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Europe's leaders are holding an emergency summit on Greece. It's a meeting that could make or break Greece's future in the euro. Meanwhile, Greek citizens continue to struggle with the strict controls on their bank withdrawals.
Banks are quickly running out of cash, and there are growing concerns about what will happen to people's savings. Banks have been closed for more than a week and cash withdrawals have been limited to 60 euros a day.
Here & Now's Jeremy Hobson gets some insight on the crisis from economist Lawrence Summers, who served as treasury secretary in the Clinton administration.
Interview Highlights: Larry Summers
On which side will budge first, the European Union or Greece
“Both sides need to make adjustments. Both sides will get more of what they fear if Greece leaves the euro. If Greece leaves the euro, the new Greek currency will be massively devalued, which will mean very large reductions in pension payments, in real terms, very large reductions in the purchasing power of wages of Greek workers - the things the Greek government fears the most. If Greece leaves, that’s going to mean default of the large part of the debt Greece owes. That could ultimately be much more expensive for the Europeans than the debt relief that Greece is seeking. So both sides have a very substantial interest in reaching a deal.”
On the European Central Bank's role in the conflict
“If there is a hero in this tale, it is Mario Draghi, the head of the European Central Bank. He is doing the right thing. He is not being the one who makes a final decision that Greece has to leave the euro, because that should be done by political authorities, not the head of a central bank, on the one hand. And on the other hand, he is recognizing that there are limits to what Putin’s central bank can do in terms of lending money where creditworthiness is very much in doubt. So I think his approach of keeping the program open, not raising the limit, and increasing the realism of collateral requirements is a very reasonable and balanced one.”
On what's at stake for the U.S. if Greece leaves the euro
“It’s a problem for the European economy - just how large a problem nobody knows, but if the European Union is no longer an undividable union, that will increase uncertainty premiums that will take a cost in terms of economic growth. You know, President Truman declared the Truman Doctrine a central part of our Cold War strategy over Greece. And so given its location, Greece is geopolitically important, being on the southeastern tip of Europe. So we have a take in it being the viable growing state that’s part Europe rather than a free-floating and perhaps collapsing state poised as it is near Russia and the Middle East. We have a stake in that as well. The American economy will survive - whether or not it flourishes will not depend principally on what happens in Greece. But I think our broad security interests and our relationship with Europe, which depends on European strength, are very much implicated on what happens in Greece.”
On the recent slump in Chinese stock markets
“If you look at Chinese stock prices, they rose very, very rapidly. There wasn’t on most views a proximate increase in the fundamentals. There were kind of signs one associates with bubbles - very, very high volume, fast turnover among first-time investors, increasing use of leverage. I think a Chinese bubble is a real issue. The government seems to be trying very hard to prop up stock prices. I understand that in a society that depends on confidence, that’s the urge to try to prop up markets. But I think the lesson is, when you try to prevent the bubbles from bursting, you often set the stage for more serious troubles down the road.”
This segment aired on July 7, 2015.
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