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A Look at the European Economy; Is the US in Decline?

Aired April 27, 2012 - 15:00:00   ET



CHRISTIANE AMANPOUR, CNN HOST: Good evening, everybody. I'm Christiane Amanpour, and welcome to the program.

Just when it looked like Europe might have weathered the worst of the economic storm, some very distressing news this week. After a brief period of progress, Britain has gone back into a recession now. And of course much of Europe never left the recession. It's a long and grim list: Greece, Spain, Italy, Belgium, the Netherlands, the Czech Republic, Ireland, Portugal, Denmark -- and it goes on.

Many of these countries have adopted austerity programs to try and lighten their staggering debt loads. So in my brief tonight, is that medicine killing the patient? In other words, is all that austerity too much too soon?

Look at this graph that we're putting now in our graphics table. So you have very strong economic growth from the beginning of the 2000s all the way up to the financial crisis of '08. Then it plunges quite significantly. Then it starts to try to climb and struggle back up the hill until, in Britain, with the conservative Cameron government and their austerity measures, growth simply petered out, simply flattened.

And the human cost of Europe's recession is clear. There's violence in Athens and Madrid and other cities across the continent. But the tragedy may best be summed up in a note that was left pinned to a tree in a public square in Athens.

It read, "Austerity kills." It referred to 77-year-old Dimitris Christoulas, a retiree who shot himself outside the Greek parliament earlier this month. His suicide note said that he couldn't face the prospect of, quote, "scavenging through garbage bins for food and becoming a burden to my child."

This phenomenon is spiking in Greece, in Ireland and in Italy these days, and indeed European newspapers have coined a new phrase: suicide by economic crisis.

My guest tonight is Greek and he's also an economist. Yanis Varoufakis has been living through this crisis, even as he tries to work to find a solution. Welcome to our program.


AMANPOUR: So first and foremost, this austerity, this much-ballyhooed program, is it really killing the golden goose?

VAROUFAKIS: It is what you get when you begin with a diagnostic failure and you end up with the wrong cure.

AMANPOUR: So the diagnosis was what?

VAROUFAKIS: The problem of Europe is debt. And that austerity is the solution.

The problem of Europe is not debt. The problem of Europe is a badly designed monetary system. That is one of the symptoms.

AMANPOUR: But you agree that debt is a problem?

VAROUFAKIS: Of course it is, but it is not that problem.

AMANPOUR: So how does one get out of a significant problem, which is debt, without this terrible austerity, which apparently has a really bad negative effect on growth?

VAROUFAKIS: If I'm right that this is an architectural design failure, the thing to do is to create new foundations for the edifice, which has not managed to sustain the shock waves of the great financial disaster of 2008.

AMANPOUR: So what would be that new edifice?

VAROUFAKIS: Very simple steps. Europe needs to unify its banking sectors. It is preposterous that we have a French banking sector, a German, a Greek banking sector when we are one currency. Imagine if, in the United States, in 2008, the State of New York had to salvage Wall Street and the State of Nevada had to salvage the banks in Nevada.

Then those states, all states and all banks would have gone under. This is what we're doing. So that's one thing we need to do. So we need to unify the banking system. A part of the debt (inaudible) member country has to be unified. And we need an investment policy throughout Europe.

AMANPOUR: We talked about the human costs, and it truly is tragic. People simply falling off a cliff and being unable to meet what's being imposed on them right now. Unemployment across Europe is staggering. I mean, in Spain, with young people apparently, it's over 50 percent. More Spanish young people are out of work today than are working.

And this is going to be a phenomenon, surely, that's going to confront all our leaders. What is the structural cure for that at a time when you need a structural cure for the whole economic system?

VAROUFAKIS: Well, we must stop this continuous march off the cliff of competitive austerity, which sequentially throws one country after the next into the abyss. And the way to do that is to understand that what Europe is needs is a New Deal, what Roosevelt did in 1932 we need in Europe now.

And that does not mean a kind of Keynesian spending spree. It means mobilizing idle savings and putting them into productive investments. And that can be done.

We have the institutions in Europe (inaudible) the European investment bank, which is at least twice the size of the World Bank. We can put it to work. We need to use the (inaudible) have rationally to manage the systematic crisis systematically and to stop treating this as a debt crisis alone, ignoring the systematic nature of it.

AMANPOUR: Well, certainly France and Germany, certainly under Sarkozy and Angela Merkel, have been talking about the debt aspect of this. And now look at the economists today, talking about Francois Hollande, who might become the next president of France, saying the rather dangerous M. Hollande, he's been talking about whole renegotiation, hasn't he?

VAROUFAKIS: I think that the economist is meaning this in a nice way, that we need some dangerous ideas (inaudible) dangerous in order to shake us out of this complacency.

AMANPOUR: What could he do? What could his programs do? Is it sort of end austerity and have more stimulus and try to spark more growth?

VAROUFAKIS: I think that the idea is not to tax and spend. We don't need to do that in Europe. Europe is rich enough. And we have the institutions to mobilize savings as investments. The problem is we have idle savings in Europe. And we cannot mobilize these savings simply by cutting, because when you cut you create an environment of pessimism, and therefore nobody wants to invest.

AMANPOUR: So right now you're talking about pessimism -- and actually quite a lot of concern, certainly in the British government, they've seen this phenomenon that we're talking about, not work and they're quite worries. So do you think now leaders will start reexamining their focus on austerity?

VAROUFAKIS: I very much hope so, but they have covered themselves in permanent disgrace over the last three years by refusing steadfastly to stop blaming the symptoms in order to quiet on the causes. Our European leaders have not had the courage to simply accept that the edifice they created, the Eurozone was structurally faulty.

AMANPOUR: Tell me about the Greek relationship with Germany. Obviously, Angela Merkel has been the one really pushing this idea of no more debt, or at least manageable debt and austerity. The Greeks don't like this. They remember occupation during the Second World War. They remember the real hardships. What is happening now between Greece and Germany on this issue?

VAROUFAKIS: I very much fear we'll have a repeat of the 1930s. If you recall, in 1929, we had a Wall Street collapse. Soon after that, the common currency of the era, which was the gold standard, went, and then next thing that happened was everybody started turning against everybody else.

Similarly, Europe now, the common currency is fragmenting and the Greeks are turning against the Germans, the Germans against the Greeks. Soon, the Germans will turn against the Germans and the Greeks against the Greeks. So Greece is the post-modern 1930s, which is the result of a spectacular political failure. You know, we didn't have to have this economic crisis in the last three years in Europe. This is a political crisis. It's a failure of political coordination of rational management of what is a manageable problem.

AMANPOUR: When you mention the 1930s, obviously everybody gets really scared, nationalism and the worst kind of fascism. Do you see that possibility?

VAROUFAKIS: I see it everywhere I look. In Holland, in Denmark, in my own country, new Nazis are going to be in parliament for the first time. We have -- we had neo-fascists. Now we're going to have neo-Nazis as well, from what the opinion polls are telling us. It is happening because when there is a political vacuum and a political failure and the result is that people are -- just lose hope, this is the worst thing.

It -- sacrifice is not a bad thing, to try and tighten your belt. But when people are experiencing sacrifices, which they cannot conceptualize, they cannot see as an investment into a better future, then xenophobes, anti-Semites, neo-Nazis are the only ones who win out of that situation.

AMANPOUR: It's a very ugly picture. What about the relative strength of the United States? Is the United States rising? Falling? What is the issue here that faces the U.S. with the European economy?

VAROUFAKIS: In my estimation, the United States is clinging on through the actions of the Fed. The United States is managing to maintain some poise and to keep preventing, for the time being, the double dip.

China is a very big question mark. China is doing its best, given its own constraints. Europe is the sick man of the global economy. We've managed in the past to drag down with us the rest of the world. We can do it again.

AMANPOUR: Yanis Varoufakis, thank you very much indeed for joining me.

VAROUFAKIS: (Inaudible).

AMANPOUR: And up next, things look bad in the Eurozone as we've been saying, but what about the U.S.? We'll hear more about that after a break, because when we return, two sharply different views of a superpower that's either in decline or on the comeback trail.



AMANPOUR: Is America in decline? It's a popular topic today, as the world's only superpower struggles with debt, slow economic growth, an overstretched military and political gridlock in Washington. American optimists say the United States has just hit a rough patch. But there are real questions about America's leadership in the world.

And with me to discuss all of this are historian and author Simon Schama and foreign affairs columnist for "The Wall Street Journal," Bret Stephens.

Thank you both for joining us.

So is America in decline? You know, there's a slew of books which are hitting the best-seller target. Is it hysteria or is it real, Simon?

SIMON SCHAMA, "FINANCIAL TIMES": Well, you know, historians are always going to say it depends. What you mean, I mean, compared to Rome, we're not expanding, how about that? You know, sort of the law of historical physics.

AMANPOUR: Compared to 10 years ago?

SCHAMA: Yes, I think so. I mean, it's just the way the world is, and we're in kind of a very constricted economic period. There are two things, really, which the rest of the world will see as telling you something about American power and how, either this president or his successor plays it, you know, will be very important. One is Afghanistan. That will be seen by the rest of the world as a defeat. It really will.



SCHAMA: It's no good saying it's just a retreat. The other -- I promise not to go on more than a second, Bret -- the other is simply is the American economic model viable any longer to emulate? So that all depends on how we come out of recession, if indeed we do.

STEPHENS: You know, I remember in college reading a historian named Mercy Otis Warren, saying that we were about to see American rushing into the extremes of confusion and chaos. She lived in 1788. She was talking about the ratification of the Constitution.

In the `80s, we had this very important book -- or at the time, important book -- about the decline and fall of great powers. There was the view that America was on the cusp of decline then. In fact, America went into 20 years of immense economic prosperity and prestige. So we've seen these predictions happening again and again, and repeatedly they're proved wrong.

The other issue that's important with respect to China is do people really want to follow the Chinese model? Look at what's happening in Burma. Even a dictatorship like Burma doesn't want to follow the Chinese.

AMANPOUR: Well, let me ask you that. Obviously the Chinese -- and a whole new study is begun -- believes that they will supersede the United States, that it's a zero-sum game. And if the current economic and political problems in the United States persist, China could overtake the United States.

You don't think that's possible, even though the GDP of the U.S., relative to China, has really plummeted since 2003?

STEPHENS: All developing countries have very fast, very rapid growth rates, until they reach the technological frontier. You can't be a plagiarist forever, playing copycat to establish growth (ph).

Another thing that's important is that, in every open society, we spend a lot of time focusing on our defects, on our problems, on our faults. That's what we do. That's what we're doing right now. The Chinese spend a lot of time advertising their strengths.

But you're seeing right now, in the power struggles with Bo Xilai, the deposed city chief of Changchun, just the kinds of tensions that are boiling beneath the surface of the Chinese. So I think it's wrong to make these straight-line predictions that China will rise forever and America's in a kind of terminal decline.

AMANPOUR: So then where does all this fear and loathing come from, because certainly the American people -- and a vast majority of the American people, some 71 percent, according to the latest poll -- think that America is in decline. And yet the President of the United States thinks otherwise. Listen to what he just recently said.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Anyone who tells you that America is in decline or that our influence has waned doesn't know what they're talking about.


OBAMA: That's not the message we get from leaders around the world, who are eager to work with us.

That's not how people feel from Tokyo to Berlin, from Cape Town to Rio, where opinions of America are higher than they've been in years.


AMANPOUR: So, Bret, who's right, the president or are the people of the United States talking them into -- talking themselves into some kind of decline -- ?

STEPHENS: This is one of those rare occasions when I get to agree with Barack Obama, so I'm happy to -- I'm happy to take it. He's absolutely right.

Look, America has serious problems. We have a huge entitlement state. It may be getting bigger, and we -- we were looking at Europe and seeing where that entitlement state leads. We might have major problems being able to fund our military. There are the crises in Iran and elsewhere throughout the world.

If you go back to the 1970s, you find much the same talk, periods, bad patches, as you said at the beginning, which are -- which are mistaken for processes of kind of secular constant decline. There's this talk that America no longer commands this large -- this predominant share of the global economy, countries like Brazil are rising.

Well, it's good that countries like Brazil are rising, and they're democracies, and we should welcome it.

AMANPOUR: And yet, to follow on something you said, does anybody want to follow another model? We're talking about American leadership. There is a big crisis in Syria right now. There is a perception that America's not leading, that it's just letting the situation happen, and in fact, Russia and China are sort of leading.

What about that?

STEPHENS: Well, I think America should be leading in Syria. There are 10,000 people who have been killed, and we've called for Mubarak's ouster and work towards it, we should be doing the same on Gadhafi, we should be doing the same with Assad.

But, again, it's -- the question is, are you not content with the quality of American leadership right now? Or do you think that this reflects deeper trends that -- and irreversible trends in American life? And I would say it's the former, not the latter.

SCHAMA: Well, we have great opportunity in Syria, as well as a duty. Russia and China are leading, if actually what you want to lead in is the repression stakes (ph). So we have actually a perfect opportunity to actually make American values about the -- you know, against the ferocious atrocities committed against civilians (inaudible).

Let me just say, though, about the decline issue. Perception is everything, especially in an election year. And the two areas -- I agree with Bret -- objectively, we are not really in decline, certainly not in precipitous decline. But there are two areas where the American public feels anxious and upset.

One, the president is right. The American dream, it is more and more difficult, if you come out of college with a load of debt, to work hard, to find a job, to make your way into the middle class.

And when you have kind of glaring issues of inequity and taxation, whether or not it feels like it, the perception is that kind of dream of the lawn, the house, the garage, is more and more difficult to happen. And that is the source of acute anxiety out there in the heartland.

Secondly, I'll come back to Afghanistan. You know, this is a serious issue, actually. America is not in the mood, actually, for nation building elsewhere, even less in the mood than it was when George Bush ran against that.

The issue is actually how do you manage the sense that we -- this has been an unwinnable war under two presidents. It's been not a success. It's been incomprehensible, and the people we thought we were helping spat in our eye, and that is -- that is a serious issue for the American public.

AMANPOUR: Maybe because the help went sort of awry and we can discuss that. But let's talk about another incredibly important situation, and that is Iran. It is front and center on everybody's minds right now.

Listen to what Mitt Romney said in one of the debates, which seems to box himself in. Let me ask you after we listen to it.


FORMER GOV. MITT ROMNEY, R-MASS., PRESIDENTIAL CANDIDATE: Look, one thing you can know, and that is if we reelect Barack Obama, Iran will have a nuclear weapon. And if we elect Mitt Romney, if you elect me as the next president, they will not have a nuclear weapon.


AMANPOUR: So, Bret, in terms of leadership , does that mean that the next president, if it happens to be Mitt Romney, has committed himself to a military option?

STEPHENS: Mitt Romney has committed himself to so many political positions over his career that it's hard to say what -- whether he means this now. It certainly is -- certainly a view that's popular. You know --


SCHAMA: Look, I feel Mitt's really --

STEPHENS: -- who -- I hope whoever is president in -- on January 21st of next year is committed -- and President Obama says he is committed to ensuring that Iran does not become a nuclear weapons state.

That really poses -- doesn't mean -- puts American decline, but poses incredible challenges to our position in the region, creates a spiral of proliferation, where in the one place where we really don't want it. So I hope Romney means what he says, and I hope President Obama also means what he says when he makes similar statements.

SCHAMA: Well, I agree with Bret completely about the gravity of the issue and the seriousness. The question is if Obama is on form in the debate, how exactly are you proposing -- are you proposing to parachute into Fordo? Goodbye and good luck. What exactly is it you have in mind, precisely, for your military options?

And Mitt Romney saying, well, I'm not even the commander in chief yet, I hope to be, but I'm not going to tell you.

The issue is, of course, actually talk is cheap when you're simply, you know, dissing diplomacy of any sort, when you're not giving sanctions, which will be fighting in a tough way, come the summer, when you simply want to say that's weakness, cowardice and apologizing for America. Try the military option. Tell me exactly what it is --


STEPHENS: But you know, Simon, it's funny, because I just wrote a column on the Falklands, and I was reading commentary in April 1982, when Thatcher sent an armada 8,000 miles to the South Atlantic, and the universal view was this is never going to work. There's no way the Brits will be able to liberate those islands. It happened very swiftly.

AMANPOUR: Similar or different?

SCHAMA: There's a difference, actually, between 400,000 Argentinian troops and sheep and the bloody great silos, stuck in a mountain behind Fordo.

AMANPOUR: And on that note, Simon Schama, Bret Stephens, thank you so much for joining us.

SCHAMA: Thank you.

AMANPOUR: And we'll be right back after a break.


AMANPOUR: For our final thought, imagine a world where women have full parity and full participation in public life. Since I began this program, I've turned the lens on some extraordinary women who are fighting for their most basic rights.

We've introduced you to Bibi Hokmina, who disguises herself as a man in order to take a leadership role in her Afghan village. And Manal al- Sharif, who's standing up for equality in Saudi Arabia by driving through the streets of Riyadh. Even here in the United States, only a small minority of women hold elected office.

One woman who was not elected maybe the most influential woman in America, and she is Valerie Jarrett. She's President Obama's closest adviser. And I spoke with her at the Women in the World Conference, right here in New York. I asked her, "What is it like to be quite literally the most powerful woman in the world?"


VALERIE JARRETT, SENIOR ADVISER TO THE U.S. PRESIDENT: Well, you have to remember, I've known both the president and the first lady for 20 years. And so before they were married, so I've seen them through good times and bad, through their birth of their children, through this extraordinary journey that led to the White House. And so since we go way back, I maybe have a different perspective.

But I will say that one thing that I share with my colleagues is an appreciation that what the president wants out of us is the truth. He wants us to give him our best advice, to be honest with him. And I think one of challenges has been to communicate to the rest of the team it's safe to do that.

And I think after three years, as the president has gotten to know so many members of his team -- and he prides himself on having women in critical positions within the White House and with his administration, his two deputy chiefs of staff, his chief counsel, secretary of state, the U.N. ambassador, the Secretary of Homeland Security -- I could go on and on -- he has surrounded himself, as he grew up, you know, a single mom, a grandmother who was so influential, his wife, these two wonderful daughters, he surrounded himself with women, and I think he knows that from that comes a diversity of opinion and thought and will allow him to make the best decisions that represent everybody.

AMANPOUR: What sort of signal does that send to people around the world, do you think?

JARRETT: Well, I think he believes in leading by example. And as he challenged when he was at the U.N., let's all see what we can do to make sure that women have their rightful seat at the table, in politics, in business, as chief participants in the economy.

We're so proud in the United States that now women are graduating from college at the same rate as men. And yet still we only earn 77 cents on the dollar. So we still have a long way to go, but I think part of what is so extraordinary about my job is that I've met some ordinary people who are doing extraordinary things, and that gives us reason to hope.


AMANPOUR: Indeed, there never has been a time when the closest adviser, the most senior adviser to the President of the United States was a woman.

And next week, on this program, I'll be talking to still more extraordinary women, including Anat Hoffman, who's fighting against religious extremism and for the religious and civil rights of women in Israel. In the meantime, you can follow us on Twitter. Every day we tweet the links to our full-length episodes online. That's at

Thank you for watching and goodbye from New York.