Source: Diane Rehm Show
MS. DIANE REHM
Thanks for joining us. I'm Diane Rehm. 2011 saw the end of an era in many parts of the world, from Egypt to North Korea to Iraq. 2012 could well be a time of new beginnings, from China to Russia to the foreign policy implications of our own presidential election. Joining me to talk about the international issues likely to dominate the year ahead is Stephan Richter of the Globalist, and Jessica Mathews of the Carnegie Endowment for International Peace. We are expecting Hisham Melhem of Al-Arabiya television news channel.
MS. DIANE REHM
You can join us as well, 800-433-8850. Send us your email to drshow@wamu.org, join us on Facebook or Twitter. Good morning to both of you.
MR. STEPHAN RICHTER
Good morning.
MS. JESSICA MATHEWS
Good morning. Happy new year.
REHM
Happy new year to you as well. Jessica, I know you wrote an end-of-the-year essay for The Carnegie Institute. Talk about how you summed up what happened in 2011.
MATHEWS
Well, if ever there were a year that seemed to have a very clear leitmotif, I think it was 2011, and in a word, I would say it was surprised. It was a year of events that you couldn't have predicted two weeks before they happened, and you don't often see that where are so many things happening with such surprise, and it lasted all the way from Tunisia at really the end of 2010, until the protests in Russia just a couple of weeks ago.
MATHEWS
So December to December, we saw things that, I think, just took everybody completely unawares. And at the same time, and we'll hear about this from Stephan, I think at the beginning of the year to have imagined the Euro crisis going as deeply as it did also would have been unthinkable. So I don't see any end to that trend, so I would say the outlook...
REHM
Interesting.
MATHEWS
...for 2012 is probably continued surprise.
REHM
Would you agree, Stefan, that no one could have predicted what was going to happen in Europe and the Eurozone?
RICHTER
And it's not just in Europe and the Eurozone. I think there's bigger leitmotif here, and it is something that nobody could have predicted that it would start in 2011 on such a big scale. But it is a worldwide trend that last we saw manifested itself in 1990 when Eastern Europe and the Soviet Union to an extent shed all the chains and opted for liberty. So the leitmotif that we have is that from the Middle East to anywhere around the world, hopefully eventually in North Korea we see signs of that in China, that people are trying to take fate into their own hands.
RICHTER
And I think that is also a very important thought from an American perspective, because people are standing up for their own rights, and one of the key questions we need to ask ourselves going into 2012 looking at the budgetary issues and so on that we face as a nation is whether we need to be involved in all of these affairs. You know, there are some cases like Burma where Hillary Clinton went where there's a special relationship.
RICHTER
But is North Korea, for example, our choice, or is it for the Chinese and the North Koreans and the South Koreans to figure out? That's...
REHM
I was actually surprised that you included North Korea in what you were saying about change other than at the very top.
RICHTER
They may be the last ones. The Iranians may be among the last ones. But we even see signs in Russia now, supposedly a "perfectly managed democracy" quote unquote, where people have never successfully stood up for democracy throughout history other than for some brief intervals in 1917, 1919, you know, and in 1990. There is a universal quest, you know, nobody would have thought in the Middle East that this would come about, and so that is rather remarkable. And I'm not saying that North Korea will unfold this year or any time, but there is, I think, a very deep yearning, and we need to let these countries, like good wine, unfold themselves, I think. That's a big lesson of 2011 and going into the future.
REHM
Jessica, Stefan sounds rather optimistic.
MATHEWS
I don't see what he is describing either in China or North Korea. We don't even see it, for example, in a huge democracy like India. But certainly the protests that spread across the Middle East have left a huge imprint, I think, everywhere, including in China, and certainly in Russia. In Iran, I mean, you know, Iran, you can think of has really been the first, not the last. 2009, the Green Revolution in Iran, it didn't succeed, but you can look at it as the opening salvo, in a sense, in this trend.
MATHEWS
I -- the thing with the Arab awakening is that it's going to be decades long, and that's the key, I think, to learning to live with it wisely, which is not thinking that any one election or any one event in any one country is the ball game. It isn't, and we will see a long period of ups and downs and bumps. And my own feeling is that over time, this will be a moderating influence on Islamists because governing is a whole lot tougher than being in the opposition.
REHM
For sure. And you actually, Jessica, see a quartet of issues...
MATHEWS
I do, yeah.
REHM
...dominating. You talk about Egypt, Iraq, Syria and Iran.
MATHEWS
So here are the four questions. With Egypt, the question is, will the military let go of the power it took over on the fall of Mubarak, and allow an elected civilian government to come to power.
REHM
Rather than the military continuing to dominate.
MATHEWS
Exactly. And what we're seeing now is very troubling and suggests that perhaps, as most other governments have never wanted to do before, they don't want to let go. Secondly, in Iraq, we have already seen suggestions that the ruling Shiite party wants to overturn the distribution of power that the U.S. put in place with such anguish over the last many years. And in a very troubling way, the President of Iraq waited until really the last American footstep was barely over the border before accusing his vice president of treason.
MATHEWS
So the question, will Iraq unravel Iraq's government structure is question number two. Question number three is the fate of the government in Syria. If I had to make a prediction that I would feel comfortable with living with about 2012, it would be that we will not see the Assad regime in power at this time next year. But the questions -- there are important questions about how it ends, how much violence, how much loss of life, whether the international community plays a constructive role and, in particular, the Arab League and Hisham can certainly speak to that.
REHM
And Hisham Melhem is here. So glad to see you.
MR. HISHAM MELHEM
Thank you, dear.
REHM
Happy New Year.
MELHEM
Happy New Year to you.
REHM
On that point that Jessica made, do you believe that Bashar al-Assad will manage to hold onto power in Syria?
MELHEM
As we've been saying recently, he's a dead man walking. I think politically he's finished. The question is when he will be overthrown, and I agree with Jessica that sometime this year, maybe in first six months of this year, he will be overthrown. The question is the price that the Syrian people are going to pay for it. And if Syria degenerates into a full-fledged civil war, it will not remain in Syria necessarily, and this is one of the fears and concerns of this administration Europeans, and the United States does not want to own Syria.
MELHEM
Nobody wants to own Syria. The problem is that Syria will impose itself on everybody because the United States happens to have serious strategic political economic interest in every country around Syria, Turkey, Iraq, Jordan, Israel, and Lebanon. This was not the case in Libya. What happened in Libya could stay in Libya. What happened in Syria does not stay in Syria and hence the administration today, if you see in Washington, they are in a race with time.
MELHEM
They believe that this regime should fall. If it drags on -- if this crisis drags on, it will be bloodier and it will be more sectarian with regional ramifications. On the other hand, if he falls relatively quickly, no civil war, then the reverberation of this change in Syria will be felt from Central Asia to the Mediterranean because Iran will be dealt in that case the biggest strategic defeat since 1979.
REHM
Stefan.
RICHTER
I think the operative question, and there can be no doubt about what Jessica said, I fully agree and meant the same thing, that this is all a decades-long process. The question is from a U.S. perspective, sitting in Washington, is the United States, either the global cup, or some people around this town think the master of the universe that needs to turn everybody into a string puppet, or totally differently are these all localized regionalized processes.
RICHTER
So one of the questions that I've been asking myself for quite some time also in a Turkish context is whether it's not wiser to let the Turkish government be sort of an informal subcontractor, and not in a formal sense because they wouldn't want to be a subcontractor to the United States, but what we just heard about all these different countries, Iraq, Iran, Syria and so on. This is something that I think mostly needs to be sorted out locally and regionally. The same thing on Afghanistan.
RICHTER
You know, there's a lot of Washington planning all the time. Ultimately, the smart money is on the fact that either the Indians, the Russians, the Chinese, the Pakistanis, the Iranians and so on, sit together and figure this out. It can't be done by the west, from the west, or by Washington, and that's one of the key questions in terms of having realistic expectations as these processes unfold, you know, whether we can really manage this quote unquote, or whether it's really rather an unmanageable process.
REHM
How would you imagine the United States staying out of that decision making?
RICHTER
Not staying out of it, but stopping to pretend that we can steer it. It is, you know, this is a question of, you know, there's news today that we have vast cost overruns on things like aircraft carriers. We spend $600 billion and more, probably 800 billion on defense and money is getting tight and we need to look at our options.
REHM
Stefan Richter. He is publisher and editor-in-chief of The Globalist. We'll take your calls in just a few moments. Stay with us.
REHM
And welcome back. As we look ahead to 2012 on an international basis, one of the events that occurred over the weekend was Iran's test firing a long-range missile. What are the implications, Jessica?
MATHEWS
I think this is Iran's way of saying don't mess with us. This is trying to head off tougher sanctions. Iran's ruler believes that the last time you would ever compromise is when you're under pressure. And so he and they typically react by throwing sharp elbows whenever they are under pressure. And I think, as Hisham pointed out, one of the great importance of what's happening in Syria is that Iran, if the Assad Regime falls, will lose its most important ally by far.
MATHEWS
And there's no question that the sanctions that the United States has worked so hard with the Europeans to put in place are pinching, are really hurting. And they do not want to see tighter sanctions. And this has to go with the question of sanctions against interactions with the Central Bank of Iran. So my hunch is that just as with the sacking of the British Embassy and other recent moves and the threat against the Strait of Hormuz, this is Iran under pressure is what we're seeing.
REHM
And from your perspective, Stephan Richter, if Israel perhaps overreacts to this firing of a long-range missile, what could the implications be?
RICHTER
Well, the implications can always be catastrophic in the Middle East by any actor overreacting. But I think there was also a very interesting piece by Thomas Pickering, the former Undersecretary of State who said this is a war that one can start but never end, which is a nice refrain on the Afghanistan debates. I think we need to look at this in a broader context, because we're basically creating another genie ourselves.
RICHTER
Now the Iranians have their problems, no question, but there are issues about who owns nuclear missiles and should it not be -- you know, should there not be any Middle Eastern power? That's a very objective question. I mean, I would favor no nukes all around. But since they are there, that's an equity question.
RICHTER
The other thing we need to look at in a broader context is what we're creating with putting pressure on the Iranians who have 150 years of grievances at the hands of British interests, American oil interests and so on. I'm no apologist for this regime, but for the legitimate interests of the Iranian people, who at the hands of Western power, so-called Democratic powers, over their own time, have had expropriations and all of these things with Mosaddegh and Sadat, wasn't nice. That swings in the head even of the general Iranian people, you know, not just the creeps who are up top there. That's not the point.
RICHTER
But when we then look at what we can do ourselves, there's also news today that the President Ahmadinejad is going to Latin America. Well, you know, why are we afraid? Why is this a front page story in the Washington Post? You know, Latin America, quote/unquote, "should be ours," and I don't mean this in a Banana Republic sense. But if we had ever had a Latin America strategy over the last 100 years, water, energy community or anything, anything of the like that the Europeans have brought to Eastern Europe, his trip to Latin America would be a laughing stock.
RICHTER
Instead, because of our lack of attention, we're making this something that's very real and very important. That's crazy for us.
REHM
How effective could Ahmadinejad be in Latin America?
MELHEM
He's not going to be that effective. Look, the nature of the leadership in the world is changing. I mean, Brazil today is the fifth largest economy in the world. The United States is still the biggest economy in the world but the United States is not as powerful today as it used to be ten, fifteen, twenty, fifty years ago. After the Second World War the United States was 45 percent of the world's economy, almost 50 percent of the world's economy.
MELHEM
So the world is changing and then midsize -- third size powers, whatever, are trying to assert themselves and Iran is one of them. And it's trying to find, you know, in Venezuela and other left-leaning countries in Latin America, you know, closer to the American, quote/unquote, "backyard" in the old days, some friends.
MELHEM
But that's not going to really change the strategic situation of Iran. Iran is vulnerable more than ever, as Jessica said, because of the sanctions. The American sanctions, especially the stuff that was put against the -- Iran's ability to use the international monetary system in the last few years, especially the work that was done by Stu Levy, who was kept by President Obama from the previous administration, was tremendous in terms of rallying up and working on that -- tightening the financial screws on Iran.
MELHEM
All these threats about the Strait of Hormuz -- and by the way, this is déjà vu all over again. Every year, an Iranian official talks about closing of Hormuz. I mean, we're tired of this. They cannot do it -- well, they may be able to do it or try to do it, but they will be clobbered big time.
EHM
But...
MELHEM
And they know that. The point is they are really hurting and they are flailing and that's why they are trying to assert themselves in Iraq because they are trying to compensate for the potential loss of Syria. And when they do this firing of missiles they remind me of North Korea. Expect that. This is the new normal.
MATHEWS
But there's...
REHM
All right. But there's Israel..
MATHEWS
May I just -- there is something -- there is Israel and there's the nuclear program, which is different. And the question -- I mean, what the intelligence is suggesting now is that the Iranians are close to installing new enrichment cascades at an underground facility that may or may not be attackable by anybody other than us, and even by us effectively once it's online. And to the Israelis this is a red line that they -- that constitutes an existential threat, they are saying, although they have said that over and over and over again over the last five years.
MELHEM
More than a decade, actually.
MATHEWS
And we too are perhaps saying that it is a red line quietly in diplomatic circles, which is a mistake because drawing red lines that you then allow the other person to cross is -- never enhances your credibility. But if -- I think there are two things that could happen here. One is Iranian leaders may be intelligent enough to realize that their greatest strength comes from being so called screwdrivers turn away from a nuclear weapon. That is that they have the capability but it's implicit in the same way that Japan has the capability.
MATHEWS
Or they may try to do something that is going to cause, I think, a global catastrophe, which is to test a nuclear weapon and make -- and shove it down the world's throat. And what scares me most then is that Israel will take action. It is a war that Israel can start, but not finish. We will get 80 percent of the blame anyway. And the administration may well feel that politically it's impossible to hang back in that situation.
MATHEWS
If that happens, I think oil prices will skyrocket instantly and we will see Shiite terrorism, which we haven't seen recently. And that's going to be really ugly. And the world economy, I think, can't stand $150 barrel oil.
REHM
All right. But there's another question, which is in the lead-up to the 2012 U.S. election. Is President Obama going to serve this country better by being tougher on Israel or tougher on Iran, Stephan?
RICHTER
Well, ideally he would do both because let me start with the observation that both of these countries are some of the oldest cultures in the universe, on earth, right? They have legitimate interests. If we narrow this always to sanctions and screwing the finger screws like medieval things, we don't look at what will solve this problem. We are basically just creating a self-fulfilling prophecy.
RICHTER
Now it is clear that President Obama cannot really be even-handed with regard to Israel. It is a big problem because it has undermined, for a decade or more, the U.S. role -- self portrayed role as a fair negotiator in the Middle East. That's long gone. It is, you know, an army -- part of a coalition of three people in the three nations in the United Nations that stands with Israel on most issues. The others nobody knows or have less than, I don't know, 500 people or 5,000 people, very small countries.
RICHTER
This is a big problem but in a bigger context for the United States I think we would look much more at what we can do with regard to standing back. Look at the Strait of Hormuz which Hisham brought up. We pay hundreds of billions of dollars for regional security there. And who gets almost 40 percent of their oil from there? China. Now nobody's connecting the dots here. We're always blaming the Chinese on all sorts of things, currencies, you know, under -- too cheap currency, all of these kinds of things. But in the end, the Chinese benefit from U.S. defense dollars.
RICHTER
Now, does that make sense? This is not an isolationist thought. This is a strategic question in terms of marshaling the nation's resources in a wise fashion. And I'm here to say that if we enlarge the margin of maneuver and didn't just look at financial scale -- the Iranians are bad guys, there's no question. But there is also what Jessica said, there was the elements of a revolution there. They're highly cultivated people in Tehran. What do we do to change the balance there?
REHM
Hisham.
MELHEM
Well, even when you don't have an election season or call it silly season -- you know, American presidents are always safe when they say nice things about Israel and when they provide Israel with support, material support, strategic support and you name it.
MATHEWS
And when they say nasty things about Iran.
MELHEM
And when they say nasty things about -- it sells. I mean, you know, Santorum is saying he's going to -- he will attack Iran if he's elected. Lord have mercy. But the point is this administration has resigned effectively from peace-making in the Middle East this year. This is one of the reasons Dennis Ross left his post, but that's another issue.
MELHEM
I think the Israelis know that if they come close to, you know, having any clear military capability, the Israelis will likely attack. I think the option of Japan or Germany, you know, having everything but not putting it together, or you can put it together in one week or two or three, will probably be one option. I would argue that if the Israelis are convinced that they have good intelligence and the United States has good intelligence that the Iranians are that close, there would be military action. And that's one reason.
REHM
We had so called good intelligence with Iraq.
MELHEM
But you're right. There's no 100 percent intelligence.
MATHEWS
Well, we had terrible intelligence in Iraq. It has for...
REHM
Exactly, that's what I mean.
MELHEM
But that's one reason why Leon Panetta and everybody else in this administration are urging the Israelis privately and publicly, don't attack this year, with the understanding that if the Iranians cross certain, quote/unquote, "red lines" in their efforts to develop nuclear military capabilities, we will do it. Don't do it. And Jessica's correct. The Israelis can start something, but they cannot finish it.
MELHEM
And even in the case of the United States, there's going to be an intensive bombing campaign that is going to open up the Lebanese front with Israel, that's open -- you'll see missiles flying over the Gulf to the Arab states on the other side. And you will see active terror from Latin America to Africa to this country here.
MATHEWS
Right. And...
RICHTER
But...
MATHEWS
...and you will entrench the existing government in Iran for another generation. And it's a weak government now.
REHM
Stephan.
RICHTER
Diane, you raised a very important point by reminding us of Iraq. At the time in 2003 I was on television a lot and got blamed by a lot of U.S. officials by saying, wait it out. Let's see the evidence. We're as close on the United Nations to having legal evidence. And if that becomes enforceable by the will of the community of nations, great because who invented international public law. This is America's baby.
RICHTER
So unilateralism in the end is out. We can rush into this again. Iraq cost us $1 trillion alone. That is basically 35 years of what the United States spends on development assistance to the entire world. That is, you know, an unimaginable amount of money, 30 years of development assistance, or if we had, you know, put that money into civil structures there -- not that we should have to that extent -- but this is all money wasted. It's made our problems worse in Iraq. We created Iran as a stronger regime because of our policy in Iraq and all of these things.
REHM
And of course you have General Collin Powell going to the UN...
RICHTER
And lying.
REHM
...to convince them that it was necessary to go into Iraq. I want to talk about Afghanistan. Where do we go from here? How much longer, Jessica?
MATHEWS
Well, that's one question we can answer 'cause the president's given us a deadline of 2014.
REHM
Except others -- some of the generals are saying maybe not so fast.
MATHEWS
Right. I think this is one of those issues of which we've run out of good answers if -- or even particularly hopeful alternative options. We have a plan. We have come full circle from counterterrorism through nation building and now back to counterterrorism. We have a much more limited set of objectives, which is to keep al-Qaida down and keep -- try to work with the existing government and with the Taliban. And try to build up Afghan security forces.
MATHEWS
I personally cannot see the good news that the U.S. military is reporting. 2010, 2011 have been the highest number of U.S. and NATO casualties of this whole ten-year war, which doesn't tell the whole story but it tells a good part of it. Negotiating with the Taliban is mind bogglingly difficult. And on top of that behind the Taliban stance the most troubled government on the planet, which is Pakistan.
REHM
And considering what's happened in Iraq now that U.S. troops are leaving with, as you said earlier, the president undermining the vice-president, what could we expect in Afghanistan?
MELHEM
We have unreliable allies in Afghanistan, Karzai on top of it, and you have a very shaky political situation there. Militarily, the situation is untenable in terms of achieving, quote/unquote, "victory." There is no such thing now. And if we delay our presence there for another six months or a year after the deadline that President Obama specified, that's not going to change the strategic equation.
MELHEM
And the best option would be for the United States to withdraw, try to be in some sort of negotiations with Taliban. But as Jessica said, this is an extremely difficult process. And if the -- if Pakistanis are not comfortable with it the Pakistanis will always be in a position to undermine our efforts in Afghanistan. And they have a veto power and they are willing to do the unspeakable to maintain their influence in Pakistan because they are terrified of India, terrified of the possibility of a pro-Indian government in Kabul.
REHM
And is there truly a threat of the military coup against the civilian government in Pakistan, Stephan?
RICHTER
That's a question that I think is at the core. But once again the question is how do we deal with this problem? It is also the most impoverished country among the larger countries. It has fantastic, meaning bad, population growth. We've seen in Egypt what leads to -- where it comes, you know, in terms of food, poverty and all of this. Pakistan and Egypt have similar characteristics in the sense that there's no oil. That's bad news for Middle Eastern or Arab -- or for regional countries there.
RICHTER
But I want to come back for a second on the Afghanistan point because it is also an answer to Pakistan. We spend $130 billion a year on Afghanistan. That makes a lot of people a lot of money, some beltway bandits around Washington, some defense companies, a lot of sons of, you know, stan country presidents who run the oil companies that deliver stuff to U.S. troops. This is a land law country.
RICHTER
This is, I'm sorry to say, a lost cause. It would've been a possible cause if in 2001 we had stayed the course and President Bush and Vice-President Chaney had said, let us really liberate Afghan women. Let's try this because it actually was there before. I mean, Kabul was once the center of enlightenment of the region. Pakistani women traveled to Kabul because it was such a cool place. That's all gone now.
REHM
Stephan Richter. He's publisher and editor-in-chief of The Globalist. That's a daily online magazine on the global economy, politics and culture. Phone calls when we come back.
REHM
And welcome back. An email from Greg in Dallas who says "Rick Santorum says if he were president, he would start air strikes against Iran to protect Israel and prevent Iran's development of nuclear weapons. If you did attack Iran, do you really think that would do any more than delay their nuclear weapon program and who's next on the list, North Korea?"
MS. JESSICA MATTHEWS
Well, it would do a lot more. All of it bad for us. It would skyrocket oil prices. It would unleash Shia terrorism around the world. And Iran has been building cell -- terrorist cells -- Shia for a long, long time. And as I mentioned before, it would certainly entrench the current government for, I would guess, a generation. All three of those things are awful. The question about how long it would delay the nuclear thing for, ranges from estimates of two to three years which is clearly, I mean as a cost benefit and possibly bad deal, to people who are asserting, perhaps, the U.S. could delay for 10 years.
MS. JESSICA MATTHEWS
The question is, how much can we achieve over time with continued diplomacy toward Russia and China through sanctions and through covert activity? Which so far has been working extremely well, but that balance has, in the last eight weeks or so, really started to break down and we'll hear more and more and more talk of bombing campaigns beyond the republican candidates. So...
REHM
All right.
MATTHEWS
...that's a big question mark about 2012.
REHM
Let's take a caller in Woodbridge, Va. Good morning Garrett, you're on the air.
GARRETT
Oh, thank you, Diane. I wanted to ask your panelist if they think the Arab Spring would've come to Iraq if we hadn't gone in with military force?
MELHEM
This is a question that was asked repeatedly, actually, last year given the comparison between the Ba'ath regime today in Damascus and the old Ba'ath regime in Iraq before pre -- 2003. It is difficult to imagine that this would have happened under Saddam because Saddam would showed the kind of brutality that, you know, you would not -- we haven't seen in the Arab world. And we've seen a lot of brutality last year, particularly in Libya and now in Syria.
MELHEM
That regime, in fact, waged a genocide war against the Kurds in the late 1980s, the so-called unfair campaign. So I doubt that -- unfortunately, the political and social cultural fabric and ethnic fabric of Iraq makes it difficult for people to gather around one vision and that's why now we see Iraq returning to its old ways of being essentially a sectarian and ethnic, you know, driven society.
REHM
Stephan.
RICHTER
The Iraqi question on that one, actually, Mitch Romney, before he reversed himself, had a very good point. He said something to the effect that we can't liberate other peoples to their freedom. And I think that's exactly the right standard. The Polish military, government in the '80s was not nice. That wasn't tin cup dictators. The Polish people had the innate courage to overcome this.
RICHTER
I have, ever since, questioned the wisdom of Western powers and is particularly the United States of willing any country into liberty that doesn't have the domestic guts, even if we had liberated Iraq successfully which we did not. It would've been an insult to, I would say, male pride and civic pride that we couldn't do this ourselves, we needed to, you know, bombs from the sky to do this. So -- go ahead.
REHM
Let me ask you about the global economic outlook. What is it going to be like for 2012? Will Europe manage to turn its economy around?
RICHTER
It might. Most of -- half of it already has. That's what we always forget. The Scandinavian countries, Germany and some of the Scandinavians had big crisis. The East European countries had a big crisis, again, in the early 1990's. They've mostly transformed -- look at Poland which has the strongest growth performance in Europe. Germany, which did this adjustment early. It's not just global exports, it's, you know, whether you basically do belt-tightening at the right moment. The problem now is that when these so-called periphery countries, Spain, Italy, all the Southern European countries, when they got started, it was way too late.
RICHTER
When the Euro came, it provided them with a tremendous break, lower interest rates on their public debt. They should've used this to restructure the economy. Instead they basically lifted domestic salaries by 30 percent, compared to other countries in Europe. And, you know, we all come to the point that the IMF has taught the world and that Latin American countries are -- and Asian countries are now insisting that the rest of the world learns too, that money doesn't grow on trees and that everybody needs to live within their own means.
RICHTER
You know, that's what the Indonesians, the Thais, the Koreans and so on, have learned, that's what the Brazilians and others -- the Chileans have learned. Brazil is a prime example of this. Live within your means, there is no special right for Western Europeans to not follow the basic laws of economics. And that's something that we'll also learn to live with in this town once the Rick Santorum stop being part of dream-on.org, by focusing on bombing places instead of fixing the domestic economy and putting people back to work.
REHM
What happens to the Euro?
RICHTER
The Euro will survive. The question is that the earliest test is that Greece may exit as early as February. People are trying to avoid this by basically coming to an agreement on restructuring their debt.
REHM
You're saying it could go back to the Drachma?
RICHTER
It's -- it could well do that because the Greeks have basically lived a lie on the streets, radical elements on the streets, not the middle class and the rich people. You've had a very unfortunate coalition. The people who are regular wage earners, people like all of us who draw a salary will have to pay taxes, social security and so on. They got screwed. Many people in Greece and Italy don't -- the rich don't have any taxable relationship. They basically put everything into their own pocket. So you never had the domestic tax space to finance a state at the same time, the aspirations of these people, when they joined Europe, was, well, we need to live like the Germans, and so on.
RICHTER
Or the Dutch or the Danes and so on. And that this has, in some cases, taken 200 years of effort is unknown and I would just point in the Greek context to the treacherous example of Turkey. The Turks were nowhere, you know, just 50 years ago. They have basically pursued an economic policy, especially under the current government, that has focused a lot on including the lower middle class and basically expanded the tax paid -- expanding wealthier in a very responsible manner and is creating the likes of an economic miracle with its treacherous problems also.
RICHTER
But this is the strategy that you've got to earn it, you know. That was an old with Smith Barney still existed that was the commercial, you've got to earn it. You can't just write yourself a check and feel rich. That's...
REHM
Jessica...
RICHTER
...leads nowhere.
MATTHEWS
I think what we're seeing is where we are today, is an inverse relationship between the economic fix that is needed and the political realities. And that is, it takes an enormous act of political will to make the changes on an individual country basis, forgetting the number of countries that'd have to agree to make the changes that are needed to win back the confidence of the markets. And it's not until the economies, you know, so to speak, the toe is over the edge of the abyss. And everybody is sort of teetering on falling in that the political will rises enough to take the steps.
MATTHEWS
And the problem with that is that, at each step along the way, the markets require more and more and more to reestablish the confidence. So this is an incredibly expensive sort of Danse Macabre. And we also, I think, have to have a degree of humility when we see how little we've been able to fix at home of a much less severe problem. So I hope the Euro will survive because if it doesn't it will tip, I think, the global economy into recession.
REHM
But you're saying you hope it will survive, even as Greece considers pulling out?
MATTHEWS
Yeah, I don’t think that's a mortal blow but there are plenty of mortal blows in the wings. And Europe will -- the political will is never big enough or hasn't been in the last year to get ahead of what the markets are demanding. That, I think, is the...
MELHEM
Yeah, I think...
MATTHEWS
...the nub of the problem.
MELHEM
...yeah, the Greek economy is small economy compared to...
MATTHEWS
It's tiny, yeah.
MELHEM
...tiny economy compared to the Euros own economy, obviously. But obviously, there's a great deal of resentment in Northern Europe. Germany and others, that we are not going to bankroll our poor Southern neighbors, especially if they are not willing to pay taxes.
REHM
What about Spain?
MELHEM
Well, the same thing with Spain. And, I mean, it's less severe in Spain and Italy. But Italy is a large economy and Spain also is somewhat large.
MATTHEWS
The other problem is -- oh, sorry. It's that you can't get there just through austerity because this is a problem of both, how much the nominator and the denominator. You've got to have growth in order...
REHM
Yeah.
MATTHEWS
...to get the debt levels down.
MELHEM
But that's what the Turks did actually. You're talking about that. I mean, the Turkish economy is an export driven economy. One reason you see in Turkey returning to the Middle East is because now the Middle East is their new market. And there is a great deal of vitality in Turkish economy in recent years because they are creating a new consuming middle class.
REHM
Stephan.
RICHTER
Yeah. In the end, it's all very simple. It sounds so hyper-complex, like moving 17 or 26 or really 27 countries because the British government has professed, you know -- it's one of the most austerity minded governments. What happened there in Brussels at the Summit when Cameron pulled out, was a little bit -- shot into both of his own feet. These countries, each individually, need to do, whether there's a Euro or not, because they will not be refinanced by the markets, they will not be able to raise debt issues.
RICHTER
If they all went back to their own currencies, the U.K. approves that a series of devaluations, you know, hog heaven for depreciation and so on, does not lead a country anywhere. So it's simple and it's a domestic battle between those who are insiders who have nice full-time jobs with large benefits and the young and the unemployed and the under employed...
REHM
And...
RICHTER
...and these societies need to figure out whether they adjust for the insiders or for all the people who live in that country...
REHM
...what about...
RICHTER
...it's a simple battle.
REHM
...China and North Korea economically, Jessica?
MATTHEWS
Well, North Korea has virtually no economy. So that's, you know, they are sustaining...
REHM
Starving people.
MATTHEWS
...on -- they are starving. And they are -- China has to try to keep them from imploding because China really fears a wave of...
RICHTER
Refugees.
MATTHEWS
...Korean...
RICHTER
Refugees...
MATTHEWS
...refugees across its border and because it doesn't want to see a unified Korean peninsula.
REHM
Who were all those mourners that we saw?
MATTHEWS
Those are North Koreans. This is a -- I visited Pyongyang a couple of years ago and it's astonishing to see what a totally regulated country looks like. Those are people who are told to be there and told to weep and they do.
REHM
And...
MATTHEWS
They have to.
REHM
...and what about the people who are starving, where are they?
MATTHEWS
Well, they're basically everywhere except Pyongyang. It's a terrible...
RICHTER
Who do they...
MATTHEWS
...human tragedy, it's a terrible, terrible human tragedy but I don't -- people were spinning a lot of sort of worst case scenarios at the -- when Kim Jong-il died. My guess is there's going to be continuity, as awful as that is, for the Korean people (unintelligible) .
REHM
Jessica Matthews of the Carnegie Endowment for International Peace and you're listening to the Diane Rehm Show, Stephan.
RICHTER
You asked about China. There's a lot of commentary currently in the U.S., in particular, that China may blow up, that, you know, real estate bubble, infrastructure, all of the investments...
REHM
That there could be a China Spring.
RICHTER
You know, one thing that irritates me greatly is our national sport in fixating ourselves and extrapolating to the extreme, the problems and weaknesses in other countries rather then, a, looking at the home front and, b, also looking at the positive power of the Chinese example. The Chinese, for example, are driving a green energy strategy including owning intellectual property and everything that we have some facile talk about that once Silicone Valley and private equity and venture capital turn their collective minds to it, we'll own the world again, poppycock.
RICHTER
This is never going to happen. It takes a collective country-wide effort, most American inventors now go to China because there they can ramp up their technologies to national scale with a supportive government and so on. We're getting beat at our own game and we're focusing on China's real estate sector blowing up. Whether or not that will happen is an open question. I think the Chinese government has a long standing record of doing rather decent economic management considering that it is a major...
MELHEM
(unintelligible) ...
RICHTER
...transformation of human revolutionary history.
MATTHEWS
That's true.
MELHEM
China's not going to implode. I mean, China is not...
RICHTER
No.
MELHEM
...I mean, stop dreaming. China is not going to implode. It may not grow at nine or seven or eight percent a year, but they will continue to grow. They are building a huge middle class, just as the Indians are doing the same thing. This is an old, ancient culture that is now full of self confidence and we should focus on China, only in how to compete with them, how to keep an eye on how -- what they are doing. We should learn more Chinese. We should send people to study Mandarin.
MATTHEWS
We should price carbon.
MELHEM
Yes.
MATTHEWS
You want to change the American energy economy, all you got to do is put a price on carbon and the intellectual content and management and innovation capacity is right here.
REHM
To all of you, is 2012 internationally, likely to be a more peaceful year than 2011, Stephan?
RICHTER
No. And I would say, hopefully it's going to be a tumultuous year, but a positively tumultuous year. It is clear that there are a lot of problems that we have basically postponed, postponed, postponed from Egypt, which we postponed for four decades, to the European issues, financial issues that are 10 years overdue. Everybody has something to do and I think if we only started focusing on the respective home front, on focusing on our own problems -- this is the great old premise of the G7, you know, clean up in front of your own door and then let's do global coordination. That's the right way to go, clean up domestic first, then do coordination.
REHM
Jessica?
MATTHEWS
There are three things that really scare me about 2012. The first is the health of the Euro, the second is Iran we discussed and the third is Pakistan. I think all of those in different ways could lead to, you know, terrible global dislocation. 2011, except in parts of Middle East, was really pretty peaceful year except where the conflict was, was pretty positive in Libya, for example. So but those three -- it's hard to look ahead with a great deal of optimism when you're looking at those three issues.
REHM
Last word, Hisham.
MELHEM
Well, I hate to sound like a Cassandra, but I usually end up sounding like a Cassandra. I think 2012, it's going to be a year of more upheavals. I think you are going to see more crisis from, you know, mainly in South Asia, Pakistan or Afghanistan, Iran Gulf. Iraq will degenerate...
MATTHEWS
And Syria (unintelligible) yeah.
MELHEM
...and Syria is going to be bloodier. The Arab Spring, unfortunately I never called it the Arab Spring. I never liked that but that's another issue. If you want to call it Arab Spring, it's likely to morph into a different dark winter. It is already a dark winter in some places. And politically in this country, we will not be -- we are not doing extremely well to deal with all these problems.
REHM
And on that note, happy New Year to all of you. Hisham Melhem, Jessica Matthews, Stephan Richter, come back again and we'll talk later in the year. Thanks for listening all and happy New Year. I'm Diane Rehm.
ANNOUNCER
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