"Fareed Zakaria GPS," Sundays at 10 a.m. and 1 p.m. ET on CNN
Last week, Fareed argued in his TIME column that for the next generation of growth, the U.S. “must focus on training and retraining workers, break the immigration deadlock, build out our infrastructure and invest in science and technology.” But he also argued that the United States needed reform, changes that will “make our entitlement programs affordable as we age.”
Here he speaks with Pulitzer Prize-winning economist Paul Krugman about how this applies to Europe, and whether stimulus and why stimulus and reform shouldn’t be seen as mutually exclusive.
The point I want to ask you about is the kind of reforms that open up markets. You know, Japan has 800 percent tariffs on rice. Italy is 73rd in the world in ease of doing business. The reason I'm asking is because…you've quoted…almost approvingly, something Naomi Klein argues, which is that whenever you have these crises, the problem is that these countries then adopt market friendly policies. They're called neo-liberal policies. And these are terrible for the economies.
Now, I'm thinking, the whole history of the last 35 years, as you know, is the countries that adopted these policies, by and large, grew pretty well – from Eastern Europe to India. You know, look around the world and becoming more hospitable to trade and markets has generally been a good thing.
So I'm actually, you know, still very much pro-globalization. And certainly, you look at some places – India actually being a case where you really do seem to have gotten a lot of mileage out of liberalization.
But that's starting from a very extreme regime. So when we're talking about Western European countries…I mean Ireland. Think about Ireland. I always think Ireland was the poster child for reform. Everybody talked about what a great job they’d done, how the structural changes were so great.
And now that Ireland finds itself in a financial crisis, people say, well, what you need to do is structural reform. Uh, wait, didn't they already do that? What happens if you've already reformed everything? What next?
"Fareed Zakaria GPS," Sundays at 10 a.m. and 1 p.m. ET on CNN
Fareed speaks with Beppe Severgnini, a columnist with Italy’s ‘Corriere della Sera,’ about last week’s Italian elections and what the deadlock means for the country.
Does it matter that nobody is running Italy? The line in Italy has always been, the government sleeps and the economy grows.
Well, it does matter, to be honest. It does matter a lot. But we're not worried. You shouldn't be worried. I think things will be sorted out…But don't panic. I remember I was in Aspen for the Aspen Ideas Festival, late June, 2012. A panel about Europe. Everybody was talking about doomsday, you know, everything is over. And I told them, keep quiet. Let's see what happens. And, in fact, it turned out that things got better. So before we decide that it is over – I think the expression, it's not over until the fat lady sings, it comes from opera. Opera is Italian, don't forget that.
But let me ask you, Beppe, why did the Italians do this? It's one thing to reject austerity and things like that. But, you know, you've elected either one or two clowns, depending on one's estimation of Silvio Berlusconi. What are the Italians saying?
Out of four Italians, one didn't vote, one voted for Berlusconi, one voted for the center left, one voted for Grillo. So that's why we are in a stalemate. Beppe Grillo is a kind of wrecking ball for Italian politics. And to be honest, some of the Italian political buildings needed to go down. Political parties asked for it. The question is, will we be able to build up something to replace what we pulled down?
This is the latest in a series of entries looking at what we can expect in 2013. Each weekday, a guest analyst will look at the key challenges facing a selected country – and what next year might hold in store.
By Alberto Saravalle, Special to CNN
Editor’s note: Alberto Saravalle, a member of Fermare il Declino, is a professor of European Union Law at the University of Padua, and managing partner of a law firm in Milan. The views expressed are the author’s own.
Just as the rest of the world was beginning to have some confidence in Italy’s ability to overcome its structural problems, the goodwill generated under Prime Minister Mario Monti could be about to vanish.
Italy is once again in the Eurozone hot seat, leaving observers with four key questions about Italy and its prospects for 2013: What happened? What happens next? Should we be worried? And what does the government plan to do?
By Bruce Stokes, Special to CNN
Editor’s note: Bruce Stokes is director of Global Economic Attitudes at the Pew Research Center. The views expressed are his own.
Add faith in the work ethic and in capitalism to the lengthening list of casualties from the Great Recession. Four years after the Lehman Brothers’ fiasco and the ensuing global economic downturn, the idea that effort in a competitive economy can lead to success is seriously questioned in a number of major economies, including Japan, Russia and Greece, especially among those who have suffered the most.
In eight of 21 countries recently surveyed by the Pew Research Center, fewer than half believe hard work is a guarantee of success for most people. And in 11 of the 16 nations for which there is trend data since 2007, before the financial crisis began, support for capitalism is down. A notable exception is the United States, where 77 percent of the public still thinks that effort leads to accomplishment and 67 percent have confidence in free markets.
Editor’s note: Will Marshall is the president and founder of the Progressive Policy Institute. The views in this article are solely those of Will Marshall.
By Will Marshall, Special to CNN
Despite all the attention lavished on the Greek election, the outcome barely registered in Europe’s financial markets. Everyone knows the eurozone’s fate won’t be decided by the shimmering Aegean Sea, but in drizzly Berlin.
Germany is the key, but it’s torn by conflicting impulses. As the main engine of European economic integration, Germany is determined to preserve the 17-nation eurozone. But as Europe’s lender of last resort, it’s loath to bail out countries that took advantage of the euro to borrow extravagantly and live beyond their means.
To avoid such “moral hazard,” German Chancellor Angela Merkel sternly insists that Greece and other debt-ridden nations, notably Spain and Italy, commit to stringent fiscal discipline in return for the loans they need to service their enormous debts and pay their bills. Greek voters were incensed by these Teutonic demands for spending cuts and tax hikes, but they narrowly chose to stick with the euro rather than risking a “Grexit” from the eurozone.
What the “Club Med” countries really need, however, is not a morally bracing dose of austerity, but the kind of structural adjustments that Germany itself undertook — during its “Third Way” phase — to meet the challenges of globalization. The fundamental problem isn’t that these countries are profligate, though some have been. It’s that their economies are uncompetitive, a reality masked until now by a strong common currency.
TIME magazine calls him "the most important man" in Europe: Italy's Prime Minister Mario Monti has been trying to reform Italy and reassure the markets, all while keeping the Germans happy, too.
What does the former European commissioner (dubbed "Super Mario" for his work in international finance) expect out of the G8 summit, what does he think of the competing views about the economy in Europe and what kind of Europe will emerge from the crisis?
CNN's Fareed Zakaria sat down with him for an exclusive interview in Washington on Friday. Check out some excerpts above and below, and watch the full interview on "Fareed Zakaria GPS" on Sunday, 10 a.m. and 1 p.m. ET on CNN. FULL POST
By Fareed Zakaria, CNN
At the start of 2012, here are the four countries we all need to watch closely: Italy, Iran, Pakistan and North Korea.
Let me explain:
Italy: Linchpin of the euro
The most important country to watch in 2012 is Italy. Italy needs to successfully institute reforms that give the markets confidence. It needs to do more than just deal with its budget deficit and debt - it needs to reignite growth. For the past ten years, the Italian economy has not grown at all.
If Italy manages to stimulate economic growth, it will send a very positive signal to the markets. Italy’s new Prime Minister Mario Monti is bravely and boldly advocating longer work hours and the reform of archaic laws that have made Italian businesses unproductive and uncompetitive.
If Monti succeeds, it will vindicate Germany’s strategy, which has been not to bail out the eurozone countries, but to instead pressure them to reform. Germany knows that the only solution to the crisis of Europe’s Southern economies is for them to become more competitive. FULL POST
By Michael Spence, Project Syndicate
As the economist Mario Monti’s new government takes office in Italy, much is at stake – for the country, for Europe and for the global economy. If reforms falter, public finances collapse and anemic growth persists, Italy’s commitment to the euro will diminish as the perceived costs of membership come to outweigh the benefits. And Italy’s defection from the common currency – unlike that of smaller countries, like Greece – would threaten the eurozone to the core.
Italy is a large economy, with annual GDP of more than $2 trillion. Its public debt is 120% of GDP, or roughly $2.4 trillion, which does not include the liabilities of a pension system in need of significant adjustments to reflect an aging population and increased longevity. As a result, Italy has become the world’s third-largest sovereign-debt market. FULL POST
By Anna Manchin, Gallup.com
BRUSSELS - Italy's new government will need to restore Italians' confidence in their country's leadership as it steers the nation through its current debt crisis. Gallup surveys before Prime Minister Silvio Berlusconi stepped down Saturday showed disapproval of the country's leadership hit an all-time high of 66% in March.
Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Italian Prime Minister Mario Monti appointed an emergency cabinet of technical experts (WSJ) drawn from academia, the private sector, and Italy's civil service. Monti, who will also serve as finance minister, was appointed to rein in Italy's high public debt and fend off further eurozone sovereign debt contagion.
Still, markets remained skeptical (NYT) as investors pushed yields on Italian ten-year bonds above 7 percent, a borrowing rate widely considered to be unsustainable.
Investors also drove interest rates up in the more stable countries of France, Belgium, Austria, Finland, and the Netherlands. At a debate in the European Parliament, President of the European Commission Jose Manuel Barroso said the eurozone was facing a "systemic crisis" (DeutscheWelle).
France called on the European Central Bank (Guardian) to play a bigger role in stabilizing eurozone bond markets, while Germany remained adamant that that ECB does not have the authority to do so. The disagreement contributed to market volatility. FULL POST
Editor's Note: Paolo Manasse is a Professor of Economics at the University of Bologna.
By Paolo Manasse, Foreign Affairs
Since the worldwide financial crisis began in 2008, economists have been predicting the nightmare scenario that now seems to be unfolding in the European Union: a domino effect, as the economies of Greece, Ireland, Portugal, Spain, and Italy (the PIIGS, as they've come to be known) collapse. Yet most observers got the ordering wrong. The crisis arrived in Italy before it arrived in Spain. The reason is political. Spanish Prime Minister José Luis Rodríguez Zapatero, realizing that he had lost the backing necessary for difficult reforms, announced last April that he would not run for re-election. Italian Prime Minister Silvio Berlusconi, who faced similar economic challenges, tried to keep his seat. He lost that battle and resigned on Saturday, after having let the Italian economic crisis fester for months.
The Italian public shares some of the blame. For 17 years, it put up with a leader who had managed to collect an impressive record of criminal proceedings (for corruption, bribery, complicity in prostitution with a minor, Mafia connections, false balance sheets, false testimony) but went acquitted for all of them. La Repubblica, Italy's largest daily, argued that many Italians, including Berlusconi himself, had been living in a some kind of national Truman Show, fabricated by the television stations that Berlusconi himself owned. In his last press conference as prime minister, for example, Berlusconi noted that "Italians are not feeling the crisis - restaurants are full and flights to exotic destinations are overbooked." FULL POST
If Nero fiddled while Rome burned, Silvio Berlusconi has apparently been singing while the city, indeed, the entire country collapses. It's been a tough week for the cruise ship crooner-turned-billionaire businessman-turned Italian prime minister.
But don't be sad for Silvio. He's already lined up his next gig.
In just a few weeks, he'll release his fourth musical album. This one is called "True Love." If his previous albums are any indication, he's clearly aiming to have the ladies swooning.