) - Former


Vice-Chair Bill Rhodes spent the greater part of the 1980s and 1990s helping Latin America and Asia resolve their debt problems.

So when he first heard about the problem in Greece in December 2009, he warned the Euro zone leaders at the World Economic Forum that they needed to move quickly on Greece or contagion will spread rapidly. But those efforts were in vain.

"They were in denial," Rhodes told


. "They said, 'oh this is different. We are mature economies. We can sell our problems very rapidly.'"

Now in a book called "Banker to The World- Leadership Lessons from the Front Lines of Global Finance"- the veteran financial diplomat shares lessons he learned as he worked with governments and creditors in Brazil, Nicaragua, Argentina and South Korea, among others.


spoke to Rhodes about the European debt crisis at his office in New York on Monday Nov.21. The interview below has been edited for length and clarity.

TheStreet: What would be your advice to Eurozone leaders, given your own experience in dealing with contagion in Latin America and later in Asia?

Bill Rhodes:

First of all, every country is different. There is no cookie cutter approach. Greece is different from Ireland, Ireland from Portugal, Portugal from Spain and certainly all of them from Italy. The one constant among all of them is contagion.

When I tried to tell the Euro leaders two years ago at the world economic forum in Davos in 2010 that they better move quickly on Greece- I also mentioned this to Prime Minister Papandreou- because if not contagion could spread very rapidly. But they were in denial. They said, 'oh this is different. The problem with you Bill is that you have been dealing with Latin America and Asia...these are emerging markets. We are mature economies. We can sell our problems very rapidly. We don't need lessons learned from emerging markets.' Unfortunately I was right.

TheStreet: Should the European Central Bank step in more aggressively with their bond purchases, essentially print money?

The Europeans made a famous announcement in July 21 this year, which was supposed to resolve everything. They were going to give additional funding to the stability fund and the stability fund was going to step up and buy bonds where necessary to take the ECB out of that role. Because the role of the ECB is price stability- it is not going out and buying bonds.


The problem is it took forever to get the approval of the 17 countries for the additional funding of the stability fund.

They have in ECB a monetary union, but they do not have fiscal union and you need both. The original idea in the Maastricht Growth and Stability Pact was that countries will be limited to having deficits of 3% of their Gross National Product. And who was the first to break it? The two biggest- France and Germany. They set a terrible example for the rest. So Maastricht was thrown out the window and since then they have had no real handle over the deficit side.

So I think all these discussions about the euro zone finance leader, penalties which the Dutch are pushing- where if countries did not live upto a certain percentage say 3% on the fiscal side and have their house in order they could be expelled.... I think that is what is going to happen in the long run.

TheStreet:You have been arguing that the International Monetary Fund should take a more central role in the discussions.


One of the things I have suggested is to get a trust fund at the IMF. The fund today does not have the resources to tackle the problems at hand. Because it is not just southern Europe. You have problems in north Africa, Hungary now says it wants a fund agreement. We don't know who else next will. They don't have enough resources for all of this.

So what I have been suggesting is the formation of a trust fund with China, India, Korea, Brazil, Saudi Arabia, the Gulf countries...could put money in, but managed by the IMF. Because the truth is these countries do not trust the European leadership enough to put money directly with the Europeans. So this is the role that the IMF could take because in the past crises in Latin America and Asia, they were the anchor to the financial system and everyone felt that with the IMF you had the knowledge, the ability and the experience to really implement programs that will eventually end up in sustainable growth.

TheStreet:The market is bracing for a breakup of the euro. Is that an outcome we should prepare for?

I think that they will be eventually be able to get their act together sooner rather than later. But it is not going to be easy and there will be a lot of casualties along the way. I always find that what gets countries/governments/institutions into trouble is often ignorance, arrogance and then it is replaced by fear.

And when there is enough fear, then people start taking steps. For instance, Germany Chancellor Merkel is now trying to amend the treaty to enforce the fiscal side, which I think is imperative to keep the euro going. At the end of the day they are going to do it but it is not going to be easy and I think a number of institutions are going to suffer substantially and it is going to be a weight on the market worldwide.

TheStreet:Should the crisis in Europe change how banks like Citigroup look at sovereign debt?


Well I think we

Citi have been very careful on it and of course we have this tremendous international presence which is a strength because it gives us the support of the emerging markets.

One of the things we saw here two years ago was the regulators took tough steps in their stress tests and all of the banks raised substantial capital including ourselves. That is not the case in Europe.

I think the major concern coming out of all of this is what this will do to the banking system's willingness to lend in Europe. And I think it is going to be affected. So what I see going on in addition to all that is going on with Basel 3 on the regulatory side is that Europe, which is already in stagnation except for Germany pretty much, could go into a recession, which will be a drag on the markets.

Here in the U.S. I think I have said right along we will not go into a recession. We had a 2.5% growth I think we will get something in the quarter we are in right now. I think the lack of going on with the super committee is going to have its impact. So 2012 is more of a question mark. But I think we got to come to some solution here also. We have the reserve currency of the world so we think we can keep putting it off, but we can't. And the market is going to move against us eventually if we don't get this resolved.

TheStreet: What is your outlook for banks in 2012, given the uncertain economic outlook?


In the case of Citi, what is our real strength is our globalness. There is no other bank in the world that has the position around the world in emerging markets that we do.

Emerging markets are the future, I think the world is going east, it doesn't happen overnight, but it is happening and we are well positioned there. I think for the time being, people are concerned about financials for all the reasons we discussed, but over the medium-to-long long term banks with a more diversified base will do better.

TheStreet:There was a time when Citigroup's exposure to emerging markets exposed it to all the sovereign debt problems that those markets had. Do you think that risk still exists or have emerging markets learned from their mistakes?


Well, I think the market place in the world is tied together more closely than ever. But at the same time I think that a lot of these, I think a lot of these emerging markets came through the Latin American debt crisis, the Asian financial crisis and they learned. And they are very cynical some of them, saying 'you know we went through these and the Europeans and Americans pontificated to us, telling us what to do and not to and look where they are today. They feel this particularly strongly about this against the Europeans, even more strongly than they do about the Americans and you know what? They are right.

--Written by Shanthi Bharatwaj in New York

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