keep the jrmans happy. if he succeeds, ae charts a path out of the crisis for other countries. then iran. it's in dire economic straits for a very different reason. we have another exclusive. if one with iran's finance minister about just how crippling u.s.-led sanctions have been for his nation. next up, a conversation with paul, the biggest question in the world today is whether to spend or whether to cut. krugman is the leading voice saying stimulate. i'll ask him to defend his views. all that plus superstitions in the race for space. but, first, here's my take. everyone is worried that greece might default on its national debt. that's really not news. by one estimate 180 years since greece gained its independence in 1832 the country has been in default or restructuring for half that period.

the news is that this time germany is willing to bail greece out. throughout the euro zone crisis it has been conventional wisdom to regard the germans as narrow-minded, ungenerous, and dog matticly wedded austerity to treat europe's problems. these criticisms are vastly overstated. consider that germany is being asked to take its taxpayers oh money in a democracy and tuesday to bail out a country like greece, which is guilty of mismanagement, poor competitiveness and financial fraud. and it has said yes. in return for this germans are being called nazis in greek newspapers. germany is by far the largest contributor to the european financial stability facility which totals a staggering $924 billion. that number will rise, and when come bined with earlier funds and loans, germany's share will easily exceed the country's total annual federal tax

revenues. imagine the united states being willing to guarantee more than $2 trillion in a fund to bail out, say, mexico. the german government has also relaxed its once rigid opposition to a more aggressive monetary policy and now it has signalled that it is even open to some stimulus plans for greece. german leaders have said again and again that they are willing to bail out weak euro zone countries, but they have asked for reform as a condition of that aid. the real path to growth for countries like greece and italy is less austerity, to be sure, but more reform. reporm that opens up their labor markets, breaks protections, and liberalizes sectors of their economies. these are politically hard to do, and certainly greece has done very little of it. the world bank rates greece and italy as the worst two high income countries in which to do

business. other rankings place them even lower in terms of economic competitiveness. german chancellor angela merkel is opposed to some sweeping solution to the euro crisis like euro bonds. not because of their cost. germany will end up paying more, but because they would take off the pressure to reform. the only leverage germany has with countries like greece is that it gets the money incrementally, as it enacts reforms. greece might yet to have to default and quit the euro zone and perhaps the european union, but if it does go down this path, greece will find that the markets will refuse to lend it money at reasonable rates unless it does pretty much the same things germany is asking it to do anyway. life without germany will mean a lot more austerity than life with germany. for more on this, you can read my column in this week's time

magazine and on time.com. let's get started. all eyes are on europe right now, and time magazine calls my next guest the most important man on that continent. italian prime minister mario monti traveled to the united states for the g8 meeting at camp david and the nato meeting in chicago, and he joins me now in washington. >> welcome. >> pleasure to be here. >> let me ask you, prime minister, first we'll talk about italy, but first i need to talk to you about greece. there is in a sense a bank run taking place. greece is going to be unable to finance itself unless there is some kind of massive help from europe. can greece stay in the euro? >> i think greeks want to stay in the euro.

not all greeks are ready to do whatever is necessary to stay in the euro, but i think as we approach the 17th of june election date, the feeling in greece that it's crucial for their country, i believe also for europe, but certainly for their country. it's crucial to stay in the euro with political programs and minds on putting together a collective willingness to do so. certainly, europe cannot, of course, abandon or even substantially undermine and reduce the commitments it asked of greece in order to help it. i think an equalibrium will be found. whatever is found in greece, in this particular situation, will not really allow europe and the

euro zone to breathe unless a more substantive agenda for growth is decided upon in europe to accompany fiscal consolidation. >> but in the short run without the help from the european central bank, it is difficult to see how greece will be able to meet just its basic day to day financing requirements as money leaves the country. somebody described it as a bank job, not a bank run. that slowly money is leaving greece. is there a solution to this? >> of course, it is the most fundamental mission of the ecb, although it's not mentioned specifically to see to it that the euro is safeguarded in its integrity, so i think against this background, the ecb, the new institutions, and the greek

authorities, or what is left of them in the process of reaching the new elections, we'll find a solution. it will not be the first time in the history of the e.u. that when europe is really bumping into the wall, all of a sudden minds are, political will is urged and a solution is found. >> when you talk about the need for a growth amendment in germany, are you saying that the austerity programs really haven't worked? if you look at a country like ireland, which has done everything it was asked to do or many of the things in terms of fiscal consolidation, cutting spending, raising taxes, it has not produced growth. it has not even produced much investor confidence. italy's budget deficit is up its

debt-gdp ratio and largely because growth has collapsed. should these austerity measures end? >> first of all, i don't like to speak about austerity. i prefer to speak of fiscal discipline. fiscal discipline in the end amounts to austerity if it is not accompanied by other policies. fiscal discipline in my view is there to stay. italy has done huge efforts towards fiscal discipline, and it is now the country which will in the european union which will achieve a structural balanced budget before all the others next year. actually a slight structure surplus. yet, growth is not coming. >> how does that happen? in italy you have -- you have

done more fiscal consolidation than any country. you have done a strushctural reforms as well. how do you get that demand going? >> exactly. >> you need somebody to buy your products. are you saying you want germany to buy things from you? >> well, we -- we are gaining a better position in terms of competitiveness because of the structural reforms. we are actually destroying domestic demand through fiscal consolidation. hence, there has to be a demand operation throughout europe, a demand expansion. as you pointed out, most clearly, we, for example, in italy are having problems because we have achieved very good fiscal results, but will they really be sustainable in the longer term unless the denominator, gdp, increases through growth. >> what do you think it says about western democracies that

when one of the most important democracies, like italy, one of the richest countries in the world, got into trouble, you had to almost suspend democracy to fix it. they have gone through an unelected tsar, you, who has been asked to please fix it, and then the politicians can come back and do their mischief in a few years, but, i mean, it's -- because there is an issue. the problems italy faces all western democracies face. over the last 30 years, there's been a build-up of entitlements, of goods and services being provided to the public from the state with no sense of account -- of the kind of fiscal balance and the result is all these countries are in debt and the picture looks worse as people retire. can democracy handle this? >> democracies have to handle this. how? well, i believe the reason why

democracies are very poor these days to handle this is that democracies like markets have become much too short-termist. the combination of very important media of frequent electio elections, of even social networks that tend to polarize people towards more extreme positions. with a combination of these factors has the consequence that in democracies, politicians, professional politicians, tend to reject only to embark in

solutions that imply short-term costs and longer term benefits with great reluctancy only when they are faced with an actual huge crisis. so the problem to me is how it's possible to reconcile classical electoral democracy, which, after all, we love with a longer term perspective, so i think democracy in the long-term in our countries will survive if it comes to be associated with leadership. we'll not survive if democracy plus media brings to us more and more followership rather than leadership. >> can you say confidently that what will come out of this

crisis will be a deeper and more integrated europe and not a europe that breaks up in some way? >> i am confident. i didn't say that the greek crisis if we take it since the first manifestations in early 2010 has confirmed very vividly that europe becomes adult and stronger through crisis because we may be able or unable to ultimately solve the specific crisis in greece, but in the process we have achieved a much higher degree of coordination of national fiscal policies. we have put in place firewalls

to use contagion effects. i mean, the ecb in its autonomy has been able to find new techniques of intervention. so clearly, the governments of the e.u. has been improved by the greek crisis. now, hopefully one would like to see improvements in the governance of the e.u. without all times having a crisis a trigger. >> mario monti, pleasure to have you on, sir. >> thank you very much. >> up next many observers say the sanctions against iran are working, that the nation's economy is taking a beating. i will ask tehran's economics minister for his view on the situation. [ male announcer ] citi turns 200 this year.

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so i brought it to mike at meineke. we gave her car a free road handling check. i like free. free is good. my money. my choice. my meineke. evidence is mounting that the sanctions against iran are having a crippling effect on that nation's economy. greatly decreasing its oil exports, making most international transactions all but impossible and bringing on high inflation. next week iranian officials will meet with the great powers in baghdad to discuss the reason behind those sanctions, iran's nuclear program. i am now joined by iran's economic minister. thank you so much for joining us, mr. minister. >> translator: thank you very much. i am very grateful and appreciative to be here and have

a conversation with you. >> so ever since president obama signed those sanctions at the end of december, the iranian dz ahas dropped more than 50%. you now face the prospect of an oil embargo from the european union. your central bank is no longer able to conduct international transactions. this must be very, very difficult for iran. >> translator: well i do believe that we must have a broader view of iran's economy, and only concentrating on a few sectors cannot be a true representation of iran's economy. i'll give you a few examples. last year the total non-oil exports increased by 30%, and according to the latest reports

that the international monetary fund has published, iran's gdp, iran's per capita income has also increased. >> but let me ask you there, 80% of your foreign revenues come from oil. you are telling me that these restrictions on oil, the particular european union goes through with them, the indians say they're buying less from you. the japanese say they're buying less from you. these are not going to affect you? 80% of your external revenues come from oil. >> translator: we must pay close attention when we speak of oil revenues and sanctions against oil sales. who were the winners and the losers of such sanctions? indeed, it is difficult, but not just for iran. we can all rest assured that

there will be a considerable increase in international oil market prices. now, is this the best approach? >> just to be clear, because this is very important. you think that if the european union goes through with the oil embargo, which is slated to go into effect in july, oil prices will go up very substantially. >> translator: certainly. certainly. even the imf says that as a result of he's sanctions oil prices will perhaps reach and hover around $160 per barrel. and the decrease in financial and economic output in europe will truly be felt. >> how long can you endure these kind of sanctions? because they are affecting your

banks. they are affecting now the -- the senate is pass ones related to the tanker business. how long can you continue to with stand these sanctions? >> we have been the target of sanctions for the last 33 years. we never went looking for these sanctions, but during the last two years, of course, the volume of these sanctions have increased tremendously, and we believe that those who impose the sanctions have exerted the maximum level of pressure they have been capable of, but the reality that is showing itself today is that the capacities and the economic specialties and strengths of iran are such that can cause a backlash and economic backlash for the imposers of these sanctions and their countries. this really shows that the

economy, economic strength of iran, is in such a way that can with stand these sanctions and will not be the only economy to suffer. >> so -- but if these sanctions do cost you a lot, cost the average iranian a lot, why not allow the iaea inspectors in and say to them can you go to every facility, including the ones that we have previously not allowed you to, we have nothing to hide, you can see all our nuclear programs and certify that it's peaceful and once you get that certification, these sanctions will get lifted. >> translator: we have said time and time again that we will not give up this unalienable right. we are a member, full significanttory and abiding member of the iaea. there are conversations and dialogues taking place today currently, but there cannot be a

germany and double standard in the treatment of member countries such as iran. if these principles can be understood and applied with mutual respect, i think we will be in a much better place. >> final question. what will the price of oil be in august of this year? >> translator: i believe that we must at least in order to have sustainable growth for the producers, maintain prices at $100 per barrel, but keep in mind the following. can the industrial powers get out of the current situation here in with these prices? therefore, the answer being obvious, the prices will go considerably higher than $100 per barrel. if we see reforms, tangible reforms in this behavior, we will be in a much better place.

if we don't, we will witness an increase in international oil -- >> mr. minister, pleasure to have you on. up next, a strange story in the middle east, while much of the region clambers for democracy. one group is planning the opposite. a confederation of monarchys. people have doubts about taking aspirin for pain.

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i'm candy crowley in washington. fareed zakaria "gp st" returns in a moment, but, first, a check of the top stories. some breaking news. the only person convicted in the 1988 lockerbie bombing has died. in 2001 a scottish court found ab deal hakim al magrahi guilty of the attack on pan am flight 23. the libyan national was freed in 2009 and was allowed to return home after doctors at the time said he had only three months to live. 270 people died in the lockerbie explosion. at least seven people are dead after an earthquake in northern italy. the 6.0 magnitude quake struck overnight in balance owna. at least 50 people have been injured. authorities are still assessing the damage. exiting afghanistan is expected to be the number one topic as the nato summit begins today in chicago. the gathering of more than 50

world leaders opens amid anti-war troe tests in the city's downtown. security is expected to be tight following the arrests of three men who allegedly plotted to attack president obama's campaign headquarters and city police stations. those are your top stories. reliable sources is at the top of the hour, but now back to fareed zakaria "gps." now for a what in the world segment. i couldn't help but notice a speech by a man who has all but disappeared from our tv screens. >> america does not get to choose if a freedom revolution should begin or end. it only gets to choose which side it is on. america's message should ring clear and strong. we stand for freedom. >> over the years and long before the start of the arab spring, former president george w. bush has been consistent in pressing his freedom agenda in africa and the middle east. in fact, the world over. it's an optimistic conservatism

that contrasts strongly with the pessimism of many other conservatives. take, for example, israel's prime minister who last november called the arab spring an islamic anti-western, anti-liberal, anti-israeli, undemocratic waif. the irony is that in his deep suspicion about the arab spring, b.b. has a strange bed fellow. the saudi monarchy. it's not often you see israel and saudi arabia agree on policy, but the two share a general fear of the upheavals in the arab world. so much so in the saudi's case that they hosted a conference last week to bolster the very opposite of modern democracy. monarchies. five saudis were invited to riyadh. each is a monarchy, and each a member of the group called the gcc or the gulf cooperation council. the saudi's hope is to turn that group into a more closely knit federation, something like the european union, they say.

they feel a union of monarchies would serve as a bull worth against the region's turmoil and democracy. but it turned out that for now the gcc agreed to disagree. you see, many of the small members fear saudi domination. what were the saudis thinking? well, riyadh has a complicated role in the arab spring. on the one hand it is arming syria's opposition, but one could argue that intervention is driven by sectarian concerns. it wants to support a sunni opposition fighting a leader. it's basically shia. that leader is also supported by iran, the great shia rival to saudi arabia. in most other instances, riyadh has essentially used its deep pockets to try to contain the arab state. in bahrain it sent thousands of troops to help crush a rebellion. in jordan and morocco, there are reports it is bribing the kings to make fewer concessions to democracy.

for fear of the example they would set to other monarchies. at home the saudis dole out pat rojage to gain support. they have given tens of billions of dollars in assistance to the unemployed. they increaseded salaries of soldiers and public servants. gasoline costs some 50 cents a gallon there, one-eighth of what americans pay. the saudi stories are more nuanced than carrots and sticks. the monarchy is popular. it was popular even before its latest. saudi arabia is perhaps unique in the arab world and that the general population is more consistent than its leadership. while riyadh may be ridiculing the west for not allowing women to drive, but it may outweigh the backlash from the far right when it changes course on social policies. at some stage demographic and economic change in saudi arabia will force it to move with the times. even oil wealth cannot insulate

you from it forever. arab democracies will be messy, complex, even nasty at times. they will have the legitimacy that comes with public participation, which is inevitable in today's world. and that's why in the long run b.b. netanyahu will be proven wrong and george bush probably proven right. we'll be back. up next, the person who is leading the charge against the economics of austerity. the nobel laureate. not in this economy. we also have zero free time, and my dad moving in. so we went to fidelity. we looked at our family's goals and some ways to help us get there. they helped me fix my economy, the one in my house. now they're managing my investments for me.

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i tell you what i can spend. i do my best to make it work. i'm back on the road safely. and i saved you money on brakes. that's personal pricing. if there is one simple way to frame the debate over how to fix the global economy, it is this, cut or spend? austerity or stimulus? in the last few years no one person has embody the cause to end austerity as much as paul krugman. the nobel lawyer yautat is a professor at presenceton university. he is a columnist for the "new york times", and he is out with a brand new book "end this depression now!" he joins me now. paul krugman, thank you so much for coming. so tell me what motivated you to be writing this stuff every -- twice a week. why did you decided you need to

do a book that put it all together? >> partly just to put it all together because you write 800 word columns, write blog posts and there's always somebody that says but what about this, but what about that? >> and look, it is an election year in the united states. there is -- it was pretty clear even when i was writing the book that we were approaching some kind of crisis point in europe where now several years into these wrong-headed policies the failure of the policies is becoming obvious. somebody needs to be out there and say this is why these policies are wrong. this is what we could and should be doing differently. so -- >> what is the -- what do you propose in this book that we do? >> at this point it's stimulus, but essentially not -- we can get a lot of stimulus just by reversing the austerity that we've done. so in the united states what we've actually had, don't believe what people tell you about run-away government spending. what we've had is unprecedented cuts especially at the state and local level. rehire those school teachers.

rehire those firefighters and police officers. restart those stalled maintenance projects on our infrastructure. right there is a big economic boost. >> okay. so now you know what the criticism is. look, it looks all right right now. the united states can borrow to spend this money, but you never know when you are going to trigger some market upheaval that if it comes the interest payments become so unmanageable that we would be in a huge crisis. >> several things. first is we have a lot of history, so i'm not just saying out of thin air this is okay. we can look at the actual debt burdens that advanced countries with their own currencies have carried over over the generations, and, you know, britain had debt well over 100% of gdp for most of the 20th century. britain had a heavier debt burden than it does now or than the united states does now, so it's not the case that these are

historically unprecedented levels of debt. japan has debt levels that are astronomical and people have been predicting a crisis in japan for year after year. they've gone a long way. if you were going to say, well, this might be the threshold, we might cross it next year, yeah, all kinds of things can happen. aliens can attack from outer space, but as far as we know from the lessons of history, no. >> and why will it not happen? was is it -- >> then the crucial points come in. first of all, a country that borrows in its own currency, even to think about how exactly does that debt crisis happen? i mean, does it mean -- the u.s. federal government can't run out of cash. the federal reserve can print cash, and actually it's quite hard to tell the story. i mean, we are not spain because we have our own currency, and we lore row on our own currency, but it becomes a quite hard story to tell about how this could go wrong. not that there may not be some way that it can happen, but it's

pretty speck speculative. i think i have two more points, believe it or not. one is you set this hypothetical risk against the very real, ebbing streamly large damage that's being inflicted right now. not just short-term, but long-term, by having almost four million people who have been out of work for more than a year. you are leading to a lot of people probably never getting back to the work force. that's going to hurt our long-run growth by having a whole cohort of college graduates never being able to find a job that makes use of their skills, you are crippling our economic future. that's a real cost, and it's almost certainly true given the math, given how low the interest rates are right now and given those effects that trying to be austere is self-destructive because it shrinkings the economy now and it, therefore, shrinks the tax base as it's going to make our debt position worse. >> the argument for austerity based on this possible

imaginary, you know, debt crisis do happen, but they don't happen much to countries like us, and setting that hypothetical against the very real damage that's coming from austerity, it seems to me it should be obvious what we should be doing and austerity is not the answer. >> right. don't go away. when we come back, i'm going to ask paul krugman what he would do about the so-called fiscal cliff. the expiration of the bush tax cuts, the sequestration, and the debt ceiling crisis autopsy coming up in january, but coming up on "gps" right after this.

and we are back with paul krugman, the nobel peace prize winning economist. john boehner says he is not going to do a renewal of the debt ceiling if there isn't -- if there aren't budget cuts. in any case if nothing happens, the sequestration takes effect, the bush tax cuts expire, you presumably look at all of this with sheer horror. >> i look at it as a very bad thing. it's not what you would want to do as policy. this is not the time for

austerity of any kind. then you have the question, okay, if approximate you are president obama and particularly if you are re-elected president obama, if that is what happens, what do you do because you are being -- it's a hostage situation. these guys are saying giver us what we want even though we don't have the votes to pass it in congress, even though we don't have the votes to override a veto. give us what we want, or we will blow up the country. do you get into those demands? do you allow yourself to be blackmailed? he i guess my vote is no. obama has already allowed himself to be blackmailed in the past. at some point this has to top. at some point you have to say, look, we have a constitution that says the way you get things is by passing legislation, not by threatening to destroy the country unless you get your way. so if that's going to happen on your head be it. he has to say make me a reasonable proposal for an actual compromise, not something which is entirely give on the

part of the democrats, the reasonable people, and then we can talk, but not -- so i think in a way he will really have no alternatives. at least no alternative that i would find acceptable except to call their bluff. wall street is bank rolling these guys, massively, the business community will yank their chain and say, wait a second, you know, this is all very well, but destroying the economy is not what we're paying you for. no, it's a terrible thing, but the problem is not economic. if we had a sane political system, we would be able to say that this is not the time for austerity. let's negotiate long-run revenue increases, long-run cost-saving measures. what we actually have is we have a game of chicken. we're in a scene from the james dean movie with two cars racing for the edge of the cliff. at some point you have to say i am not going to be the one who always gives you in the end. >> a lot of people, though, you know, businessmen types look and say, well, krugman is very smart, but he has become too

partisan. he thinks that everything the republicans do is wrong, and he doesn't have -- he doesn't seem to really care about this long run fiscal nightmare that we have which, you know, depending on how you count it is $50 trillion. this is a huge issue of the entitlement spending that has to be dealt with. >> except if you actually look at their personal history, i was furiously opposed to the bush tax cuts because i was worried about the long run deficit indications. i was opposed to the unfunded wars. you was worried about the deficit implications. you worry about the things, and you don't do austerity when you are in the middle of a depression, of a sustained period of below normal economic performance. i don't think web we can have a serious conversation about we're terribly worried about the deficit. first thing, let's cut taxes on rich people and corporations. second, let's cut aid to the poor and add those two things up, and they actually increase the deficit, but we're going to

find money to make it a deficit. they're not serious. i'm serious about the long run deficit. they are not. >> you would be willing to cut medicare and medicaid? >> yeah. the way you do it, though, is nott by cutting the guarantee of health care. the way we do it is by finding cost savings, by saying we will not pay for medical procedures that have no medical benefit, and maybe we will start to look at procedures which generate tiny medical benefit at a huge cost and don't pay for that. we talk about restructuring the way that we pay for medical care. a lot of which is actually in the affordable care act in obama care, but we need more of that, but that's how do you it. >> all this said and done, are you enthusiastic about president obama? you were not for him in the democratic primary four years ago? >> i mean, we're a long way past. where i think enthusiasm is the appropriate emotion for anything here. he has learned a lot, and his heart has always been in the right place. i believe his head is now in the right place, and you certainly -- of course, i can't do endorsements. you have no idea who i prefer in this election.

but he certainly is talking sense about the economy, and mitt romney is talking utter nonsense, and you really do worry in effect. >> what is the single biggest piece of nonsense? >> mitt romney is saying that basically spending cuts are how we're going to get to prosperity. mitt romney is saying see what is happening in greece and in spain and ireland. let's do that here. you know, we've just had a massive test. human experimentation on a massive scale in effect. alternative doctrines of economic management. we've just seen which doctrines are disastrous and the republican platform is let's put that doctrine that has just caused collapse in europe. let's put that doctrine into effect right here in america. >> paul krugman, pleasure to have you on. >> good to be on. >> the if aniy business of getting to the moon. we invoke the russians and the russians invoke, well, just wait and see.

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the world might be going gaga for lady gaga, but there's one country that doesn't appreciate her musical stylings? what country has refused lady gaga a permit to perform there despite a sold-out venue? sf, a, saudi arabia, b, south africa, c, italy, or, d, indonesia? stay tuned, and we'll tell you the correct answer. go to cnn.com/fareed for more of the gps challenge and lots of insight and analysis. you can also follow us on twitter and facebook. also, remember, if you miss a show, go to itunes. you can get the audio podcast for free, or you can buy the video version. it's itunes.com/fareed. this week's book of the week has

been called relentlessly intelligent. i agree, but i'm a little biassed. it's the book i wrote "the post american world 2.0." it's been released in paperback. it could make a great graduation gift, a father's day gift, a belated mother's day gift, or just a gift for yourself. somehow or the other, just buy it. now, for the last look. when the shuttle program ended almost a year ago america became unable to send a man to space, so now the u.s. has to rely on others and that means the russians and that can be a little scary. in the past year russia's space program has had a series of close calls and even crashes. so before this week's liftoff russia invoked a higher power. okay. but that is far from the only superstition that comes into play at russia's cosmo drome. tradition says that the crew gets haircuts two days before launch and they drink a glass of champagne on launch day, and the

final superstition, as yuri did before he became the first man in space in 1961, they relieved themselves on the wheels of the bus that carries them to the launch pad. let's see if it works. the correct answer to our gps challenge question was, d, indonesia. gaga won't be playing jakarta. the police there reportedly refuse her a permit after a threat from an extremist group who said lady gaga would bring the faith of satan to the country and would destroy the nation's morales. she's pretty powerful. thanks to all of you for being part of my program this week. i will see you next week. stay tuned for "reliable sources sources." the media have mitt on the offensive. first they trump a web ad which is barely on television, slamming his record at bane capital. next, they mount a $10 million campaign trying to resurrect