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European Political and Economic Situation

Aired May 7, 2012 - 23:00:00   ET



CHRISTIANE AMANPOUR, CNN HOST: Good evening, everyone. I'm Christiane Amanpour, and welcome to the program. Austerity can no longer be inevitable. Those are the fighting words of France's president-elect, Francois Hollande. And today, German chancellor Angela Merkel shot back, "We welcome Francois Hollande with open arms," she said, "but the austerity pact is non-negotiable."

My brief tonight: austerity showdown. What happens when not inevitable meets non-negotiable? The two leaders will meet for the first time next week, but they seem worlds apart right now.

Hollande campaigned on a platform of renegotiating Europe's austerity pact, and he says that he can save the French economy by hiking taxes on the wealthy and providing economic incentives to get older and younger people back to work, but at a Berlin press conference today, Angela Merkel insisted again that austerity is the only way.

Meanwhile, in Greece, another powerful rejection of austerity, no party there won a clear mandate in parliamentary elections this weekend, and thus at the moment Greece is a rudderless ship. The two leading parties are trying to form a coalition, but a majority of voters expressed their anti-austerity rage by gravitating to the political fringe, the far left and the far right.

Look at these pictures of neo-Nazis marching last night. They won 21 seats in a 300-member parliament. Today, the leader of that party, Nikolaos Michaloliakos took to the streets of Athens with his followers.


NIKOLAOS MICHALOLIAKOS, GOLDEN DAWN LEADER: The Europe of the nations returns. Remember this, that Greece is one, is only the beginning.


AMANPOUR: And his followers answered by shouting, "Greece belongs to the Greeks." All of this in a country where a newspaper featured a picture of Angela Merkel in Nazi garb. So how can Germany get a rebellious Eurozone back in line?

Later in the program, I'll have an interview with the German foreign minister Guido Westerwelle. But first, we have an analysis of the European political earthquake. And for that, I'm joined by French political scientist, Yannick Mireur, and the Greek economist, Yanis Varoufakis.

Gentlemen, thank you both very much for being here.

Let me go straight to you, Yannick. Hollande staked a huge amount on his promise to renegotiate the austerity pact. Is that a lot of campaign rhetoric or is that what he's going to really be able to do?

YANNICK MIREUR, FRENCH POLITICAL SCIENTIST: I think a little bit of both. I think that is what he will be willing to do, and it was -- would be one of his objectives. Now the reality from that would be probably different what you might expect from the campaign rhetoric. That's the major difference, I would say.

AMANPOUR: But how will be able to step back from that, since it seems to have won him the election?

MIREUR: Well, you know, in this European negotiation, which is pretty much domestic affairs for all European countries now, given the interdependence and along this European construction, the cosmetic is always important.

So the announcement will be probably different than the reality. But I think certainly that they can have perhaps in addition to what has already been negotiated, which is called the fiscal pact in February, which will be (inaudible) coming months, perhaps add to that sort of an addendum on growth measures that may not be that significant. The devil will be in the details, as always.

AMANPOUR: And Yanis, the much beleaguered Angela Merkel, who sits astride the strongest economy in Europe, and yet is really taking all the slings and arrows of all of this discontent. Once President Hollande meets with her. what's going to come out of that? Who's going to meet -- win this fight?

YANIS VAROUFAKIS, ECONOMICS PROFESSOR, UNIVERSITY OF ATHENS: I think we're entering a game for the long term. The first meeting is going to result in an amicable agreement that we need to bolster ability and growth and the devil will be in the detail.

The way that the Eurozone is going to handle the inevitable cascade of insolvencies beginning with states like Greece and then later on actually quite soon Spanish banks and some Italian banks, whether the Eurozone matures enough to be able to handle these insolvencies, without being in denial about it, and the way that it will manage to do that is going to determine the relationship between Hollande and Merkel.

AMANPOUR: And you don't -- when you say insolvency, you're not talking about a default?

VAROUFAKIS: I'm talking about a default.

AMANPOUR: Really? Because not everybody agrees with you there -- with you on that.

VAROUFAKIS: Greece already defaulted two months ago. And we're going to very soon realize that it is impossible to have what the Spanish government is doing today. It is trying -- an insolvent state is trying to salvage an insolvent bank, the third largest bank in Spain.

And (inaudible) less the Eurozone, just like the dollar zone, meant for United States of America manages to handle, to absorb the shocks of insolvencies without being in denial that it can ameliorate them by means of more loans to the insolvent, the Eurozone will not have a chance to recover.

AMANPOUR: Yannick, when the last socialist president was elected back in 1981, he also did a huge program of spending, of nationalization, of doing all those kinds of things --

MIREUR: We implemented it.

AMANPOUR: And it didn't work.

MIREUR: No, he --

AMANPOUR: He had to retract -- he had to retreat --


MIREUR: -- and this is not -- this is internal sort of French discussion. That was in '81.

AMANPOUR: (Inaudible) --

MIREUR: -- going to -- this is not '81 redux. The situation is very different. The ideological charge is very moderate, and that is an important thing to say before jumping into action about what's in the decision with Merkel is going to be.

I think this victory of Mr. Hollande, 51.7 percent, which is a decent victory, not a landslide, actually quite a good score for someone who was supposed to be, you know, a landslide out of office as Mr. Sarkozy was supposed to be, is a reflection of essentially, first of all, a rejection of Mr. Sarkozy's perhaps authoritative, sometimes very energetic style of government --

AMANPOUR: People just didn't like him in the end.


MIREUR: -- detriment of the balance between president and prime minister and all that. I won't go into the details. But that factor was the key factor for the election.

In other words, there was not a wide subscription to the socialist as such. That tells you about the programs and Mr. Hollande himself is someone who hasn't promised that much, except a few chunky (ph) things that may not be implemented the way they were presented (ph) --

AMANPOUR: (Inaudible) certainly thinks (inaudible) big, new taxes on the wealthy. He's promised a 75 percent (inaudible) --

MIREUR: That actually concerns -- this is more of the rhetorical -- I regret that, because it (inaudible) some time (inaudible) --

AMANPOUR: Well, what about renegotiation --

MIREUR: -- of tension between --

AMANPOUR: -- (inaudible) than --

MIREUR: That would be one of the key things, and I am not sure that we'll have the leeway to do that, that's why perhaps is rather comfortable victory makes it sort of his -- a bit independent from the left leaning part of his coalition, well, we'll see that.

AMANPOUR: In the end, I mean, the real question, isn't it, is how to spur growth.


AMANPOUR: That's what's the legions of people on the streets are worried about. I mean, it is shocking, Yanis, to see in your country these people marching around with Nazi salutes and the people saying, you know, Greece is just the beginning. This is the first time this far right group, I think, has got seats in parliament.



VAROUFAKIS: It's extremely scary and but what scares me even more than that is that the influence of these neo-Nazis are having already in shaping the mainstream parties shifts towards the upper right.

For instance, two weeks ago, we had the socialist minister of public order asking the police -- instructing police to carry out brutal HIV tests on paperless prostitutes and then publish their photographs on official websites. This is Nazism managing to influence power without gaining power. So (inaudible) right. This is extremely worrying.

AMANPOUR: So two changes and, I mean, I'm not going to call Marine Le Pen a neo-Nazi, but certainly front -- certainly far right. And got an enormous amount of votes and that is affecting the debate. It's affected the elections. Her voters didn't go to Mr. Sarkozy.

MIREUR: To some degree, did of course. The question is how much, 50 percent, or much more than that, perhaps a little (inaudible) as expected, 75 percent expected. That makes a difference to the .1, .2, .3, and then you have a defeat.

The question is, I think, one important thing to our watchers is to say that institutions are still solid in most parts of Europe. I mean, you have to take into account the issue of each country.

And as far as the French are concerned, I think it's now a movement of despair and anxiety and, as I said again, I think the numbers after the -- from yesterday, after Mr. Hollande's election, I brought up the fact that the people in France and the rest of Europe, I believe, but France certainly, are pretty much conscious of the fact there is a strong need for cutting spending.

That doesn't mean they don't lose all hope that growth will come around, and in fact, the growth for Hollande is actually a sort of fact that it's the other side of the story, they also hope growth, they hope for good news. You know? But they are pretty conscious of the fact and pretty serious about it. And the institutions are pretty strong. There is no revolution coming.



AMANPOUR: We have a -- yes, as you say. We have an interview in this program, as I said, with the German foreign minister. And you'll hear him talk about not just austerity but growth-based policies. He says, look, we were the sick man of Europe, and we had to implement flexibility in the labor market.

We had to do all sorts of reforms, structural reforms, that will work if only these countries have some, as he will say, strategic patience.

Does Greece have the strategic patience to take this medicine and get better?

VAROUFAKIS: If that was medicine, I suppose the poison, I think already Greece would have taken it. The problem with this particular German view is that it's utterly false, profoundly wrong. The reason why Germany managed to grow the way it did was because it increased its competitive advantage vis-a-vis the rest of the Eurozone, like pushing labor unit costs below those of the rest of the Eurozone.

And by keeping inflation lower than everybody else -- if everybody did exactly the same thing, the German strategy would not have worked. It is impossible to maintain a surplus, a healthy surplus in exports within the Eurozone without the rest having a deficit vis-a-vis E.U.

So the German strategy worked only to the extent that it was not implemented anywhere else. And trying to make everybody like Germany is simply mission impossible.

MIREUR: The key point, though, here to say is that at least they have been able to negotiate social (ph) agreements so that the lower the labor, the cost of labor, which the French haven't been able to do, and that's one of the --


VAROUFAKIS: -- Hollande wouldn't have worked anyway.

MIREUR: Yes, but it also reflects on the readiness and the state of institutions and the state of mind of the majority of the opinion to go that route.


VAROUFAKIS: If Germany had not managed to maintain a very healthy surplus, export surplus with the rest of --


VAROUFAKIS: -- the rest of the Eurozone. So what I'm saying is the success of Germany has been purchased at the expense of the solidity of the Eurozone. So when the 2008 crisis hit the Eurozone, the Eurozone was simply not in a position to respond like a large Germany, like everybody doing what Germany did.

AMANPOUR: And as everybody's watching now, certainly Greece, what do you think will happen in terms of who's going to be able to form a government?

VAROUFAKIS: We had an uncharted territory at the moment. Already the leader of the largest party, Mr. Samaras, has declared that he is not capable of fulfilling the mandate. The mandate will go to the leader of the second party now, then to the third.

It all depends on whether one of the small left-wing parties will form a coalition with the two major parties. Then that's what they need to do. If they don't, then we'll have a period of instability and a caretaker government until mid-June. And then we're going to have to look at a another election.

AMANPOUR: All right. Yanis, thank you very much. Yannick, thank you very much. And we'll watch for that meeting between Hollande and Merkel.

MIREUR: (Inaudible).

AMANPOUR: And in this furious game of political musical chairs, one player remains seated and solvent, as we said, that is Germany. It's been both admired and despised, as you -- and despised, as you've just heard, for its economic might. The German foreign minister says that his country was once the sick man of Europe until it took its medicine. I'll have his prescription when we return.



AMANPOUR: Welcome back, and we continue the conversation on this weekend's European election. If both France and Greece made a clear statement against austerity, that leaves Germany smack in the middle. If neither country intends to stick with the program, how does Germany change their minds? I sat down with Germany's foreign minister, Guido Westerwelle, as voters were heading to the polls.


AMANPOUR: Foreign Minister, good to have you into the studio.


AMANPOUR: What do you think President Hollande would do in regards to the economic situation? He's already said that he wants to give Europe a new direction, and he even wants to renegotiate the pact that Chancellor Merkel and the other euro member states negotiated.

So what if President Hollande wants to renegotiate, that he insists he will?

WESTERWELLE: It cannot be negotiate with fiscal compact because we think what would this send as a signal, for example, to Italy. I mean, Italy, Spain, Portugal, they all implemented these reforms. They know that they cannot survive with their economy with always new debts. They all did what is necessary. And I think the ratification already started.

Once again, our offer to France, our offer to all our friends in the European Union is let us implement the fiscal compact because this is necessary to overcome the debt crisis, and let us also add a growth compact to this present -- onto this present situation.

AMANPOUR: So explain this to me, though, because Chancellor Merkel, President Sarkozy were very insistent that it was about austerity or it was about getting debt down. And now we see that those governments who have tried to do that, let's say, in Britain, we've seen that growth is not happening.

It's become very flat. We've seen a double-dip recession in several countries, and we've seen quite a lot of Europe in recession still. Doesn't this mean that your chancellor's policies simply have not worked?

WESTERWELLE: No. I think it is obvious that it works, because we went through this valley (ph) a few years ago, and we had to answer our recession few years ago with structural reforms. Because this is the only sustainable way to solve this crisis. Of course we can spend more money. The only result will be more debts.

And then we are once again in the same difficulty, in the same problem. So there is a cliche in some countries that Germany only asks for austerity, and this is not the truth. If we look to this map here, I know them very well, and these are very good friends of Germany, all these capitals, all these governments, these people are very good friends of Germany.

And we see, for example, Greece. Greece does not have the problem that the structural reforms do not work. I think this was a brave and courageous government which brought through the reforms.

The problem for Greece is that they have a lack of competitiveness. They have excellent services. They have a wonderful landscape, they have beautiful coasts (ph). But what they need are companies, small and medium- sized companies, which are the backbone of the economy in our philosophy.

AMANPOUR: Many of the Greek people -- and I'm just reading Mr. Hollande also says, basically it is not up to Germany to decide for the rest of Europe. We are all our own countries as well. There seems to be a backlash against your country, whether it's in Greece, whether it's Mr. Hollande, and many of the French people, people are fed up. They're saying austerity hurts too much.

WESTERWELLE: I mean, if we go to Germany and to our example, we do not ask any of our partners to do more than we did. For example, when we are living in a society where the average of the people is becoming older, which, of course, is a wonderful thing that we all can live a long life.

But on the other side, we know we -- this means consequences to the retirement or to the pension age. And we have to realize this. So we have to face reality.

AMANPOUR: And yet you have a real crisis in Europe, and that is this massive unemployment, I mean, at record levels. I mean, in Spain, for instance, amongst the young people, it's something like 50 percent more young people are out of work than in work. How is that going to be solved, if indeed Europe is to remain competitive?

WESTERWELLE: With all modesty, we went through this, Germany, 10 years ago --

AMANPOUR: What did you do?

WESTERWELLE: Yes, 10 years ago, Germany was the sick man of Europe. And we understood that the best medicine does not have to taste very well. The best medicine is what works. But really helps you. We learned in Germany that the backbone of a successful economy are the medium and smaller-sized companies. And this meets our priority. This is what we did. And this is what we advise to our partners.

AMANPOUR: This is why I don't understand, austerity has been tried, the things that you've implemented and negotiated have been tried. And yet in some of these key economies, growth is flat, if at all.

WESTERWELLE: Without strategic patience, these reforms cannot work. I mean, the idea that we decide fiscal discipline in this month and next month we have what we call in the '50s ruchasmunde (ph) in our German language, which means once again, a growing economy and everything is perfect like it has been, is an illusion.

AMANPOUR: Does it not worry you -- does it not worry Chancellor Merkel that governments are falling precisely because of this policy of austerity?

WESTERWELLE: I think some of these governments came out of the office because they were too slowly. There were --

AMANPOUR: They didn't do austerity fast enough?

WESTERWELLE: They didn't do the reforms fast enough. Once again, our policy is more than austerity and fiscal discipline. Our policy is both, growth and fiscal discipline. These are two sides of the same coin. Just go to Italy for example.

The last prime minister, Berlusconi, he was from the position of the Italian people, he was too slowly, because he said while he started the reform policy and then he saw there was some relaxation on the markets and then he said, well, probably I do not mean it as serious as I said yesterday. And these mixed signals to the markets and to the people are brought him into difficulties.

AMANPOUR: Do you see the European Union splitting apart?


AMANPOUR: No default, messy or otherwise?



WESTERWELLE: No. I think that the European Union will manage this crisis because it is not a crisis of the European Union. It is not a crisis of the euro. The euro is very stable, very successful. It's an excellent currency. It is a crisis of debts. It's a debt crisis.

What we have in the European Union, and because I know how it was in Germany a few years ago. I know we are able to manage this and the European Union is a success story. It's not only the answer to the darkest chapter in our history. It is also our life insurance in times of globalization.

AMANPOUR: You talk about the darkest chapter of your history, the fascism, the Nazism. Today in parts of Europe a type of neo-fascism, a type of really serious right-wing nationalism is rising again, and many are blaming these terribly difficult economic times.

How hurtful is it for you, when you see pictures of Chancellor Merkel, pictures of your finance minister, basically dressed up as Nazis in elements of the Greek press?

WESTERWELLE: This is hurtful. I cannot deny that. This is hurtful, especially for someone of my generation and, I mean, the whole -- our whole engagement in Europe as Germans was always to draw the consequences of this darkest chapter in our history. I think we learned our lessons.

But we also know to prevent extremism you need a social and economic participation of the people, especially the less privileged people. And the best thing what we can do is create jobs, create perspectives for the young generation. So economy, the economy is not everything. But it's a key to solve this crisis.

AMANPOUR: Mr. Foreign Minister, thank you very much for joining me.



AMANPOUR: And as you know, Germany will have its work cut out for it convincing other nations in Europe they're to stick with this program.

And throughout Europe, people are demanding change and as we'll see, Russia is no exception. Vladimir Putin took the oath of office today, and thousands of Russians once again took to the streets. The power and the protests, when we return.



AMANPOUR: Welcome back. And now for our final thought, we've discussed the altered landscape in European politics, and in Russia, tens of thousands took to the streets on Sunday to protest President Vladimir Putin's return to office. The protests turned violent and hundreds of people were arrested. But that didn't stop the coronation.

Imagine a world where the czar still rules and talk about an entrance and the mother of all red carpets, President Putin has now held power longer than any Russian leader since Joseph Stalin. And like any good czar, as many people call him, he surrounds himself with devoted followers, even a loyal hound.

But like much in the life of this former KGB chief, his own family remains a mystery. His wife, Lyudmila, made a rare appearance at the ceremony today, but the state of their marriage is a state secret. As for their two grown daughters, unlike U.S. President Obama's little girls, they haven't been seen in years. In his speech today, Mr. Putin spoke of family values. He also spoke of democracy and freedom.

But as the recently employed leaders of France and Greece can tell him, the people demand real reform and the end of corruption to make all those fine words a reality. And Putin's laid the path to this return back in 2007, when he handed over power to Medvedev. You can see that online in our documentary, "Czar Putin." That's it for tonight, thank you for watching. We'll see you tomorrow.