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Discussion of Crisis in Eurozone. Russian Ship Carrying Weapons Turns Back from Syria. Interview with Ron Paul.

Aired June 19, 2012 - 15:00:00   ET


ALI VELSHI, CNN HOST: Good evening and welcome to the program. I'm Ali Velshi sitting in for Christiane Amanpour.

As I watch what's happening in Greece and Spain and throughout Europe, I keep thinking of this, that moment from the old Warner Bros. cartoons, where the coyote is off the cliff, but doesn't realize he's off the cliff until he looks down.

So my brief tonight is a bit of advice to Europe's leaders: don't look down. You're off the cliff. Europe has bet the house on one idea: austerity. Cut spending, raise taxes, fire public workers, get the deficits under control. But after years of intervention in Greece, Portugal, Ireland and now Spain, the facts are clear: austerity has not worked.

The Greek economy is broken. Credit is frozen. Money is pouring out of the banks and nearly one in four working age Greeks are unemployed. Unemployment is also up in Europe's fourth largest economy, Spain. Even after last week's 100 billion euro bailout, Spain's cost of borrowing money has just hit record highs.

Now Italy, Europe's number three economy, is seeing its own bond prices spike as lenders consider the possibility that Italy could be the next to stumble. So while Greek voters chose to stick with the status quo, at least for now, it may be time to ask whether the status quo is everything it's cracked up to be. We'll get into that question after a look at what's coming up later in the program.


VELSHI (voice-over): In Syria, the funerals and the defiance go on. Diplomacy hasn't stopped the bloodshed, with as many as 13,000 dead. Is intervention the only option?

And from Odysseus to Onassis, the Greeks have been masters of the sea. But with her economy sinking fast Greek super-rich are jumping ship.


VELSHI: An interesting story that we'll get to in a bit. But first I want to bring in Gillian Tett. She's the U.S. managing editor of the "Financial Times." And Yanis Varoufakis, he is a professor of economics at the University of Athens. Welcome to both of you.

Yanis, you have made the point that the media is crowing about Greece having dodged a bullet, but perhaps ground has dodged a bullet and put itself in front of a moving train.

YANIS VAROUFAKIS, PROFESSOR OF ECONOMICS, UNIVERSITY OF ATHENS: What Greece has done is to prolong a very agonizing death and this prolongation is not only putting it in a position where when the inevitable happens, the total economy is going to be much weaker than it would have to be, but also in a positive that it is bringing down with it yet again, spreading contagion to the rest of the Eurozone.

Think about Spain. Spain is going down and deeper and down simply because what is happening here in Greece is the template which is being imposed upon Spain, the death embrace between insolvent banks and insolvent state, started here. It is getting worse because a hell of a lot of money is being thrown at that deadly embrace, and that model of supposedly dealing with the crisis has been exported to Spain.

Now Greece is quite small and insignificant, but Spain is too large to ignore. And it is bringing down with it the whole of the Eurozone.

VELSHI: Back in the day, by the way, a number of very smart people, Gillian, felt that Lehman Brothers, though not small and insignificant, wouldn't cause the world to go into a credit freeze. Yanis says it's a death embrace between insolvent banks and insolvent states. There's a marriage here between politics and reality, and markets and none of them are dancing together.

So I think Yanis' point is that we've all embraced the idea that Greece didn't elect a government that said we've had it with this austerity; we're going back. We're ripping up the deal. His point is maybe we're not in a much better place.

GILLIAN TETT, "FINANCIAL TIMES": I think you're absolutely right. And what we're seeing right now is not just financial contagion in terms of investors panicking about the outlook for the banking system and the question of where the government bonds to be repaid. We're also seeing something much more subtle, which is political contagion.

The message from Greece is that you had a far less hearty, which almost won the election. It didn't win this time. The emphasis should be this time. I suspect that Yanis is quite correct. The pressures are building. We could well be seeing Greek elections again in another year's time if not before.

But it also indicates much wider theme is that across Spain, across even the Netherlands, across other parts of Europe with an increasing rite (ph) extremist politics, and that's very dangerous at the howl of protest and potentially very destabilizing.

VELSHI: Yanis, I want to ask you what you think would have been a better outcome, and I want to mention to you something that German Chancellor Angela Merkel said in response to Syriza and the Greek Left's idea that they may tear up the deal with the Eurozone.

She said, "We agreed on a Greece program. We must be sure that Greece sticks to its commitments," which is exactly what many people voted against in this Greece election. Wouldn't it have been a better or somehow different outcome if we had -- if the Greeks had elected a government, a parliament majority or controlling power that said, to hell with this deal?

VAROUFAKIS: I have no doubt that that would be right and not because I am a so great supporter of the Syriza party, but simply because Europe requires, demands at the moment, a circuit breaker, something that will stop this madness.

Now Ms. Merkel is quite right when she says that Greece has a deal with the troika with the European Union. There are terms and conditions. The problem, however is that those terms and conditions are predicated upon assumptions that economic life is annulled and completely and utterly obliterated.

So even if God, His angels and every good man and woman on this planet were to descend upon Greece and form a government with the purpose and the commitment to implement this bailout agreement, it would simply not be possible. So there is no doubt that it is going to be ignored by history in the next few weeks and to be rewritten.

The question is what is it going -- what's going to come in its place? And I'm afraid -- I very much fear that Ms. Merkel is going to buckle again, and she's going to loosen up the terms and conditions of the Greek bailout, which is not good news because we don't need more time to hang ourselves. We do not need different dosages of the same poison. We need another approach.

VELSHI: OK, so it looks obvious, Gillian, to people who look at it -- many observers and maybe influence says -- Yanis says by the media, they say Greece has got to live up to its responsibilities. It's got to get its house in order, all of these analogies, got to tighten its belt. And they say, you know, Greece has to live up to its obligations.

Look at it from the perspective of the Greek, greater than 20 percent unemployment, greater than 50 percent youth unemployment and no real light at the end of the tunnel, whether or not they accept the deal or not. So what do you do to compel the Greeks to say we need a solution?

TETT: Well, the reality is that such of the nature of the (inaudible) in Greece today, that what you can predict with great confidence is that in a year's time, the electorate would be feeling even angrier with the government (inaudible) elected.

I mean, that will be opening the door to more extremism in the future because as Yanis has said, the terms of this current package are completely unsustainable. It's simply not going to work.

And the question really is to what degree Angela Merkel will or will not crack, and more importantly, to what degree does she feel she has the room to maneuver? Because what we're seeing right now is not the least fit between countries opening up, between Greece and Germany and this great iron (ph) (inaudible) football (inaudible) on Friday.

But we're also seeing growing cracks between the electorate and the elite. And it was the elite that dropped off the Eurozone and people and Angela Merkel today know that she herself is facing more political challenges inside Germany and cannot afford to be seen to be being too generous towards the Greeks.

VELSHI: Meanwhile, Yanis, there's no shortage of advice for the Greeks and for the Europeans, and Jose Barroso of the European Commission, the president, sat at the G-20 conference today, let me -- when he was questioned about the criticisms of the G-20, which are far and wide and very -- here's what he had to say.


JOSE BARROSO, PRESIDENT, EUROPEAN COMMISSION: This crisis was not originated in Europe. Since you mention North America, this crisis was originated in North America. And many of our financial sector were contaminated by -- how can I put it -- unorthodox practice from some sectors of the financial market.

Frankly, we are not come here to receive lessons in terms of democracy or in terms of how to handle the economy.


VELSHI: Yanis, it's not unfair that he says the crisis didn't originate with Europe. But the fact is, Europe's inability to have labor flexibility and to have responsive changes after the euro was introduced, those are Europe's problems. They weren't solved 10 years ago and they're still ultimately not getting solved. What is the recipe for solving this in a way that does allow Europe to sustain?

VAROUFAKIS: I think it's quite true that the Europe block of flats caught fire from the United States block of flats next door. But it's also true that we have tried to use with which to extinguish the fire and the flames rather than water. So what would water be in this case? And I'm coming (inaudible).

We need to do three things, very, very, very, very quickly. We should have done it three years ago, but there may still be some time to do it now. Firstly, we need to Europeanize, to integrate our banking systems.

It's preposterous to have a French banking system, a Greek one, a Spanish one, and for the bank, the insolvent banks, to be borrowing from the ECB in order to finance the states, while the states are borrowing from the EFSF in order to recapitalize the banks. This is just madness in action.

The second thing we need to do is we need to unify part of the debt of each Eurozone member country and to do, I would suggest that we do this simply by having (inaudible) issue its own bonds and at the same time charge member states for servicing the master (ph) compliant part of their debt. There are various ways of doing this. But some degree of mutualization and --

VELSHI: Third?

VAROUFAKIS: -- master (ph) compliant debt, the legal debt, and the third, we need a new deal for Europe. We need to remind ourselves of how Roosevelt tried to overcome the forces of recession and depression. What we need is to energize the European investment bank, to unshackle it, to force the ECB to go into partnership with a European investment bank and to have an investment-led recovery program.

VELSHI: Ah, if it were only so easy. Yanis, you make it sound so sensible. Yanis Varoufakis is a professor of economics at the University of Athens; Gillian Tett is the U.S. managing editor for the "Financial Times." Thank you to both of you. We'll be right back.



VELSHI: Welcome back to the program. I'm Ali Velshi sitting in for Christiane Amanpour. Let's turn our attention to Syria. As violence continued unabated today, a Russian ship reported to be carrying arms to the country was halted and turned back. That's according to the British foreign secretary.

U.S. President Barack Obama is pushing Russian President Vladimir Putin to break with his Syrian ally, Bashar al-Assad. But just as Obama is putting pressure on Putin, he's also feeling the pressure here at home. The loudest critic is his former rival, Senator John McCain.


SEN. JOHN MCCAIN (R), ARIZ.: When it comes to the administration's policy towards Syria to say they are leading from behind is too generous. That suggests they are leading. They're just behind.


VELSHI: With me now is U.S. presidential candidate Ron Paul, who disagrees with Senator McCain. Unsurprising, Ron Paul is very consistent in his views about military intervention. He says what's happening in Syria is, quote, "none of our business." Congressman Paul, good to see you again. Thank you for joining us.

REP. RON PAUL, R-TEXAS, PRESIDENTIAL CANDIDATE: Thank you. Nice to be with you.

VELSHI: No surprise that you'd disagree with John McCain. You might actually find yourself more aligned with this administration, who really has chosen, though they've spoken of intervention, not to actually do anything.

PAUL: Yes, but they've already intervened too much. They've already assisted the rebels, the groups that are opposing the government. They -- he certainly got us involved in Libya rather drastically. So I would say, unfortunately, if you just look at the conventional wisdom of the media and the government, our government, is that there are two groups in this country.

One wants to go to war sort of and the other one wants to really go to war. But there's many of us who think that it's very unwise, bad politics, bad foreign policy, dangerous to us, and we don't have the money to do it.

VELSHI: Could be bad politics, could be bad foreign policy, could be dangerous and we may not have the money. But you are a physician. Do you see these pictures and wonder at some point whether the world needs to get involved?

PAUL: I look at those pictures and I think it's tragic because too many people are involved. So when you drum up stories like in Libya and say that there's been annihilation of a lot of people and there's going to be a massacre, which didn't happen, as an excuse to go in and take over a country like Libya and actually allow the Al Qaeda come in, yes, I do.

But I think that when we use -- if we continue to do what we do with drone missiles, I look at those children that get killed and all the collateral damage and as a physician and as a person concerned about my country and working for peace, yes, I look at that and I think it's tragic.

I see it all coming from us doing way too much, getting involved and getting ourselves into trouble rather than acting more peacefully like our founders wanted us to, to offer peace and trade and negotiate --


VELSHI: Let me ask you this, then. Let me ask you this. You have often said -- you are remarkably consistent in your views of not intervening militarily unless national security, U.S. national security is at stake. And that is the case that Senator McCain has made, that Syria, not a proxy but an ally of Iran and that doing something in Syria would be a big blow to Iran. Give me your view on that.

PAUL: Well, I think that's stretching it. That may be true, but you know, we have allies around the world. We're in 130 countries, 900 bases. The -- Iran is surrounded by 45 of our bases. They're no threat to anybody. That's all a concocted scheme to take over their oil.

And they have to get -- you know, they have to take over Syria in order to go on to Iran. So this is just the plan of those who love intervention and love our empire. And the American people have fallen for this before. And I'm just trying to wake up the American people and say don't fall for these lies again. Iraq, it's a big shambles right now.

The Christians have been run off and look at what's happening over there, and Al Qaeda is in there. Al Qaeda from Iraq is going into Syria. We're supposed to be opposing the Al Qaeda, not encouraging them by just stimulating their growth and giving them the motivation to do what they've been doing to us.

VELSHI: Congressman Paul, pleasure to talk to you. Thank you for joining us.

PAUL: Thank you.

VELSHI: And now I want to turn to somebody with an entirely different point of view, says Washington must do more.

Fouad Ajami is the author of "The Syrian Rebellion," and a senior fellow at Stanford University's Hoover Institute. I sat down with him earlier.


VELSHI: Fouad, Ron Paul says this is not in America's interest. It's not America's business. Why is it?

FOUAD AJAMI, SENIOR FELLOW, HOOVER INSTITUTION: Well, I'll tell you what, Ron Paul has a clarity of his convictions. I mean, he believes that the world beyond our shores is none of our business.

But the troubling thing is not Ron Paul, because he is not the commander in chief. The troubling thing is Barack Obama, because he actually believes the same thing that Ron Paul says, but he won't proclaim it, because Syria has bled now and suffered for 15 months and President Obama has not really paid it much attention. So that's the real dilemma there.

VELSHI: Is your call for more intervention into Syria? Has it got more to do with Iran than it does with Syria? Syria has been run by a brutal dictator for a long time. They've been human rights abusers for decades. This isn't 15 months.

AJAMI: Right.

VELSHI: Is this more about weakening Iran's hold? Because Syria is an ally?

AJAMI: Well, I think it's partly about that, but also I'm a serial -- I'm a serial intervener, so to speak. I'm not Syrian, but I believe in the intervention in Syria. I (inaudible) a decade or so ago, but I believe in intervention in Bosnia.

I believe not in indiscriminate intervention. We don't go and bomb everywhere, intervene everywhere, but there are places where our power makes a difference and Syria is one of these places.

VELSHI: Let's take a look at a poll. You mentioned Ron Paul is not Barack Obama and Barack Obama has to make a decision. I think this poll will show you why Barack Obama is not going to make a pro-intervention decision and we're going to compare February on the left to now. In February, 25 percent of Americans thought the U.S. should get involved.

That's up to 33 percent; 73 percent of Americans said no back then. And now that's down to 61 percent. The bottom line is it's still 61 percent. More people -- fewer people are against intervention in America.

It's still a -- really quite a majority.

AJAMI: Yes, but in the end, I don't think you run a country's foreign policy by popularity --

VELSHI: Right, but in an election year, you probably --

AJAMI: Exactly, well, particularly so with this president. We've never had a president who has been so keen over his reelection.

You know, the great General Eisenhower in 1956 wrote a famous note to Anthony Eden, the prime minister of Britain, where he said, "I don't give a damn about the election." It was exactly on Election Day.

He said, "I care about the Hungarian crisis and I care about the Suez crisis." This is not Barack Obama. The entire foreign policy of Barack Obama is really basically, in my opinion, is not driven by Hillary Clinton. It's driven by David Axelrod. The electoral needs of President Obama trump everything else.

VELSHI: David Axelrod, obviously the key adviser to President Obama. But let's be fair to them. You were, as you say, you're a serial interventionist, which meant you were supporting American intervention into Iraq.


VELSHI: The history book has not been written on that yet. But are you fearful? If I were the President of the United States, notwithstanding reelection prospects, I'd be concerned that Syria could be another Iraq, where we're in there 10 years later, and it's still a mess.

AJAMI: Well, I think you have -- there's a very legitimate point here. But it's not really intervention. We can't use the word intervention as a blanket expression.

VELSHI: Right.

AJAMI: It depends on what kind of intervention. No one -- Senator McCain, who really is in favor of intervention; Senator Lieberman; Senator Lindsey Graham; all these people are talking about intervention.

VELSHI: But they --


VELSHI: Senator McCain has said very specifically intervening in Syria would be the biggest blow to Iran in 20 years. So in other words, we're not doing something with Iran. We're taking an end run.

AJAMI: That's OK. I'll take that. But in general, I mean, even when these people are talking about intervention, like these three senators -- the Three Musketeers, as I call them -- and when I'm talking about intervention, I'm not talking about the invasion of Syria.

I'm talking about a no-fly, no-drive zone on the Syria-Turkey border that would alter the balance of power between the regime and the Free Syrian Army, between the regime and the opposition. No one -- see, but the success of President Obama has been to make it seem like a stark choice. It's either boots on the ground or head in the sand. So if people are given that false choice, they say, OK, we'll stay out of Syria.

VELSHI: Let's talk about this for a second, this Russian business, Russia and Syria have had a longstanding relationship, military relationship. Does that affect how we have to behave, how the United States has to behave in Syria, because we need Russia on side for Iran?

AJAMI: Well, we will never get anything out of the Russians, either on Syria or in Iran, and I think the meeting -- the G-20 in Mexico between President Obama and President Putin -- tells us all we need to know about the Putin dictatorship and the Putin regime. That's really what it is.

And I think the idea that the Russians will cut us some slack, either in Iran or in Syria, is fantasy. And I think we're hiding behind this. I actually have a somewhat controversial statement to say about the foreign minister, Russian foreign minister Lavrov. I say he's the most useful member of the Hillary Clinton team.


AJAMI: We've been hiding behind the Russians. We've been using the Russians as an excuse. We went to the United Nations -- and any model U.N. team and any American high school would have told you we were going to meet with a combined opposition and the combined veto of Russia and China. But we insisted on that because it's just basically a mirage.

VELSHI: So you're saying we are hiding behind them, not making decisions to do what you think we should do, and saying that we don't want to upset the Russians?

AJAMI: That's the -- that's the polite way. The other day on one of your CNN broadcasts, there was President Clinton saying we shouldn't intervene in Syria and given a whole bunch of reasons why we shouldn't.

And I came and commented (inaudible) and I said this is a president who basically pulverized the Serbs in 1999 over Kosovo. And he led a campaign, an air campaign that lasted 11 weeks, 77 days of bombing, 30,000 sorties. And then he appears and says, ah, you know, we can't intervene in Syria because it's an urban society. I think it tells you all we need to know.

VELSHI: Fouad, thanks for being with us again.

AJAMI: Thank you.


VELSHI: Well, from that Syrian nightmare, we'll return to Greece, where it's easy to tell the haves from the have-nots. They're the ones with the really big yachts. I'll be back to tell you about it.



VELSHI: A final thought: imagine a world where the wealthiest ride the waves while everyone else is going under. The term "Greek shipping magnate" is almost a cliche. It conjures up glamorous images of Aristotle Onassis and Jackie O. But the Greek shipping industry, the country's second largest industry after tourism, controls 15 percent of the world's merchant freight. And yet the Greek shipping industry pays virtually no taxes.

So what are the 900 families who run those shipping dynasties doing with their money? Well, many have been taking it out of the country. Greek banks have lost 72 billion euros in deposits since 2010, and lately they've been investing in London real estate, buying up million-dollar properties in the toniest neighborhoods.

Well, gone are the days when oligarchs like Stavros Niarchos poured hundreds of millions into Greece for civic causes. While the average Greek sees his taxes spikes and his wages and pensions plummet, Greek super-rich remain on their yachts and sail on.

Well, that's it for tonight's program. Meanwhile, the Amanpour inbox is always open, Thank you. And goodbye from New York.