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LISA MULLINS: Well, it's certainly not getting any easier to send those Germans east to work. The economies of Eastern Europe are tanking just as badly as they are in the West. And that's especially painful when you consider this: Eastern European countries had shed communism and moved to freer markets generally with success. Now, some people there are starting to wonder about the direction their economies have taken. Economist Simon Johnson is a senior fellow at The Peterson Institute for International Economics and a professor at MIT's Sloan School of Management. We're hearing here, Simon, some bad economic news from Wall Street, but compare that if you will to the impact that this global financial crisis is having in Eastern Europe?
SIMON JOHNSON: Well, the situation in Eastern Europe – or East-Central Europe as some people like to call it now is really terrible. They're looking at you know, a big fall in output and GDP. They're looking at serious problems throughout their financial system, and there's no end in sight. It just continues to get worse pretty much across the board.
MULLINS: And we're not just talking about bailouts here in the United States. There's talk of bailouts with the European Union for particular countries as well.
JOHNSON: That's right, because they can't afford to handle the bailout internally. They just don't have enough money. They have too much foreign debt, so they're looking toward the European Union. The European Union is trying to avoid catching their eye and pointing somewhat vaguely in the direction of Washington, meaning the International Monetary Fund. And there's certainly got to be some assistance in that direction, but whether it will be enough and whether it will come quickly and in a form that really saves the day, or – I mean, we're talking about millions of people potentially being plummeted back into poverty.
MULLINS: Well, what position does that put the International Monetary Fund, where you used to be chief economist – what position does that put the IMF in?
JOHNSON: Well, the IMF is on the spot. And there's something of a tidal wave of applications right now. The IMF is trying to raise more money. The managing director of the IMF needs $500 billion dollars – that's twice what it has right now. But with the problems and the scale we're talking about, and the worsening of these issues now moving beyond East-central Europe, quickly heading toward Western Europe, to me personally, I think $500 billion is not enough. I think the IMF is going to need more than double that, close to a trillion dollars just to get through the next 9 to 12 months.
MULLINS: And what does that mean for the United States as it looks to these countries on all different levels? What's at stake here?
JOHNSON: There's a huge amount at stake. If you look very directly at President Obama's budget which was unveiled last week, that is predicated on the assumption that we get growth back in 2010 within a year – get it back to a respectable rate. That is not possible if the European economy heads into a major downturn, further downturn, which is what we're talking about coming out of these developments in East-central Europe and the lack of preparedness in Western Europe. So it is a very tough piece of economic diplomacy ahead for President Obama, because the Europeans don't want to talk about this, even among themselves. They certainly don't want to get hard words from the United States. And of course, they'll turn around and start wagging their finger at the US and say, “You started this,†and so on. It can easily become unproductive. But we're really talking about – what's on the line is whether or not the world economy can recover in the foreseeable future from its current problem.
MULLINS: All right. Economist Simon Johnson, senior fellow at the Peterson Institute for International Economics and a professor at MIT's Sloan School of Management. Thank you very much.
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