Transcripts For CNN Fareed Zakaria GPS 20120513

these days as economic and political protests mount across the continent. the downward spiral in europe has produced a great debate over the virtues of austerity. the idea that government with large budget deficits must reduce these deficits mainly by cutting spending. if they don't get their spending in order, they won't be able to borrow money and will face a fiscal nightmare of ever rising interest rates. the problem is that as governments have cut spending in very depressed economies, it has caused growth to slow even further. do you see government workers who have been fired tend to buy fewer goods than services. and all this means falling tax receipts and, thus, even bigger deficits. so economists like paul say abandon the austerity program, spend more and get budgets in order once the economy has recovered. the problem m minds is that european elites particularly in germany have embraced the wrong economic doctrine. i have to say i don't think europe's elet's, especially journalan elites, have really embraced some alternate view of economics. most do understand that cutting spending during a recession slows down the economy further. but here is what motivates them. they don't believe at all that any of the governments in question would ever get their budgets in order once the economy recovered. they believe that many of these countries in trouble have economies that are uncompetitive, huldzed by bad frame works and by large or inefficient governments with ever increasing entitlements doled out to their citizens. the crisis provides an opportunity to start wholesale reform. markets signal that they are not blend to this these governments unless they take measures to get their houses in order. many germans do seem to understand that economically the smart thing to do might be to spend now and to cut later. many in europe especially in germany believe that later will never come. governments spend in bad times and then spend more in good times. the disagreement may not really be over economics, but over politics. this is a sad state of affairs because what many people are worrying about is whether democracy -- after all, politicians have gotten elected over the last four decades in the west by promising voters more benefits, more pensions, more health care. the question is can they get rekt elected offering less. that's what stops many europeans from abandoning austerity and embracing another round of stem husband spending, and i think these worries are shared by many in the united states as well. let's get started. it's been a big week in europe, and i have some distinguished experts to make sense of it all. peter majdzson is in london. he has not only held top cabinet positions under the labor governments of tony blair and gordon brown. he has also served as a member of the european commission. joseph geoffrey joins us from hamburg. he is the editor of "the german weekly." elaine also joins us. she happens to be in new york, but she is the paris correspondent for the "new york times", a beat she has covered for more than a decade. and david from rounds things out from d.c. he is a regular on the show and a former speechwriter for george bush wrub. welcome all. elaine, let me start with you. you know francois hollande. you have interviewed him. is he a radical? is he a moderate? how does he strike you? >> francois hollande is mr. normal. he got electriced president of france because he promised to be a normal candidate and a normal president. when i was traveling with him in 2007 he was so normal that not -- neither the conductor, nor anyone on the train even recognized him. he is disciplined. he ran the socialist party for over a decade, and he did not make enemies. he is likely to be much more consillatory and moderate than we might expect from a socialist. >> peter mannedelson, you were the architect -- one of the architects of the new labor movement. you helped get tony blair elected, and the effort was by blair and clinton to move the left somewhat to the center and make it more pro-market, pro-trade. do you look at the election of francois hollande in france and the kind of rhetoric surrounding him and many of his proposals as some kind of a swing to the left? >> yes, i think it is. to just put it in simple terms. i'm not sure that francois hollande was over on the clinton-blair bandwagon, but he is certainly not part of it now. that doesn't mean to say that he is a mad cat left winger. he is not. in many senses he is part of france's political establishment, an insider in the sense rather more than president sarkozy was. he is a man of decease ensy and commonsen commonsense. he is a praying mattist. he is also a product of the post-financial crash era which has given markets and business and finance a worse name than it had before. >> peter, do you think this will reverb rate across europe? you understand how these things work. will other politicians in europe look at this and say ah-hah, there is a market for some very strong left wing rhetoric, and i'm going to fill it? >> but have you seen this already with president obama. i mean, his rhetoric and what he says about finance and markets and the need for greater regulation is different from the sort of turn that we had from president clinton and here in britain. you have the new labor leader, a younger labor leader who is very much in the swim of the obama and francois hollande rhetoric and approach. now, what it will actually mean in policy terms is a different question. it will be very interesting to see how the rhetoric of the francois hollande campaign fits with what he now has to do in picking out the exactly the same challenges that france faces and when president sarkozy was in office. >> david from, you look at the election of francois hollande, and you say that you can't really think of this as a left wing reaction to a right wing presidency because, actually, sarkozy in your view wasn't particularly right wing. he was -- >> sarkozy repeatedly failed to undertake the important reforms he promised at the beginning. he had lots of courage, but maybe not a lot of wisdom. can a president who is elected on a promise to be normal deal with europe in the tloez of a crisis of ab normality? it's worth remembering that the first round of the vote the radical rejectionist parties of left and right got a bigger share of the vote together than francois hollande did. in greece the parties that reject -- that want radical change won two-thirds of the vote in their election on the same day. european political elites are telling themselves what we have here, you know, is a normal kind of unemployment problem, some structural reforms will do it in the face of 50% unemployment in spain and rising unemployment radically rising unemployment everywhere else. i think we have to worry about the whole question of european political stability, and i wonder whether francois hollande is the man with the empathy and the charisma and the courage to deal with a continent really in the most desperate economic crisis since the war. >> joseph, you know that much of the rhetoric and the anger is directed at germany. the idea is the germans are the oldest austerity in europe. european governments have been forced cut their budgets. it's causing misery, unemployment. it's even causing bigger budget deficits. but you've sort of defended the german position, isn't it fair to say? >> well, i mean, angela merkel is -- makes for a nice whipping boy for problems which are deeply rooted in the societies that have just heard about -- youth unemployment is, and that's, of course, very serious because it tells exactly where the problem is. or the happy few or happy many have lifetime employment and high wages, whereas the outsiders get stuck in misery. the problem is that the rest of europe is going up on germany, and that german economic miracle, the export miracle, which everybody is complaining about has a very simple reason. german unit labor costs didn't rise at all. almost at all. in the last decade it went up by, you know, 35% in italy. same number in the iberian countries, and it went through the roof in ireland. one last point. the irish, who went through the roof that had a 50% increase in labor cost, so they've now come down to just 25%. in other words, it can be done. if you put your mind to it. >> all right. fascinating conversation. we will continue this conversation when we come back. 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[ male announcer ] with wells fargo advisor's envision plan, you always know where you stand. in fact, 93 percent of envision plan holders say they will retire on their own terms. get started on the plan you need today -- wells fargo advisors. together we'll go far. it's showtime for savings. excuse me, sir, how much are you charging for your popcorn? $4.00. $4.00. i'm just going to let the people have a choice. $1.00 for popcorn. come and get it. guess we'll make it two. you got it. progressive showed me my options, i'm showing you yours. $1.00, fresh popcorn. enjoy the show. you should have an option, just like with car insurance. that is a really great price. try capzasin-hp. it penetrates deep to block pain signals for hours of relief. capzasin-hp. take the pain out of arthritis. we are back with peter mendleson, elaine, peter, and david from. peter, i suppose i should stay lord mendleson, but at cnn we're a little egalatarian. maybe my lord mendleson. peter, when you look at the situation in europe, how is this going to end, because right now as you cut budgets, it is producing a kind of downward spiral where it is producing more unemployment, but also lower tax revenues and, therefore, bigger budget deficits. is the idea that this is kind of a rough patch that these kwts will have to go through and then they'll come out of it? >> it depends on the country that you're talking about. there are some countries in europe, very highly indebted with very large deficits, which have got to take the action necessary to repair their public finances and bring them under control and that must be the medium term objective to rebalance public finance across europe as a whole, but there are other countries, surplus countries, creditor countries like germany and others who have more policy space at the moment in and more latitude to help lift for economic recovery in the meantime in the short-term, but i think what everyone has to be agreed on is that in the longer term wrurp is not going to be able to pay its way to earn its living in a very tough competitive world and unless we all take the action necessary to lift levels of competitiveness and productivity. that in the long run is what we've got to aim for. it's silly in my view to say in the meantime, you know, that there's an argument on the one hand growth versus austerity. there are different policy -- there are different policy scope, which is available to different countries in europe, and we need a combination, a mix of both. >> elaine, how do you think the french will react to that message? the idea that the end of the day you are going to have to get more competitive. france has a very big public sector by some measures, the largest in europe. as a result, it's been somewhat shielded from some of these forces. >> well, look at what sarkozy tried to do as president. i mean, he in a way was a very american kind of president. he promised that, you know, you work harder, you will earn more. the american dream is possible in france. i'm going to make it easier for you to create your own businesses. i'm going to loosen up rules on employment, overtime. i'm going to do what i can to get rid of the 35 hour week, which was a socialist -- a very bad socialist legislative plan. it didn't work. why didn't it work? well, we can argue that, you know, sarkozy lost because there's an anti-incumbent wave sweeping europe that his personality and his style of governing was unacceptable. you have him promising growth and saying austerity is a bad word, but it's going to move very slowly. it has to in france. it's going to be sort of like turning around an aircraft carrier, and i don't think you're going to feel very many results quickly even in terms of austerity or growth. the bank of france is just saying that there will be no growth in the french economy in 2012. francois hollande has said correctly i want to do a complete study by the governmental -- the kwauzy-governmental body about the government. consumer revolt. >> there's no time. >> europe is like a man who has been hit -- who is suffering chronic arterial scloerosis and has been hit by a truck. everybody wants to put this patient on a program of diet and exercise to deal with the arterial sclerosis, but the mad euro project, the truck, which is response iblg for the disaster, that's what has to be addressed now. the adult -- the overall unemployment revel in spain, 25%. great depression levels. it is not because of debt. it is not because of the various structural problems that are all true. it is because of the mad euro project. unless either europe is radically reformed and the euro is abandoned, the -- this crisis will continue. >> peter, do you want to jump in? the argument, of course, that david is making it s that if these countries had their observe currency, they could devalue and become competitive in the export market. >> look, if greece were to fall out of the euro zone now, where would it fall to? yes, devaluation can help in the short-term, but what greece lacks are the conditions, the policies and the political will to take advantage of any such devaluation. devaluation is not going to transform the size, scale, output, competitiveness, and productivity of greece's policy, and that's what needs to be done. >> what will happen in germany in the elections? will angela merkel's party do well? will the left do well? what are the political winds in germany like? >> there is no revolt the way you had a revolt on the left in france or the kind of revolt you had on the neo-nazi right and the ultra left in greece. i have no worry about that, and i think angela merkel will be chancellor again in 2013 precisely because it's not quite her own doing, precisely now because she reaps the fruits that her predecessor schrader, you know, who is one of the new left three in the past. he sewed what -- germany politically speaking is the most problem. she is constrained by our pop list. no yelling about. you have to -- especially. if the germans are allergic to one thing, it's inflation. and her leway on kind of approaching hollande is not the broadest you can think of. >> pleasure to have you on. up next, what in the world. will the new king make the right choices for all his subjects? 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[ male announcer ] with wells fargo advisor's envision plan, you always know where you stand. in fact, 93 percent of envision plan holders say they will retire on their own terms. get started on the plan you need today -- wells fargo advisors. together we'll go far. wells fargo advisors. you do a lot of no.aking? look i'm going through the rapids. okay... i'll take it. sync your card with facebook, foursquare and twitter for savings. that's the membership effect of american express. >> i'm candy crowley in washington. fareed zakaria "gps" will be back in a moment. first, your top stories. a peace -- he was a former member of the taliban who worked to bring the militant group to peace talks. the taliban has denied involvement in the killing. two u.s. drone strikes killed 11 suspected al qaeda militants in yemen's province on saturday. the air assault follows another drone attack thursday that killed eight suspected militants in southern yemen. the u.s. state department may be on the verge of eliminating a training program for iraqi police officers. officials tell the "new york times" that the multi-billion dollar program will now send just 50 american law enforcement officers to iraq instead of the 350. the program was supposed to be the centerpiece of the u.s. civilian mission. it has already cost u.s. taxpayers $500 million. soccer fans in turkey went ballistic after their team lost the league championship in a 0-0 tie. spectate ors stormed the field with flares and battled with police before spilling on to the streets. amid the broken windows and vandalized cars, there were no reports of injuries. those are your top stories. now back to fareed zakaria, gps. for most people, the pinnacle of their career is reaching the top of one field, banking or development or foreign affairs. my next guest has actually done all of those things, and he is still going strong. robert zellik say former managing director of goldman saks. he has been deputy secretary of state under george w. bush. he has been u.s. trade representative, and most recently he has been president of the world bank, a position he steps down from at the end of next month. welcome to "gps." >> glad to be with you. >> let me ask you first about the burning crisis. you've had a lot of experience dealing with europe, with international economic diplomacy. is this euro zone crisis going to get solved, or is there a kind of inevitable spiral downward from where we are? >> well, i certainly hope it's not the latter, but i suspect my best guess is we'll stumble along, and it could be worse than stumbling along, and i think the key, while greece is in the news, i think the strategic issue relates to italy and spain. those are the very big economies. those are the economies that had been undertaking some very strong fiscal reforms and structural reforms, but it's devilishly difficult to do in a no growth environment, and i think part of the question will be whether their european partners will figure out some ways to sort -- -- support them with the politics. >> from your time in the world bank, what do you think is the answer? i'm going to ask you a big question. what do you think is the answer to overcoming poverty? if you were given a poor country and told bob zellik, you have to make this country develop and grow, what's the answer? >> well, growth is still the best anecdote for poverty, but one of the things we've learned over the years is growth alone isn't enough, so we try to talk about inclusive growth so, that means you need all the components. you need the environment for private sector investment. you need the opportunity for creating jobs through companies, but at the same time what inclusive growth means to me is that you also need an efficient social safety net so that when the economies or world events strike, that people at the bottom aren't crushed or you don't lose a generation through proper -- improper nutrition or education, but i don't think there's one mechanism. i guess if there's one thing that i would stress is it won't work unless countries own it, so this, again, relates to the role of the world bank as opposed to an old elite model where people from excellent universities would come and say here's the three things that you have to do. i think the lesson that people have learned the hard way over time is these are complex political economy problems. we have to listen to the clients, but you bring some of the international experience to try to help address these issues. the good news is in terms of overcoming poverty, there have been huge strides. this is one of the millennium development goals that will be reached. in significant part because of some of the progress in china and india, but you have seen it in latten america. you have seen it in subis a haran africa. at the same time there's still a lot of people just above the poverty line. so there's a need to sort of create the opportunity, but to feed that back for developed countries in over the past five years two-thirds of global growth has come from developing economies. this is no longer a question of charity. it's a question of self-interest to help these countries grow to help the united states and europe and japan grow. >> when people look at china's development, the fastest development of any country in history really in almost 10% a year for three decades, they look at it and then they look at south korea and japan and they say, well, clearly what you have here is the combination of a very strong state that is pro-market, pro-growth, pro-trade. you know, the people who have argued that this is the rise of something called state capitalism. what do you think? looking at so many of these countries on the ground, is state capitalism a particularly effective form of economic development? >> i think what you'll see just as you saw in korea in the late 1990s and you will also see at a time in china is what might work at an early stage may not necessarily work at a later stage. those state institutions sometimes become rigidified. i would also say what's important in the development community is no one size fits all. my own belief is praying mattism to see what works, and my own, you know, belief is there comes a point where the state plays an important role in terms of rule of law, contracts, property rights, and that there's no way as you get the higher levels of innovation that you can avoid making those adjustments. >> it's no secret, bob, that many people think if mitt romney were elected president, he would turn to you perhaps to be secretary of state, perhaps secretary of treasury. you're an unusual figure in that you could mrauzably take both jobs or either job. you couldn't take both. will you get more active in advising governor romney once you leave this job? >> i think it's poshlt not to be presumptive with us, and so i appreciate the compliment that you pose, but in this job i haven't been able to be engaged in politics, so that question will have to wait until i leave on june 30th. historically i've tried to be of help, but i've also tried to work across the aisle. when i was trade representative and world bank president i have been pleased try to work with republicans and democrats because i'm of the school that you can make the american constitutional system work, and, frankly, i think some of the issues that we face on the economic side will be the core foreign policy issues. just to give you one that's sort of stuck in my mind, the bob carr, the new australian foreign minister, came to the united states recently. good friend of america. very successful premier in south wales. i asked him what was his main message, and he said the united states is one budget deal away from restoring its global preeminence, but, on the other hand, be aware there are other people saying if you don't turn to us because the united states' time has passed. this is i think a time in our history where the connection of the economic issues with our foreign policy standing is as strong as i have ever seen it. >> do you think president obama has pursued a successful foreign policy? >> in this job i don't really feel i should be criticizing. i would say, you know, the -- there are aspects tactically that i think he and his team have executed well. i work with some of them on the development topics. i guess i would come back to say that when the bolles simpson report came out, i was disappointed it wasn't pursued. whoever is president next time around, i hope we get at that. >> the plan calls for a great deal of raising of tax revenues. will you be telling governor romney that? >> i think it's presuming to be saying what i would be telling governor romney. what i took away from the bolles simpson is the need for a broad-based tax reform, like what i worked with secretary baker in the mid 1980s. i don't think it's fuf to talk about fiscal auto a justment. you have to be focussing on the structural aspects as we talked about in europe and the microeconomics to create incentives for the private sector, and i think the tax code is now becoming riddled again with a whole series of inefficiencies and special favors, and so i think on the tax side the main message is broaden the base and lower the rates. >> diplomatic set of answers. >> i'm a diplomat. >> robert, pleasure to have on you. up next, a fascinating look at the economy from the vantage point of the world's largest money management firm, larry fink of black rock joins me next. 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which where are the economic winds blowing? who better to ask than the man who is said to be at the hub of the wheel of american capitalism? larry fink is the chairman and ceo of black rock, the world's largest money management firm. larry, thanks for joining us. >> it's hit bottom and moving along the bottom now, but does that mean in a year you see a recovery? >> nobody was calling out loud we have a problem in housing. we needed a crisis and a bubble in 2008 really to identify the depth of the problem. we have less than three million unsold homes now in america. >> down from eight million. >> down from eight million. if you can say from a perspective, we've come a long ways. on the other hand, if you are that family that's struggling trying to make payments or in a neighborhood and seeing all the vacati vacancies and unsold homes, it's a big burden, but i think you are seeing evidence that housing is stabilized. even in california you have seen a modest uprising the -- you are seeing foreclosures stabilize. you are seeing in pockets of the united states, a stabilization. >> you are bullish about america? >> i am very bullish on america, but i am nervous about once again our time frame. we demand change so rapidly and change doesn't happen that rapidly today. it evolves. the news cycle is so short. >> what kind of change do you think people are demanding? >> well, we are going to have a fiscal crisis, or re we do? we have the sec quester we have to deal with by the end of the year, and that's going to start impacting our economy this year. >> why? >> well, if you are a military company that derifz a large component of your revenue through military, and you are looking at a potential $700 billion cut in military spending over ten years, you're not going wait until congress maybe on december 30th is trying to delay it. you have a responsibility to your shareholders to start focussing on contingent plans, so the question, you know, are you going to be sitting there hiring more people this year in front of the threat? possibly you might have to downsize some divisions where you think you have a real threat of reduction in revenues from the military. says it this one of our biggest issues right now. we have the see quester, and if we don't address these two issues, we will go into a recession next year. >> with your analysis, you suggest that what is the most likely outcome, which is another punt, another kicking of the can down the road, is no solution because let's say congress does what i think realist click is the most likely push it off for another six months or a year. well, that doesn't help you because businesses are still going to be stuck sitting there thinking, well, wait a minute, will the see wester take effect in six months from now. you want an actual budget deal. >> you have to understand as a ceo -- in america the average ceo only has a term of five years. that's shorter than u.s. senators. we in many cases are making investments for the next ceo, and so our job is to make decision that hopefully have an impact on our companies, and right now the ceos are saying by their behavior, we don't understand the future. we are frightened of the future. we're frightened how government is playing with our future, and, therefore, the best conclusion is let's keep all this -- all the gain from our earnings into cash. let's build our cash balances, and, by the way, since i don't know what i'm going to do, my shareholders are mad at me for keeping large components of cash. let's buy back stock. now, that doesn't help the economy. it will help the stock market. it will help the performance of that stock, but does it really encourage greater growth for the economy? the answer is no. >> final question. you're a very prominent member of the financial community. will you support president obama in his re-election? >> it is absolutely my position to support the president. >> so at the end of the day you still think -- >> i still think he has proven despite some members of my industry's criticism towards the president, i think once again, we've had -- he came into the presidency with the worst financial crisis in our lifetimes, and i have a view that these problems occurred over many years, and the fix is not four years. the fix is going to be longer than that. so i support president obama, and i believe he is the right man for the next four years. on the other hand, i would say very clearly we need to create that engine of growth. we need to make sure that those ceos feel comfortable not to buy back their shares, but to invest in that factory and create those jobs and those jobs create other jobs and we have the multiplier effect for new jobs. >> larry fink, pleasure to have you on. >> fareed, thank you. >> we will be back. 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[ male announcer ] we are insurance. ♪ we are farmers ♪ bum, ba-da-bum, bum, bum, bum ♪ president obama this week expressed his support for same-sex marriage, and that brings me to my question of the week. which of the following countries has a federal government that does not legally recognize same-sex marriage? is it, a, britain, b, the netherlands, c, argentina, or, d, south africa? stay tuned, and we'll tell you the correct answer. go to cnn.com/fareed for more of the gps challenge and lots of insight and analysis. also, you can follow us on twitter and facebook. now, remember, if you miss a show, go to itunes. you can get the audio podcast for free or you can buy the video version. this week's book is the one i mentioned earlier on the show, peter beinart's "the crisis of zionism." in it beinart argues that israel has to deal with two major threats, and he is not talking about iran and hamas. instead he means the continuing occupation of the west bank and the resulting alienation of young jews in the united states. peter writes with passion and intelligence. it is a compelling read. now for the last look. you might think chinese social networks would be all atwitter. yes, pun intended. with mentions of the bo and chen scandals, but the census continue to make heroic efforts to tamp that talk down. so what has been trending there is talk of american french fry brother. this is he, otherwise known as jason lus. a recent graduate from arizona state, and this is jason after he bought a bag of mcdobld's french fries for a homeless woman there. and then he poured her some water. a bistandard took these pictures, and the images have been rocketing around chinese cyberspace where someone lovingly called this new hero american french fry brother. there's been coverage in newspapers and on tv. why the hubbub over a simple act. he says many of his chinese krbts have told him that chinese society has grown cold and uncaring, and when china saw someone from outside the country doing something nice on their home turf, it struck a nerve. i have another theory. maybe the chinese were desperate for a shred of good news. the correct answer to our gps challenge question was, a, seam-sex marriage was notably left off queen elizabeth's list of legislative goals for britain that she laid out on wednesday, and the governments of the netherlands, argentina, and south africa were each the first on their continents to recognize such marriages on a federal basis, but david cameron supports gay marriage strongly. britain will probably soon join the same-sex marriage club. listen to how cameron explains his support. conservatives believe in the ties that bind us, that society is stronger when we make vows to each other and support each other. so i don't support gay marriage in spite of being a conservative. i support gay marriage because i am a conservative. >> thanks to all of you for being part of my program this week. i will see you next week. stay tuned for "reliable sources." like most people in the press, i have always been skeptical of president obama's claim that he was merely evolving on the issue of same-sex marriage. with good reason, it turns out. from the moment joe biden embraced gay marriage on "meet the press" las

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