Tom Keene's EconoChat

Tom talks with Jagdish Bhagwati, senior fellow for international economics at the Council on Foreign Relations, about trade, Germany, Greece, and the euro

We’re not a multilateral world when it comes to trade right now, are we?
Certainly not in the U.S. because I think the president has turned extremely skeptical of the Doha Round, which was a round of multilateral trade negotiations. He allowed it to lapse by succumbing to a number of lobbies which wanted more and more.
Is the divergence of Europe really about a trade juggernaut—Germany—and everybody else?
To some extent you are right, but I would just simply say that we shouldn’t dump on Germany too much. Germany has benefited from a common currency, meaning a fixed exchange rate system. But just think about Greece. Even if it could adjust its exchange rate as much as anybody would like, their basic problem is excess spending. They would never be able to balance the current account.
Do you think Greece stays in the euro or, as professors Nouriel Roubini and Martin Feldstein say, Greece can exit because it’s a service economy?
They underestimate the political determination of Angela Merkel to really hold it together. If I was talking purely as an economist, I would side with them, absolutely. But Angela Merkel has seen the unification of Germany and knows how much it costs and how much it means to really abandon the euro.

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