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Europe Update

Speakers: Maurizio Molinari, U.S. Correspondent, La Stampa, Andrew Nagorski, Vice President and Director of Public Policy, EastWest Institute, and Elaine Sciolino, Correspondent, Paris Bureau, The New York Times
Presider: David A. Andelman, Editor, World Policy Journal
November 22, 2011, New York
Council on Foreign Relations



DAVID ANDELMAN: Greetings. Hello. You can continue eating, drinking or -- maybe not conversing because we're going to do enough of that up here, I think.

I'm David Andelman. I'm the editor of World Policy Journal, and I'm delighted to welcome you to the Council on Foreign Relations meeting with the rather avuncular title "Europe Update", which leaves us a lot of leeway, I guess. And fortunately, we can -- with this latitude, we can explore a subject with enormous complications and implications for all of us. First, a few of the housekeeping details. Please completely turn off -- not just put on vibrate -- your cellphones, BlackBerrys and all wireless devices -- I'm reading this because I'm required to do that -- to avoid interference with the sound system. I'd like to remind the members that this meeting is on the record. So beware.

Europe update. Well, we happen to have on board someone with enormous expertise in each corner of this continent that's most clearly emerging on center stage in a world that has not lacked for drama this year or, in fact, most years, but certainly this year.

From Italy, on my immediate left, balancing on the knife edge of success and failure, I guess -- (laughter) -- Maurizio Molinari, U.S. correspondent of La Stampa, the great national newspaper published in Turin, effectively Italy's Detroit in some ways -- maybe not every way. (Laughter.)

On Germany, at the far end, Andy Nagorski, vice president, director of public policy at the EastWest Institute, also a veteran European correspondent for Newsweek and whose latest book, "Hitlerland" -- this is the bound galleys; it's not yet out yet -- out in February -- probes Germany and the Americans who lived throughout Hitler's rule. It's due out next March, so you can pre-order it now at Amazon if you'd like that.

And from France, where I spent seven wonderful years as correspondent for CBS News, Elaine Sciolino, New York Times correspondent and author of "La Seduction: How the French Play the Game of Love" (sic), which, I'm told, is also about to come out in the French edition, right, which should really quite a stir in the country that she's writing about.

Before we get to today's horribly depressing reality, though, let's spend just a few minutes examining briefly just how we got there. And I'd like to have each of you tell us briefly what there is about the mentality of your corner -- of your particular corner of Europe that you're expert in and each of you knows best, the soul, respectively, of Italy, Germany and France -- and has gotten so out of sync with today's reality. It's the soul of this continent that I think is really at stake and in the -- in the center -- (inaudible) -- today, in today's crosshairs.

So Maurizio, Italy is in today's crosshairs. Let's start with you. How would you describe it?

MAURIZIO MOLINARI: Well, the soul of Europe -- the real problem is, I think that the integration that we began in Maastricht in 1991 isn't finished yet because it was mostly political and wasn't economic. I mean, the decision which was taken a couple of years ago to have a common foreign minister, but not a common economic minister: that's the key. That's the weakness from where everything starts.

In Nice, the head(s) of state and government, they didn't want to go so far. They made a lot of compromise -- this was in 2000 -- and since then, the situation got worse and worse. And the French voted against the referendum for a more unification (aspect ?), and so on. So we are facing today the consequence of a Europe that still theoretically wants to be united, but in reality doesn't want so far to push this unity and unification to the economic field, and especially the monetary field. That's the key.

ANDELMAN: OK, Andy, tell us a little bit about the Teutonic soul, if you will. That's -- it's not an oxymoron, right? "Teutonic soul"?

ANDREW NAGORSKI: I'm more used to the Russian soul, but they -- (laughter) -- but the Teutonic soul, I think, is really conflicted, and especially now.

ANDELMAN: It's heading Europe's agenda, effectively, right?

NAGORSKI: Yes, it is. But the thing is, you got to think about it; come back to the fact that in Germany, postwar Germany, the whole concept of leadership -- and Germany's being called upon to be a leader -- is -- even the language of that discussion is difficult. How do you -- you know, the word for -- in German for leader is "fuehrer." And nobody's come up with a -- an effective term for "leadership." Literally, it could be -- it could be translated "fuehrerschaft."

So we -- you know, you've got a lot of problems with the notion of Germany taking the lead here. And you have to remember that this is a situation where -- in a country where, even today, the legacy of the Third Reich lives on, in terms of even the youngest generation saying: What is it that we can do? What is it that we can't do?

I was in Warsaw last week for a discussion with German, Polish and American young leaders, and some of the Germans were -- young Germans were saying: It's ridiculous; in our country we even debate whether or not we can -- we can root for our football team -- our soccer team. Of course we do, but there's a real conflict there. And they're -- and so at a time when Germany is -- everyone's looking to Germany, what does -- what does Germany do about it?And -- but then, on the other hand, you have those people who say: Enough's enough; you know, we've done well, and we've also -- and they can have justifiably said: We've come to terms with our past the way no other country has; we've integrated it into our curriculum; we've done all the right things and look at our economy. In Europe, in Western Europe, it's the only economy that has still been growing. Angela Merkel's predecessor, Gerhard Schroeder, already instituted reforms that curb some of the welfare state, made the -- made the country more competitive. There's a reason why The New York Times today, for instance, has an ad which says -- a big ad which says, you know, "Number-One Kitchen" -- you know, most modern kitchen, "German- engineered." The German engineering, whether it's cars, machine tools or whatever, are working (sic).

And they've also kept their public debt low -- you know, it's still high; it's around 78 percent, as compared to GDP. But compared to the rest of Europe, that's not bad. And pretty soon, it's not going to bad compared to the United States, by the way.

So we're -- so they -- there's the question then, what's the solution? And the solution when people start thinking about it -- you know, the Germans say it's always more integration; it's more -- you know, a deeper -- a deeper European union.

That's been the mantra from the very beginning because German identity is saying you can have a German identity if it's firmly rooted in Europe. That's the whole origin of the European experiment, and that's the way -- or reason why they pushed the euro.

And so there's this inevitable push to go further and further, but when they do that, then people start looking around. Are the Germans dictating to us? Are they being arrogant? And you know, there was a -- I think one of the tabloids in Britain recently said, you know, there's a German plot to take over Europe -- (laughter) -- you know. It's a -- and you know, this comes up repeatedly.

And so it's -- they're going to be a bit, I think, in the position that, you know, we as Americans can identify with in the post-Cold War era. If we become -- when we're very assertive as leaders, then we're saying -- we're arrogant, we're imperialistic, we're hegemonic. But if you -- if they stand back and let things just sort of unravel, then, oh my God, you know, you're not taking up your responsibilities; where are the Germans? That's a -- that's their dilemma right now, and that's why, you know, angst is a very German term. (Laughter.)

ANDELMAN: Well, I've actually saved the dessert for last, which is France. You know -- and I've always been fascinated by France. It seems to have this enormously schizophrenic personality in some ways. The -- very seductive, I might add -- bordering on the Teutonic in the north, a certain flair in the south, oh, but Mediterranean, where so many of its people like to spend their days in Grecian style, sort of laughing and dancing in the sunshine. How is France going to seduce its way out of today's European fiscal mud wrestling without being pulled down into the pit when its neighbors, Spain and Italy, are all down there and mucking it out right now? So tell us a little bit about that, and tell us how seduction can get the French out of this, perhaps.

ELAINE SCIOLINO: Well, good question. First I have to be sentimental for a second -- or because this is a place where I had one of the best years of my life, when I was moving out of being a foreign correspondent for Newsweek magazine, where Andy and I grew up together -- too many years -- when we were 22.

NAGORSKI: (Inaudible.)

SCIOLINO: That's all I'll say; I won't say how many years ago that was. And I was the Murrow Fellow here, and I had -- I met people like you, and there's some people here who I met back then. It's kind of like when you come to your wedding anniversary 40 years later, you know -- say, hey, hi, how are you? So thank you all for giving me that wonderful year, and thank you for having me back. This is truly a great place.

You know, we throw around the word "seduction," but "seduce" in France means -- doesn't mean what it means in English. It means attract, charm, persuade. You know, when the French launch an "operation seduction" in Afghanistan, you know that there's a different meaning of the -- (laughter) -- of the word. (Laughter.)

And so Nicolas Sarkozy should know better. He needs to launch an "operation seduction" with Angela Merkel in order to conquer her. So what does he do? He talks behind her back about her weight. (Laughter.) Now, no woman wants to hear that she's overweight, and this is not the way to deal with your major partner, you know, somebody who's a doctorate in physics and chancellor and -- of Germany, which has a bigger economy than yours.

So recently he's been whispering to more than one European leader -- so it wasn't just a little slip -- she says she's on a diet, and then she helps herself to a second serving of cheese. And this comes from a man who is short, who had a weight problem until Carla Bruni put him on a diet, took him off processed sugar and chocolate so -- to get rid of his migraines and to cool down his hyperactive personality, which, unfortunately, she hasn't done yet. (Laughter.) And then Merkel gives him a Teddy bear for his little baby daughter, and while he's unwrapping it, he's on his cellphone.

You know, this guy, again, doesn't know how to seduce. This is a guy who has said that the Greeks are the virus that -- who are -- the virus that is poisoning Europe. He's told David Cameron, you've lost a good opportunity to shut up. (Laughter.) He told Zapatero -- or he said behind Zapatero's back, perhaps he is not very intelligent. But now he's got Mariano Rajoy. Good luck.

But this helps explain why Sarkozy is not loved, neither by his fellow heads of state, nor by the French electorate. He just doesn't know how to seduce. He's the most unpopular president in the history of the Fifth Republic, and this despite a 66 percent approval rating for leading the Libya mission and, in fact, dragging the United States into a mission -- in a military mission to topple Gadhafi.

He's running for re-election next April, first round; May, second round. And he is not going to take positions that will make him unpopular with an electorate that is frozen in time and does not want to make sacrifices not only for the French state, but certainly not for Europe.

I mean, don't forget, it was France, France's decision -- the French people's decision to vote down in a referendum the European constitution that killed the European constitution.

When -- gone are his campaign promises in 2007 that got him elected, to work harder, to earn more -- enter the global economy and privatize "a l'Americain," and you, too, will be modern. He banned the word "austerity" back then, and now he's trying to reintroduce it. This is -- this is not going to be very popular.

He's got a finance minister, Baroin, who doesn't speak English. He can't, like Christine Lagarde could do, pick up the phone and call Tim Geithner and resolve all the problems. So he's not got the tools to -- or the -- or the political "souplesse" -- political ease -- to be able to take really tough decisions.

In a way, Sarkozy is like Obama; he's got an Obama problem: There's a -- there's going to be a protest vote against him, and whether it's just in the first round of the election, the way it is historically -- "on ne sait jamais." We don't know. He's running against Francois Hollande, who's a credible candidate -- has virtually no experience in economics, has no --

ANDELMAN: And not much sex appeal, either, I might add, right?

SCIOLINO: Well, but he's changing: He's lost weight; he's got new glasses. (Laughter.) He's got a new girlfriend who worked with -- (inaudible) -- and she's --

ANDELMAN: Not like Sarkozy. (Laughs.)

SCIOLINO: No, he looks better. And he's really smart. I mean, he's a -- and he's funny. One-on-one, he's a really funny, engaging guy. He's an ENAR (ph), he went to the Ecole Nationale d'Administration. He's very smart. He's got an incredible wit. But he so far has been unable to project that real sense of humor combined with gravitas.

We're in a house where I met Richard Holbrooke, I have to say, back -- it was a dinner when -- it was a dinner for Ferdinand Marcos. I don't know if any of you were here back then for that dinner, but Richard and I sat at the same table. And I sort of always associate the Council on Foreign Relations with Richard Holbrooke. So if you wouldn't mind, I have to read you one little passage from my book that underscores how seduction plays a role in foreign policy, and it was Richard Holbrooke's last gift to me. We had some interesting times, but he actually did -- ups and downs, but he gave me this last story.

It's a story about Kouchner trying to seduce Madeleine Albright to give him the job as chief administrator for -- the U.N. job, chief administrator in Kosovo. And Richard and Kouchner and I were together in Paris, and Richard tried to get Kouchner to tell the story about the seduction of Madeleine Albright:

Kouchner discovered that Albright was vacationing in Innsbruck, Austria. He flew there from Paris to call on her. Before their meeting, he ventured into a field and picked her a bouquet of edelweiss -- like "The Sound of Music," Holbrooke said. Kouchner evoked an idealized vision of Albright's roots in the mountains of Central Europe, even though she was born in a big city, Prague. "I told her that she came from the mountains and from the flowers, and that I was giving her more of them," Kouchner said, and it was done. "This is a true story," said Holbrooke. "Well, yes, of course, it's true. Obviously it's true," said Kouchner, "and since then, Madeleine and I are friends." "Isn't this a perfect story?" Kouchner exclaimed. It's Bernard at his best: really using seduction to solve an international problem.

And then I -- then, you know, Albright even writes in her memoirs then that, "At first, I tried to resist him, but within minutes he was telling me all about his hopes for Kosovo. I was impressed." So -- and maybe she was impressed by his charm as well, because for all of his flaws, Kouchner, as Albright discovered, was hard to resist. While he was on bent knee next to Holbrooke and me, he balanced himself by firmly putting his right hand on my left knee. It was not a sexual advance, but an instinctive act. Kouchner probably didn't notice he was gripping the knee of a female American journalist, or think about what it would look like in a photograph. At least I was wearing pants.

So what I would say to Nicolas Sarkozy is: Do not give Angela a little bouquet of edelweiss; give her four dozen red roses. And the next time you're with her, do not use your cellphone. (Laughter.) Thank you.

ANDELMAN: (Laughs.) OK. Well, fascinating. This is -- this -- actually, all three of these remarks, opening remarks, is exactly what I was trying to get at, is the soul of Europe.

But ultimately, of course, we have to see -- look at the manifestations today.

So I'd like to devote the next few minutes -- and then eventually, about 8:30 we'll try and open this up to conversations from our wonderful guests. I was interested in one thing that Elaine said. She used the word "sacrifice". And it seems to me that what's interesting is that some countries apparently are prepared to sacrifice and undergo the kinds of real hardships, if you will, that the rest of Europe are not. We don't, unfortunately, have someone here from Spain on the panel, but this weekend Spain seemed to be prepared to do the kinds of sacrifice that, really, the rest of Europe needs to do. They voted in a government that really mandates change and mandates austerity virtually across the board in the Spanish economy and society.

Italy -- Italy sort of has done this, but not quite -- doesn't seem to have really embraced it the way Spain has. So tell me, what do you think it will take for the Italians to really understand the kind of measures that are needed to take in order to bring Italy into the euro system as an equal partner with the other major countries?

MOLINARI: We have a new government. The new prime minister is Professor Mario Monti. And the fact that we have a new government is because the majority of the political forces led by the head of state, Giorgio Napolitano, realized exactly this need.

There is a letter that the previous Italian government, the Berlusconi one, sent to the European Union, putting down in writing the reforms that are needed. Basically are three tracks -- three different tracks: the pension systems, the liberalizations and the public administration, the reform of the public administration. These were the reforms that the Italian government -- Berlusconi himself didn't want to start. His resistance to begin this process was one of the causes of the crisis that we have, the financial crisis that we have.

But now it seems that the will does exist. And while we speak, I mean, Monti is sitting with the president of the European Union and the president of the European Commission in Brussels. And in two days he will meet with Sarkozy and Merkel is Strasbourg exactly to agree a path that Italy could follow in this direction.

But there are two big question marks. Even if we have today a very credible prime minister, even if he has a very solid majority -- because both in the house and in the Senate he took more than 90 percent of the vote -- there are two big question marks. The first one is that the new government is composed by technocrats. They are not a member of the parties. It's actually an emergency government. So every time that we were going to have a new bill to implement the reform that are already agreed and part of another bill -- but they will have to negotiate with the parties about where to took the vote -- where to take the votes. And this is going to be very, very difficult because -- let's start first from the pension side, especially people -- especially the parties on the center-left -- (inaudible).

So the -- this scenario to have a government of technocrats negotiating with political parties that they are not expression of about votes on reforms that will have consequences more for the parties than for the -- this is going to be very tough. We have to be very honest.

So the government of Italy is stronger than before. We have a very --

ANDELMAN: Will they have to go back -- and will they have to go back to the people for a mandate before they can really begin to do -- as Spain has?

MOLINARI: It may well be. It may well happen. I mean, we can't exclude -- if the center-left -- or if Berlusconi himself -- probably Berlusconi could realize that if the government is too successful, it's (worth for him to go to election before than after ?).

But then there is the second big question mark that has to do with acceptable risk with France and Germany, because the key of the question is the role of the European Central Bank. At the bottom of the crisis of the -- of the Europe zone (sic), there is the discussion about the role of the European Central Bank. Italy and France and Spain are pushing to have a more interventionist bank, a bank of last resort, something to be very similar to the Fed, a bank that will do its most to help the states that are in deep trouble, while Germany has a very uncertain position. Some days Angela Merkel says yes; some days says maybe; some days says no.

So the real issue here is what the Germans and Angela Merkel has in mind for the future of the central bank.

We know why they resist. We know that Germans, for historical reasons, they fear inflation very much. They don't want to -- (inaudible). I mean, there are very deep reasons, very understandable, and those are the reasons that are at the base when the central bank was formed. But now the situation is completely different. The euro is at risk. So maybe the task and the role of the European Central Bank has to be changed.

The fact that on top of the European Central Bank there is an Italian, like Mario Draghi, that knows very well the Germans, and the fact that the prime minister of Italy is Mario Monti, that worked, essentially, mostly with the Germans in Brussels when he was (a commissioner ?), of the Competition, all (his inspectors ?), he wanted only Germans in his teams, not French and not British -- it was very interesting -- because he thought the Germans were the more -- the most aggressive of all.

So the fact that we have two people that know Germany so well, we really hope that the compromise could be -- would be done. But that's the real issue.

ANDELMAN: OK. Knowing Germans; Andy, that's a good segue to you.

But one thing I would like to ask both of our next two -- next two folks who talk is an exercise that I ask all of our writers at World Policy Journal to do, and that is to look at the future, look to the future and say where is Europe heading, where is your country, your region heading, where is Germany heading? Where do you think Angela Merkel is going with all of this? Does she have any sense of where she is going and how to bring along these other countries behind her?

NAGORSKI: Yeah, well, first of all, I mean, Maurizio pointed out that the Germans have all these fears of inflation. I add to that they have a fear, obviously, that if the European Central Bank starts underwriting bonds in a big way, that basically they will allow other countries not to deal with their problems, their basic problems. And that's also an understandable fear.

And, you know, I think it's -- the question you posed to Maurizio about do the Italians realize what they have to do, I think it was Juncker, the Luxembourg prime minister a few years ago, who famously said we all know what to do, we all -- none of us knows how to do it and get re-elected. And -- but I say with Germany it's even more complicated than that, because I think Germans are genuinely torn about what to do.

But I would step back -- I mean, it's -- to say, you know, look at -- before we get too pessimistic about this -- you know, again, I was just in Warsaw last week. You look at, in the 20 years -- just 20-some years since then, how Europe has been transformed. To simply say Europe is a failure at this point is a gross overstatement.

ANDELMAN: Well, it's how fringe Europe has been transformed, right? It's countries like --

NAGORSKI: Yeah, but that, I think, is also energizing Europe. You know, this was a meeting of young economists from Germany, the U.S. and from Poland, and the Poles were right in this. And the debate was also about, OK, what about -- someone asked, well, the classic question, do we get a two-speed Europe now? And a high Polish official came and spoke to this group, said, well, better a two-speed Europe than no Europe. And so there is a still -- Europe has an attraction.

I think the fundamental problem here is one which the whole question of technocrats raises, but the whole way in which the euro has been handled raises, which political system -- does this political system -- is it responsive enough to be able to deal with this crisis? And in a way, I think -- you know, I always take it in comparison and looking ahead to who's going to do how or how well, whether Europe or the United States, and look at these two political systems, which are quite different. A parliamentary system does not produce the same results as our presidential system here.

And I think we're going to see in the next year or two quite a test of both these systems. I'd say -- just a little bit of a digression -- the U.S. system, with all its crazy primaries, caucuses and so forth, that everyone, you know, rings their hands about did produce, for instance, in 2008 surprises on both the Democratic side and the Republican side, because in a parliamentary system, the parties would have decided who the candidates would have been. It would have been Hillary Clinton in the Democrats, and the Republicans, it wasn't clear who, but it would not have been John McCain. So there's a way for people to make their voice heard in this crazy system. In the European system, it was easier to implement something like the euro and a lot of these experiments, which -- but now these governments have to sell this, and we'll see who can do a better job.

I'd say looking ahead, and to your bigger question, the fact that Europe is a little further -- you know, staring into the abyss a little bit more directly than we are at the moment -- because the U.S. still has a bit more growth, as even the Europeans concede.

As even the Europeans concede, it's more entrepreneurial. It's got demographic trends that are positive, as opposed to in Europe. That may -- just may focus the mind of the Europeans to start getting some of these things right.

I'm a little bit more optimistic than some of the predictions. You know, there's a Russian saying that a pessimist is a well-informed optimist. I may not be well-informed enough, but I think there are -- there's a chance here that the Europeans may begin getting this right.

ANDELMAN: Andy raised a good point, Elaine. The question is whether Europe does still have a real attraction for the French. And Sarkozy coming up on a election year very quickly -- he doesn't face -- he faces many, many different problems from the other two countries surrounding him. How is he -- how is he going to deal with that issue?

SCIOLINO: Well, the French love the European dream as long as France can run it. (Laughter.) And that's the way it has been historically, and still to a certain extent France has a disproportionate power -- decision-making power in the European Union. And so it -- and that's why the French in 2005 rejected the European constitution, because suddenly they said, wait a second, you know, we're giving up all this stuff for what, and we're -- we don't want this; we want to be the ones who are in charge.

Look, it all comes down to leadership, and you know, there's -- how many governments? Eight governments have changed in the last several months because of the euro crisis. Sarkozy is very pragmatic even though he is mercurial and sometimes brutal in his personal comportment -- behavior. He's a lawyer. He's a doer. He's a -- he doesn't believe in that French endless process, but he wants to get decisions.

He doesn't like Barroso, and he's made no -- he hasn't hidden that fact. He's gambling that, you know, he can just take the number of the steps that he has to to keep things going with Merkel, to preach austerity and come to the French people come next year and say, you know me; vote for me because I'm the devil that you know.

Hollande is a blank slate, and so we just don't -- we just don't know what he would do in terms of his economic plan. But he's not stupid. So that -- to a certain extent, France is in a -- in a -- in a sort of holding pattern because we're already in an electoral -- in an electoral season. ANDELMAN: Can we break out of that holding pattern? I mean, it seems to me that all of these countries have to break out of their holding patterns.

SCIOLINO: Well, I mean, look, Sarkozy is not being irresponsible. You know, he's really the bridge between the north and south. He's in there every day with Merkel. It's just that his manner is not one in which he can use the powers of persuasion to get people to do what he wants. And he doesn't have the French people behind him. He's got the Parliament behind him, and unlike some of the other important countries, he -- you know, it's still a monarchy in France.

You know, the Parliament doesn't count for anything. The UMP has a majority in Parliament. He can basically take whatever steps he wants and, you know, announce a new austerity program, like they did on November 7th and, you know, then he's got his prime minister announcing it. So now -- so that, you know, Fillon has to take the heat and be the unpopular one. You know, he can do whatever he wants. The question is how much is he willing to risk to both -- to navigate between being responsible and a full partner working with Merkel, massaging her intellectually and --

ANDELMAN: I'm glad you clarified that.

SCIOLINO: Of course -- (laughter) -- and also mediating between north and south.

ANDELMAN: Great. Well, at this time I'd like to invite members to join our conversation with their questions. Wait for the microphone; speak directly into it; stand; state your name and affiliation -- again. the boilerplate. Please limit your answer -- yourself to one question, keep it concise and allow as many members as possible to speak.

So who's first? Yes, sir.

QUESTIONER: Richard Thoman, Corporate Perspectives and Columbia University. I wanted to talk about the euro. Obviously, if there's three options broadly, as I understand it, first is some kind of greater integration on the fiscal policy side, which would satisfy the markets; the second is to continue what we're now doing as ad hockery (ph) with the -- (inaudible) crisis; and the third is some dismemberment of the eurozone.

Could you talk a little bit about what you see happening around the euro? And if the first two can't happen, the third must surely happen, as I understand it. Is that now something people are talking about?

MOLINARI: I believe that with Monti, Sarkozy and Merkel, the meeting that will take place the day after tomorrow in Strausbourg, they will decide to defend the euro in the old way, so (to strengthen ?) institutions. This is the traditional European answer to this kind of problem.

What happened in the last five, six years, it was that there was a lack of leadership in Europe in terms of European leadership, leaders that really felt Europe as something that belonged to them. The Europe that we know today is the result of Helmut Kohl and Konrad Adenauer and Francois Mitterrand -- (inaudible) -- (Mr. Andreotti ?). What we missed was leaders like this.

I don't know if they are around today, but the need is so huge that there is no alternative. Yes, of course there may be technical answer, as to change the role and the power of the European Central Bank, as to use the facility (found ?) as a bank, as the French have suggested. Maybe very technical, very different technical response. But the main issue, to give more security to the Europeans and to give to the world the impression that Europe is back on its feet has to be institutional.

So the path is clear. They have to decide to push forward the monetary integration, to appoint a common economic minister.

I think that -- and of course it will take another European Council, an official statement, but this is the path. There is no other way. I mean, that's the old -- every time that Europe was in deep trouble, this is the method that they choose to overcome it. And (we are there ?) again.

ANDELMAN: But will Merkel go along with that?

NAGORSKI: Well, actually, Merkel says without the euro there's no Europe.


NAGORSKI: I mean, she has clearly staked her reputation. ANDELMAN: But isn't willing to go that extra step that the Italians seem to want or need, right?

NAGORSKI: Well, yeah. Then it becomes how much -- yeah, what --

ANDELMAN: How much does she want it.

NAGORSKI: How much does she want it, at what price, what the trade-offs. That becomes a real negotiation. But I think that that commitment is there.

And interestingly enough, again -- not to hark -- I really like to bring in that Europe is no longer just these countries that we're sort of representing here. The Poles, for instance, are one of the 10 who are outside the eurozone. And it's interesting right now -- and their economy has done well. They are the only economy -- I mean, it's a smaller economy, of course, but that did not go into recession after 2008. They have 4-percent growth. And in many ways, many Poles seem to say, well, we want to be in the eurozone, but it's kind of nice that we aren't at the moment. But they still clearly want to be in the eurozone, which is interesting. I wasn't sure whether I'd find that attitude there. And I think that speaks to the fact that there is still a set of shared assumptions even if -- I completely agree the leadership has been failing on a massive scale.

SCIOLINO: If I could pick up on that, you know, we've been focusing on three countries, but as Andy says, you know, the eurozone is pretty wide. And what you've got now is a new reality in Spain, as well. I mean Mariana Rajoy thought he was going to win in March 2004, and there are those in the Spanish elite and expert class who would say he should have won, and had it not been for the terrorist attack on March 11th, that he probably would have beaten Zapatero. I was there; I'm not a hundred percent sure that would have happened. But he's been waiting in the wings since then.

He is still identified with Aznar, who made Spain a very, very strong economy, one of the strongest economies in the world. And there will be a honeymoon period where he can take tough measures now and do whatever he wants, because the Spanish people are really feeling that they needed a change. Zapatero didn't take certain steps that he might have done, because he wanted to protect his support on the left.

So I think we've got to watch Spain, as well, in terms of this ultimate question of leadership.

MR. ADELMAN: Of course, hopefully, the rest of Europe won't get to 20 percent unemployment, but -- (chuckles).

SCIOLINO: But, you know, as Maurizio said earlier, with the absence of a European economic commissioner, the individual heads of state are the keys. And if they show leadership together, then at least we can have the semblance of security and a sense that we're not all at risk.

ANDELMAN: I spot a hand back there. You were the first hand right up there in the middle, yeah.

QUESTIONER: Warren Hoge, International Peace Institute.

ANDELMAN: Sorry, Warren -- (inaudible).

QUESTIONER: I have one question, but unfortunately, it may require three short answers because my question is in the three countries that you three are representing, how is U.S. leadership, if that phrase has not become an oxymoron -- how is U.S. leadership viewed in those three countries?

NAGORSKI: I can tell you I was moderating a panel in the -- with a German -- a young German economist and a young Polish economist. I asked them to rate the leaders Merkel, Sarkozy, Obama. The poll said Merkel -- on a scale of 1-to-5, 5 being the highest, the poll said Merkel 4, Sarkozy 3, Obama 2. The German -- (inaudible) -- was basically in agreement except on Obama. He said 3.5 for Obama. I think in Germany, Obama has still managed to maintain probably more standing than in -- than in -- than in much of the rest of the world at this point.

But American leadership -- I think there's a -- generally a perception of a vacuum of -- in terms of American leadership, and particularly on these issues. I mean, you know, we don't have to look far from today's headlines to say -- you know, it's American leadership -- and not just the White House, obviously -- on Capitol Hill, everybody -- saying -- this is one of the points I was making is, for instance, Germany's gross national -- its public debt is around 77 (percent), 78 percent. Ours is right now around, I think, 67 (percent), but by next year they'll be within, like, a point or two of each other if current trends continue. So you know, I think the reputation of the U.S. as the can-do nation that really tackles the problems right now is definitely at risk.

SCIOLINO: Well, and you saw that in -- with France and the NATO intervention in Libya, where the French had to drag the Obama administration in at first kicking and screaming to support a NATO operation. That said, Sarkozy adores Obama. And the fact that the two of them now have a good relationship -- it started out pretty rocky -- is terrific. And in a sense, Christine Lagarde is a surrogate finance minister in Washington. I mean, she can pick up the phone and call anyone. And she -- despite the fact she's an international civil servant, her first loyalty is to the French state.

ANDELMAN: How would -- before we get there, how would you rate her compared to her predecessor -- (inaudible)?

SCIOLINO: Well, it's interesting, because we didn't talk about Dominique Strauss-Kahn, but had this most recent scandal not broken out about his alleged involvement with a prostitution ring and -- excuse me, I shouldn't say this in the -- in the Council on Foreign Relations -- the allegations of group sex, he could have been the new finance minister of France, and people were talking about it either in a Sarkozy or an Hollande administration. He was already started to be quoted as a talking head about the European crisis.

And this was really important. I mean, even after the whole -- the event of the Sofitel hotel on May 14th -- once that was over, he was being positioned to at least be a voice, a player, a supporter in the background. And now that's finished. So France has lost perhaps its best economist.

Christine Lagarde is not an economist, and it has really hurt her on many levels. However, she's a fabulous administrator, and she's -- she knows the United States very well. And if anybody is going to be a bridge with the Obama administration, it's not going to be the current finance minister, it's going to be Christine Lagarde.

ANDELMAN: OK, Maurizio, the final response to Warren's question.

MOLINARI: The Italians look at the American leadership as still important, but distracted, still important -- the popularity of Obama in Italy is still very high -- but distracted probably because of the lack of personal feeling between Obama and Berlusconi. So now there is a hope that this problem will be (some kind of ?) solved very soon.

ANDELMAN: Yes, sir.

QUESTIONER: Stephen Blank. On the need for European cooperation, one could look at this from another dimension, and that's, say, four interconnected pieces: aging populations, the need for immigration, the so-called Islamic threat and rising levels of nationalism within countries.

Can you just say a few words about how this nexus will -- is likely to affect the pops (ph) abilities for collaboration on an economic and financial level?

ANDELMAN: (Do you want to tackle that ?)?

SCIOLINO: Well, I'll just say, in France, you've got the far right, you've got Marie Le-Pen, who's the head of the National Front. And she's running for president, and she's the joker in this election because she's anti-globalization, anti-immigration and, you know, France-first. And how that plays out in the -- in the conversation, in the discourse, in the political campaign is going to shape where Sarkozy positions himself. And there are two Frances now, the France, the Faco (ph) France and then the other.

MOLINARI: The anti-immigration card, it's important, because the -- (inaudible) -- the only party that voted against Monte (ph) in the House and in the Senate was the Northern League that is anti- immigrant party. So they are -- today they represent the position; it's a very strong party in the north. Though the party -- and they take a lot of voters in the big factories. So traditionally, the same electorate that once was going to the Communist Party now is going to the extreme right.

Probably if this government will take measures in favor of integration, in favor of integration of the immigrants -- a (changing platform ?) in comparison with what Berlusconi was doing -- the consequence of this will be that the Northern League will take more and more support, especially in the same region, in the same sector of the electorate that once was -- belonged to the left. This gives you an idea of how quick the political scenario may change. And this -- (inaudible) -- from the the left to the right looks very (dangerous ?).

MR. ANDELMAN (?): And the Northern League has many ties with anti-Islamic and right-wing movements in other European countries.

MOLINARI: Yes, on one hand.

On the other hand, we have to be honest and we have to say that we have a problem with the Muslim immigrants in Europe. And I can speak for Italy, I can speak of -- (inaudible) -- because they are a very diverse community. But many of the (identities ?) in this community, they don't want to integrate. So that's the key. I mean, of course, there is quite number of Muslims that they arrive from northern -- I can speak for Italy. OK, the region of immigrants is mostly from Northern Africa and from the Sahel. Those that come from the Sahel, they integrate very quickly. So there is no problem; they come, they obey the law, they look for work and it's -- I mean, we have no problem with them.

If you pay attention to the statistics of those that are arrested because they don't want to respect the law, because they challenge the police, because they believe that the sharia is more important than the Italian law and so on and so on and so on -- they come from North Africa. So for the new government it's a big challenge, as it was for Berlusconi. Berlusconi didn't find the right answer to this, how to -- I mean, to deal with this communities. Because first of all, they don't -- they don't recognize the Italian government as an interface. They want to live in Italy, they want to -- they want to make money in Italy, they want to send money back, but they don't want to have a legal interaction with the Italian authorities. This is very tough challenge.

ANDELMAN: Yes, sir.

QUESTIONER: Jeff Laurenti with the Century Foundation. Elaine has twice referred to the Libyan expedition, and yet that is precisely the kind of issue of Europe facing the Arab world, where all three of these major countries in the Eurozone have been at -- running off in different directions -- Sarkozy having pressed for intervention, Germany having voted against or having abstained on the Security Council resolution and opposed an active NATO role, and Italy -- Berlusconi having kissed Gadhafi's hand two years ago obsequiously, then schizophrenically being for/against intervention, sending these North African immigrants to the French border hoping they'd cross.

And on Palestine as well: The French voted for admitting Palestine to UNESCO, the Germans voted no, and the Italians characteristically disappeared under the table with an abstention. Where in the Europe-Arab world relations are these major countries leading Europe, supposedly, finding convergence on dealing with these issues so close to them -- indeed, with Italy as the front-line state?

ANDELMAN: I -- no, OK, go ahead. Sorry.

NAGORSKI: It's that -- no, I was just going to make the point that your point about Germany is very much on. And Germany, again, is -- in terms of interventions, military interventions, is particularly working -- always working through its complexes. When I was -- I was in Germany in the '80s and '90s, and saw what I thought was a steady upward trend. I remember visiting German troops in Croatia when they first began getting involved in the Balkans, and then -- and then suddenly you had German -- before, you had just Germans in peacekeeping missions in very, very, you know, low-key roles. Then there were actually German fighter pilots in Kosovo. So you thought, well, there -- you know, sort of the inhibitions about history are disappearing.

And then, you see something like the Libya vote, and you say: How could they have simply said, nah, we're not going to get involved there, you know? It's -- and you have to realize there that Germany -- and also, its involvement in Afghanistan was quite -- relatively, by European standards -- substantial, but they quickly got very nervous about that.

So there again the European leadership I think is going to be very hard to forge here, and German -- and European unity, because the Germans are often pulling in the other direction.

SCIOLINO: Well, we've been talking about the euro crisis because that's the "crise du jour," and everybody has to focus on that because it's going to affect us and our children and our grandchildren and our -- you know, real estate and all the rest. But, you know, you want to talk about common defense policy, I think we're going to have to have another breakfast, but maybe we'll have a little more coffee before, so -- but you've been good: You're all smiling and laughing at our jokes.

There's no common defense policy, and there never has been. And if you look at -- if you look at a real rift between the United States and the Europeans, either NATO or the EU, it's always because the Europeans don't invest enough in defense. And the Bush administration did everything it could to break up the EU by saying there's the good Europeans and the bad Europeans. And so you've got this precedent and this legacy where there is no European unified defense on any level -- you know, either integration in terms of armaments, troops, or in terms of political will to have the same goals. And we saw it, as you so articulately put it, in Libya.



ANDELMAN: Oh, sorry.

MOLINARI: Just one thing. The new reality that we have to face is that President Nicolas Sarkozy took the lead among the Europeans in dealing with the Arab awakening. This is something that some European countries liked, and some others didn't. But the equilibrium inside the European Union is completely disbalanced since then, because he wants always to be first.

As Elaine said, I mean, we have to recognize that thanks to him we had the intervention in Libya, so this was a positive outcome. But now the question mark is: What will happen with the French leadership, for instance, on Syria? Will the French again want to lead Europe in this crisis, or they will allow the others to join them in the deciding process? We really don't know.

But I see one big opportunity on the horizon. That is the Command Africa (sic) that the Pentagon established in Stuttgart. The Command Africa (sic) is in Germany. France and Italy are the two most exposed countries. The U.S. has a lot of interest in developing its role, so I see -- this may be the (thrust ?) from where to restart, to try to build a new kind of European common policy, because on the Arab awakening it looks very difficult.

ANDELMAN: Carroll.

QUESTIONER: I'm Carroll Brown. For a good many post-war years, we looked at greater Europe fundamentally through the prism of the east-west divide and the Cold War. And if you take Europe as a whole today, my question is, are we also dealing with a north-south divide of a fundamental nature that has a lot to do with culture, history, recent immigration and things like that? Elaine talked about such a divide in France. But I'm wondering how complicated -- how much this borderline that goes along the Alps complicates the very kinds of issues that you all have been talking about.

NAGORSKI: I mean, I'd just say I don't think it's a clear- cut north-south divide. And it's because I think you've got some that we -- you know, as I say, you also have countries outside the European Zone who are -- who are in the north and some who are -- who are doing quite well, obviously, so -- but I think there is -- I mean, I think that on the immigration issues, all that, certainly Italy, France, are more in the front lines.

The question came earlier about right-wing extremism. In many ways, in Germany, it's always there, but it's -- it seems relatively contained right now. But there is more of the kind of conservative wing of the more mainstream parties, the CSU, that resists the integration and says, you know, we -- oh, we can't allow the Germans to dominate and dictate to us.

So these tensions are always there, and I think they're going to be exacerbated by -- you know, particularly if the economic fundamentals don't look a bit better in a few months from now.

ANDELMAN: Adeleine (sp).

QUESTIONER: Adeleine Leopold (sp). If -- Europe right now has one of the world's only social networks still in existence. How much social unrest will the austerity plans that are now being foreseen for a number of countries -- how much social unrest do you think they will cause?

MOLINARI: We may have quite a lot, especially for the pension reform. We were speaking before about the first point of the Monti's program in reality will be the reform of the retirement system. And this means for tens of thousands of Italians to change the prospect of their life in the next 20, 30 years.

It's not to speak about the reform of the public administration. There are some papers in today's IMF according to which half of the employees in southern Italy -- they work for the public administration. And this is the percentage -- there is some variable for the European Union as a whole. But I mean, to lay off them -- and then what they will do? I mean, are there, in southern Italy, other possibility of the state to work?

So these are the dangers that we are facing.

ANDELMAN: See, I find that very interesting, this differentiation between -- (coughs) -- excuse me -- northern Italy and southern Italy, just as in France, you have north and central France, and you have the literaux (ph), right? So tell me how these regional differences are likely to play out.

SCIOLINO: Well, in terms of France and civil unrest, it's completely unpredictable. That's what makes France so interesting, that something that's -- that is sparked by a burning of a car can end up being a nationwide revolt. And you did have serious unrest, serious riots not only in the outskirts of Paris in November of 2005, but through all of the major cities in France. It was unpredictable. It was unexpected. And as a national phenomenon, it ended just as soon as it started, although every single night in major French cities, you do have this kind of protest and unrest that could be sparked into another kind of -- another level of unrest. So I don't make any predictions about how that plays out.

ANDELMAN: In the very back, in the middle.

QUESTIONER: I'd like to discuss the bond market. It is signaling contagion has begun. And your conversation today suggests that you think we have time. To me, it feels like the summer of 2008. If that happens in Europe, what do you think the three leaders will do?

MOLINARI: No, I didn't -- no, I didn't say that we have time. I said that the -- that the bond crisis is pushing the European leaders to find a solution very quickly. And the fact is that the bond crisis now is going to France, and after France, we are going to have Austria, and then Germany's is around the corner. It means that there is not much time. There is a common desire to find a strong solution. The question is about the answer that they will give. And I really believe that the answer will be -- (inaudible).

NAGORSKI: And to the point that David made earlier about France and, you know, do you have the time to wait till the next election and so forth, that applies certainly to this country. It applies to all of Europe. I think they do not have -- the political leaders do not have the time to say there's always the next election, the next cycle. If they're going to say we can muddle through until -- and then we'll see who -- what happens after the next cycle, then I think I become considerably more pessimistic.

ANDELMAN: We have time for one more quick question. Yes, sir.

QUESTIONER: Dick Foster. Tell us a little bit about the neighbor to the east, Russia.

SCIOLINO: Ta-da! (Laughter.)

ANDELMAN: Ah, we have one expert.

SCIOLINO: We got an expert here. (Laughter.)

NAGORSKI: (Laughs.) You know, I think Russia right now is -- having watched it evolve, and being in and out of there -- it's, of course, a very different place than the Soviet Union was. It's a -- it's a country where you can -- yeah, on an individual level, you can -- you can get the job you want; you have a lot of economic opportunities; you can travel; you can express your feelings in private all you want. But I think the fact that the political system has failed in the sense of creating a system which creates genuine alternatives, the idea that now we may be facing a longer reign of -- a longer Putin era than we'd had a Brezhnev era -- and I came in at the end of the Brezhnev era at the first time in Moscow -- is pretty depressing.

I think, for all its wealth and many talented people and a lot of things that are -- that it has going for it, there is a great deal of Russian pessimism right now. The mood is very down because there's a feeling without political -- allowing some political competition in the system, some genuine political competition, then the economy -- it gets more and more concentrated in a -- in a very, very few hands. There are no checks; there's no accountability. And right now, there doesn't seem to be any way out of that situation.

So, I mean, your -- Russia is too big to ignore. It will have its ties. It will -- probably, it will enter the WTO, it will become -- you know, it's a player, but it's nowhere near the player I think it could be if its political system had undergone a better evolution.

MR. ADELMAN: My wife and I were just in Russia in September, and we had lunch with the founding head of (sp), which is a hot new Russian website. It's run by the former editor in chief of Forbes Russia. And they'd just done a poll on the Russian people and discovered that 70 percent of those polled, all the way across the political spectrum from -- all the way to the communists, those who profess to be communism (sic) -- 70 percent said that they would like to see themselves or their children have a life outside of Russia. And I found that just absolutely an astonishing number.


MR. ADELMAN: But it's true. And so that things are -- things are not as rosy as they may appear in Russia right now.We have updated Europe.

We have had Andrew Nagorski. Buy "Hitlerland" -- pre-order on Amazon.

Elaine Sciolino, "La Seduction" -- she seduced all of us today.

And Maurio (sic) -- we should look at La Stampa -- and of course, World Policy Journal.

Thank you very much for joining us. (Applause.)






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Europe Update (Audio)

Speakers: Maurizio Molinari, Andrew Nagorski, and Elaine Sciolino
Presider: David A. Andelman

Experts discuss the economic, political, and social conditions in Europe and analyze what is next for Italy, France, and Germany.


Europe Update

Speakers: Maurizio Molinari, Andrew Nagorski, and Elaine F. Sciolino
Presider: David A. Andelman

Experts discuss the economic, political, and social conditions in Europe and analyze what is next for Italy, France, and Germany.