:

You mentioned the banks, clearly the banks and Greece are interrelated, part of the Greece bail-out effort requires private banks to take a so-called haircut, a discount on the money that they are owed, 20%.  That now seems to be completely insufficient, the Germans want those banks to take a 50% discount.  Do you agree?

GEORGE OSBORNE:

We are still trying to bring together – and I say we, this is again primarily a Eurozone effort but they are still trying to bring together the so-called PSI, the Private Sector Involvement, that was negotiated on 21st July this year.  Now they need to get the 90% or so banks that they said they’d want to sign up to this, they are in the process of bringing that together. I don't think we can say here and now that they have not succeeded in that, I think they are trying extremely hard to deliver on the July deal and the July deal had two components.  One was that national parliaments in the Eurozone would legislate for changes to the Eurozone bail-out fund but the other part was that the private sector would make a contribution through so-called haircuts.  That is currently being worked on and I don't think we can say today that it’s not, I think it would be jumping the gun to say they won’t be able to get there.

JEFF RANDALL:

Look, I understand that you want to appear diplomatic for all the right reasons but in the end the European financial system, because of the banks weaknesses, is at risk is it not?

GEORGE OSBORNE:

Well of course there is a real tension in the European banking system.  Today we’ve had the news that a large Franco-Belgian bank Dexia has got itself into trouble so of course there are tensions there and there is a feedback loop, there is a link between weak banks, weak sovereigns and people’s question mark about whether those sovereigns can stand behind the banks so absolutely this is the danger we face in the Eurozone and that’s why I was saying at the beginning of this interview that the two things that need to happen is first of all you need to have the fire power to stand behind the sovereigns but you also need to have a stronger banking system.

JEFF RANDALL:

You talk about fire power and solutions and political will, it seems to me that all roads lead back to Germany because whether it’s Eurobonds or greater fiscal union or a bigger bail-out fund, in the end if the Germans don’t bankroll it, it ain’t going to happen and it seems to me that the Germans are not going to bankroll it, they’ve said enough, have they not?

GEORGE OSBORNE:

Well I think to be fair, well firstly you’re right that Germany is the most important player of the Eurozone member states but I think you’ve got to remember, and this is one of the challenges of the euro, there are 17 governments and it is sometimes I think easy to say look, this is all about Germany.  One of the discussions that dominated the Eurozone dinner last night was around providing collateral for Finland, so in other words there are other member states who have issues, whether it is Finnish collateral, the Dutch have issues as well and one of the things that has to emerge from all of this is a better way of operating the euro, better governance, arrangements, so we don’t have this at the moment situation of 17 member governments trying to co-ordinate their budget policies.

JEFF RANDALL:

Chancellor, we’re running out of time, finally doesn’t the Greece situation completely vindicate those who say look, if you shrink an economy via budget cuts, in the end the deficit gets worse and not better?  That’s the Ed Balls line and Greece appears to be proving him correct. 

GEORGE OSBORNE:

I completely disagree.  I would say whether it’s Greece, or more to the point the questions that have been asked about Spain and Italy and their market interest rates, the events of recent months have completely vindicated those who said Britain, given it had a bigger budget deficit than the rest of them, needed to get on top of its debts, convince the markets and while I was giving my speech yesterday to the Conservative party conference, while I was actually on my feet, Standard and Poor, the credit rating  agency who downgraded the US, confirmed Britain’s triple A credit rating.  So I think we’ve proved in Britain that you can get on top of your debts, you can convince international markets, you can secure your credit rating, you can keep your interest rates low and that in the end is the key because the biggest stimulus that the British economy can have at the moment is low interest rates and if you didn’t have low interest rates, if those rates went up, then the money that you would withdraw from the economy, from families, from businesses, would far outweigh anything that a national government could spend through its budget.  So low interest rates are an absolutely crucial part of a credible plan to get the economy moving.

JEFF RANDALL:

George Osborne.