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FAREED ZAKARIA GPS

How to Fix Europe's Debt Problem; Interview with Jeffrey Immelt; Roundtable Discusses New Developments in Middle East

Aired September 18, 2011 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have a terrific show for you today. First up, a man who wears two very important hats. Jeffrey Immelt is President Obama's job czar. In his day job, he is the CEO of General Electric.

Then, "Why in the World?" is oil about to be drilled right off America's coast without any American involvement?

Next up, the Palestinian territory's quest for statehood, chaos in Egypt, the fate of Gadhafi. A roundtable of top experts will look at all of this and more.

And, finally, one "Last Look" at an area where America's top dog status has just been reaffirmed.

Before I give you my take, a programming note. You wouldn't want to miss the CNN Special tonight, "Restoring the American Dream: Getting Back to Work." Top American leaders join me to talk about how to fix the unemployment crisis. That's at 8:00 P.M. Eastern and Pacific.

Now, my take.

The European crisis that you've been reading about in the newspapers is actually worth watching very carefully. It has now morphed into something much bigger than a European crisis. It could batter the entire global economy, which is pretty fragile anyway.

You read a lot about Greece. Well, the real problem is Italy, not Greece. You see, Greece is a nano state. It makes up about two percent of the European Union's gross domestic product.

Italy, on the other hand, is one of the seven or eight largest economies in the world. Its debts are greater than those of Spain, Portugal, Ireland, and Greece combined, and it has long been governed in an almost cartoonishly bad manner.

Italy is too big to fail, but it might also be too big to bail. Even Germany might not be able to credibly bail it out along with all the other troubled countries. So, what can be done? Well, I don't think the leading proposals will work, creating euro bonds or giving Brussels broader powers to tax and spend. These things are simply not going to happen. Governments oppose it in Europe, people oppose it in Europe, and, anyway, creating a tighter European Union will take about 10 years to sort out. Markets need reassurance now.

So, I have a proposal. We need a bazooka - a big bazooka. You see, facing a similar crisis in 2008, Treasury Secretary Henry Paulson talked about the need for a sum of money large enough to scare markets into submission.

(BEGIN VIDEO CLIP)

HENRY PAULSON, FORMER U.S. TREASURY SECRETARY: You've got a bazooka -

(END VIDEO CLIP)

ZAKARIA: He called it a bazooka.

But the problem is this - all of the E.U. combined doesn't have a big enough bazooka. So, who has the kind of money Italy and Spain would need? Take a guess. They have $3 trillion in foreign exchange reserves alone. Yes, China.

In fact, today there are $10 trillion of foreign exchange reserves sitting around the globe. That is the only pile of money large enough from which a bazooka could be fashioned.

The International Monetary Fund could go to the leading holders of such reserves - China, but also Japan, Brazil, Saudi Arabia - and ask for a $750 billion line of credit. The IMF would then extend that credit to the troubled E.U. economies, Italy and Spain particularly. But it would insist on closely monitoring economic reforms and granting funds only as restructuring occurs.

That credit line would more than cover the borrowing costs of both Italy and Spain for two years. The IMF terms would ensure that the two nations remain under pressure to reform and set them up for growth.

Now, the Chinese would have to devote at least half the funds. What's in it for them? A new global role. This could be the spur to giving China a much larger say at the IMF. In fact, it might be necessary to make clear that Christine Lagarde would be the last non- Chinese head of the IMF.

In a world awash in debt, power shifts to creditors. It's happened before. After World War I, European nations were battered by debts and Germany was battered by reparation payments. The only country that could provide credit was the United States of America.

For America, providing desperately needed cash to Europe was its entry into the councils of power, a process that ultimately brought a powerful new player inside the global tent. Today's crisis is China's opportunity to become a responsible stakeholder in the global system. And if this doesn't happen, by the way, hold onto your seat, because we are in for a rough ride.

Let's get started.

For the last eight months Jeffrey Immelt has held two jobs. He is, of course, the chairman and CEO of General Electric, but he also moonlights as the chairman of President Obama's Council on Jobs and Competitiveness. In other words, his second job is to get a first job for the one out of six Americans who are looking for work. So, what is he going to do?

I talked to him about jobs, the American economy and General Electric.

(BEGIN VIDEOTAPE)

ZAKARIA: When President Obama asked you to head up his jobs council, what did you come in hoping to achieve? What's the - the one thing you thought you'd be able to get done?

JEFFREY IMMELT, CHAIRMAN AND CEO, GE: I took it just as a pure play, and the one thing I hoped to get done is to create more jobs. You know, in other words, Fareed, I - I've tried to stay focused on this in a very tactical way and, really, I - I think, building the amount of confidence that's required to actually improve job creation in the United States.

ZAKARIA: Taking this position, have you learned something about the difficulties, the opportunities of job creation that's different from what - from just running GE?

IMMELT: You know, one of the things that this made me do is reach out more and try to see it through the eyes of small business. And when you really try to put yourself in their perspective, they have all the problems GE has, only on steroids. So, in many ways, you know, one of the roads out of this is there's got to be some simplification of regulations in the United States.

The fact is, is that GE and IBM and J.P. Morgan, we're big enough companies that we can muscle through regulatory, you know, pressure. We can comply, we can do the things we need to do. If you're a $50 million business, it's just so much harder.

So I - I become much more aware of the challenges that basic, fundamental small businesses have in the United States. It's given me a much better appreciation of what they go through.

ZAKARIA: What is it like working with President Obama?

IMMELT: He's a good listener. He's tough-minded.

You know, I tell my colleagues in the business community, it's not like your first shot on goal is going to get through his pads, right? He - he is tough-minded, and he's a good listener. ZAKARIA: You know, a lot of people in the business community think he's anti-capitalist or he's too left wing to be president. You see him. You talk to him about capitalism, jobs, the economy all the time.

IMMELT: Look, I know he cares deeply about job creation. I know he cares deeply about the United States.

Do - do I agree with everything that the president says or everything he stands for? Probably not. In fact, definitely no. But, at the same time, you know, he's my president, and I believe when the president asks you to do something, you say yes. And so that's the context with which I took the Jobs Council assignment.

I like President Obama. I respect President Obama.

ZAKARIA: You are a Republican, right? A registered Republican.

What do you say to Republicans where you now see the entire party largely unified around the idea that the only thing that the government can really do to create jobs is to cut the budget, cut the deficit, slash spending. There's very little appetite for any kind of affirmative government policy, let alone investment. Is that the right path?

IMMELT: Look, I'm - in my essence, I make aircraft engines and gas turbines and sell them to customers around the world. I'm not really a politician. You know, I don't - I don't really want to set public policy. But I believe in balance.

Does the debt, deficit need to be reduced? Absolutely, right? Is government too big, in many ways? Absolutely. But does the country still need to invest in education? Does the country still need to invest in infrastructure? Does the country still need to invest in - in the types of innovation and R&D that are going to make this country competitive in the 21st century? Yes, we do.

You know, the - the advantage I have is I lived my life in Beijing, in Rio, in Paris, in Moscow, and I see the rest of the world investing in competitiveness, I see the rest of the world wanting to gain share versus the United States. And so I - I think a balanced approach ultimately is what most business people, most CEOs would like to see.

ZAKARIA: You know that a lot of people look at GE as a poster child for the problem with corporate tax collection. They say you -

IMMELT: Look, we paid tens of billions of taxes over the last decade. We wrote off massive amounts during the financial crisis in GE Capital, and our tax rate year to date this year is over 40 percent. So, like many CEOs, I would - I am dramatically in favor of - of a new corporate tax system that lowers the rate, ends loopholes and puts us on the same basis with Germany and U.K. and Japan and everybody else around the world.

I - I completely agree with where the Simpson-Bowles Commission came out on the tax system, and let's get after it.

ZAKARIA: What about investment? You're sitting on piles of cash and people say you're opening businesses in China, you're hiring people in China, but you're not hiring people in -

IMMELT: Look we're hiring 15,000 people in the United States this year. You know, we are - we are investing in the U.S., but we're also investing in China, we're also investing in India.

Look, Fareed, more than 60 percent of the company is outside the United States, 70 percent of our backlog. I wish all my customers were in Chicago. Really, I do. It's the easier way to run the business. But that's not where my customers are. My customers are in Brazil, my customers are in Canada, my customers are in Japan and China. We're one of the country's biggest exporters.

I think the country should applaud that, you know? That's - that's nothing to be criticized. And so, look, I just - I'm just not going to apologize.

But also are going to create jobs in the United States. We're also one of the best exporters. We're one of the country's biggest R&D spenders. And every one of my competitors, everyone is global.

You know what, we are a 130-year-old company. We compete with Siemens, we compete with Hitachi, we compete with Toshiba. We don't have U.S.-based competitors anymore. And, believe me, all of them get government support from - from the German government, from the U.K. government, from the Chinese government.

So I just think, you know, we criticize global companies like GE, when, in many ways, we can help build competitiveness in the United States.

ZAKARIA: Tell me about the Jobs Council. What specifically can the United States do?

You have divided the - the challenge in a sense into a short term and a long term. So tell me about the short term first. What can we do to create jobs?

IMMELT: So we're actually going to do an industry-wide sector by sector jobs plan, and we're going to finish that by the end of the year. Fundamentally, we didn't want to focus on legislative solutions, so it was kind of nonpartisan, non-legislative.

Nobody on the council - there's 26 of us. None of us believe that there's a silver bullet for - for job creation. So there's literally going to be dozens of ideas that go into - go into creating jobs.

So, early on, what we really try to do is focus on supply and demand, reducing regulatory burdens, because we wanted to put people back to work quickly. So we had ideas in education, create 10,000 more engineers every year. We had ideas around reducing cycle time. So getting visitor VISAs, shorten cycle time to put together - to create jobs for 100,000 or 200,000 travel and leisure workers.

Very simple, very focused, just to try to build some confidence. Those things are all underway.

(END VIDEOTAPE)

ZAKARIA: Back in a moment, much more with the jobs czar, Jeffrey Immelt.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: What do you think it would take for American companies to be able to - to gain productivity by increasing employment rather than decreasing? Because the last few years, what you've seen is an increase in productivity by shedding jobs rather than add it.

IMMELT: You know, again, I - in the end, you need demand. You know, in other words, none of our names are above the door, right? We all work for investors. And investors want to see us invest in growth, but they don't want us to run operations that are less competitive or that are inefficient.

But, if you look - you know, Fareed, we've got 60, 70 percent market share in the commercial aviation business, making jet engines. Our plants are full. We're adding people in every factory, we're adding people in the supply chain.

Now, 80 percent of those products go outside the United States. They - they go to the Middle East, they go to China, they go to India. The - the airlines that are growing are - are going there.

So if you can see growth, the tendency is to want to hire people and - and not to be unproductive, but to fulfill demand. And so I - I just think people need to see more certainty of demand.

Now, you know, I - I personally would say, would I like there to be more certainty on tax rate and health care policy? Sure. I'd like to see all those things. But none of that's stopping me from investing. I think, to a certain extent, that's a crutch.

ZAKARIA: What would it take to make bigger investments in the United States in manufacturing, in areas like that for companies? What would it take - what would convince you to do it even more?

IMMELT: I think it's about having good, educated, well trained workforce, which we have many times but still needs to be in place. Having good, stable understanding of what tax policy is going to be.

Now, look, some states in the U.S., you have 50 different - let's say CEOs, and you have different incentive packages and things like that. Those are important, but they're very rarely the single reason why people put factories any place.

But just certainty of education, certainty of tax policy, a well trained workforce. Really, I - I personally think at the right wage level, let's say $15, $20 an hour. Lots of work could come back to the United States in - in manufacturing and be competitive with other parts of the world.

ZAKARIA: Tell me about the role of government. You're saying you travel around the world. You noticed that South Korea, China, the governments are very active in promoting businesses, industry, sectors. You face this in your wind turbine business where clearly the Chinese government is making a very powerful push to really get market share from General Electric.

Do you wish that the United States government were more active?

IMMELT: You know, I - I believe in the American way, the American system.

Now, the government in the U.S. has always been a catalyst to drive growth. Always. Always. This is not a President Obama versus President Bush or things like that. The NIH has been a catalyst for the world's best health care system. The Department of Defense has been - has spawned the Internet, has spawned modern transportation technology for generations. The nuclear industry was built on the back of the Department of Defense.

So, for generations, more than a hundred years, the government has been a useful catalyst to drive this great capitalistic system. So, number one, there is a role - I think a small role to be played by the government in risk-taking and - and helping to evolve where we go, right? Number one.

Number two, it just so happens that the biggest competitor in the world today has a system where the government fundamentally runs the play. I mean, you know, I've been going to China since 1984. I get the five-year plan from the Chinese government, I make our team digest them, study it and analyze it because they actually do it. It's what -

So we now have a new competitor who runs a different play, and I have always been paranoid about competition. I think it's good for the United States to be paranoid about competition, to study and say, OK, A) do they have a way that we should understand? B) how do we beat them, or how do we compete with them or what do they do? And so I think we need to be reflective.

I don't - I'm not sure I can - I know what the right answers are for GE. I'm not sure I'm smart enough to figure it out for the entire country, but do we have to recognize the competition has changed, that the biggest competitor plays the game in a very state-driven way. And we need to understand that.

ZAKARIA: Are you optimistic, though, that we will - a lot of the problems you see that need to be fixed to get American employment up, to - to really transform the jobs situation, these are big changes. The long-term challenges, educational system, whole system of - of reforming the bureaucracy, getting much more deeply invested in infrastructure. We're not doing most of these things right now. Are you confident we're going to be able to do that?

IMMELT: Look, I - I'm optimistic and confident because I believe, in the end, our system works. I actually look at where we are today as a natural progression of economic crisis - anger, you know, fear, anger, all that's kind of playing out. In the end, we've got to work together. You know, in the end, we've got to find ways to drive common solutions to bigger problems.

I think that's true for the private sector, businesses working together. I think it's true between the public and the private sector. But, ultimately, there's a sense of teamwork that's very much a part of the American culture. There's a sense of partnership that's a very - very much a part of the American culture that I think is - will ultimately play out.

(END VIDEOTAPE)

ZAKARIA: My thanks to Jeffrey Immelt.

You can see more of this interview with Immelt as well as with the CEOs of General Motors, Dow Chemical and Starwood Hotels, as well as Senator Hutchison of Texas, all on "Restoring the American Dream: Getting Back to Work." That's my GPS special airing tonight at 8:00 P.M. Eastern and Pacific.

There's been a lot of talk in Washington about fixing the unemployment problem. We'll tell you where we need action, quick ways to get people back to work.

And we'll be right back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World?" segment. Can you remember what explosive crisis America and the world was fixated on last summer? It wasn't the deficit, jobs or Europe. It was an oil disaster.

Remember the BP spill? Tons of crude gushing into the Gulf of Mexico? Well, in the weeks and months that followed, there was a lot of discussion about how to make sure it didn't happen again.

But what struck me this week is that we have a new dangerous drilling zone right on our doorstep - Cuba. Estimates suggest that the island nation has reserves of anywhere from five to 20 billion barrels of oil. The high end of those estimates would put Cuba among the top dozen oil producers in the world.

Predictably, there's a global scramble for Havana. This Chinese- constructed drilling rig is owned by an Italian oil company and is on its way to Cuban waters. Spain's Repsol, Norway's Statoil, and India's ONGC will use the 53,000 ton rig to explore for oil. Petro giants from Brazil, Venezuela, Malaysia and Vietnam are also swooping in.

Of course, we can't partake because we don't trade with Cuba. But what about at least making sure there are some safety procedures that are followed that would protect the American coastline? You see at 5,500 feet below sea level, these oil rigs off Cuba will go even deeper than the "Deepwater Horizon" rig that blew up on our coast last year, and the coast of Florida, remember, is just 60 miles away from Cuban waters.

What happens if there's another oil spill? Will it be easy and quick to clean up? No. You see, the nearest and best experts on safety procedures and dealing with oil spills are all American, but we are forbidden by our laws from being involved in any way with Cuba.

Our trade embargo on Cuba not only prevents us from doing business with our neighbor but it also bars us from sending equipment and expertise to help even in a crisis. So, if there is an explosion, we will watch while the waters of the Gulf Coast get polluted. Now, this is obviously a worst case hypothetical, but it's precisely the kind of danger we should plan for and one we can easily protect against if we were allowed to have any dealings with Cuba.

This whole mess is an allegory for a larger problem. We imposed an embargo on Cuba at the height of the Cold War, 52 years ago, when we were worried about Soviet expansion and the spread of communism.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Those are Russian-made, Russian-manned ballistic missiles.

(END VIDEO CLIP)

ZAKARIA: Well, there is no more Soviet Union, and I don't think there's a person in the world who believes America could be infected by Cuban communism today. But the antique policies remain, antique and failed policies.

They were designed, you recall, to force regime change in Cuba. Well, the Castros have thrived for five decades, using American hostility as a badge of Cuban nationalism. All the embargo has done is to weaken the Cuban people, keep them impoverished, and cut them off from the world.

Cuba has an Internet penetration rate of just 14 percent. So only one out of seven people can use YouTube. Only one out of 20 Cubans has a mobile phone. And now we will stand silently and watch as other countries drill for oil, reap the benefits and endanger our coastline. But, hey, we're making sure that Cuban communism stays contained.

We'll be right back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Time for a check of today's top stories. The U.S. Geological Survey says a 6.8 magnitude earthquake struck Sikkim, India today in the remote mountainous northern region of the country. No major damage has been reported.

And another setback in the effort to get two American hikers released from prison in Iran. Josh Fattal and Shane Bauer's lawyer says he was not able to get a signature for their bail paperwork because the judge is on vacation until Tuesday. They've been held as spies for more than two years.

Fierce fighting is ongoing in parts of Libya between forces loyal to Moammar Gadhafi and revolutionaries. Anti-Gadhafi forces are hoping to soon take control of Sirte, Sabha and Bani Walid. Meanwhile, a spokesman for Libya's Transitional Government says there is still no definitive information about Gadhafi's location.

In West Virginia, a pilot was killed when he crashed his plane during an air show Saturday afternoon in Martinsburg. Investigators are still looking into the cause of the crash, but no one on the ground was injured.

Those are your top stories. Now back to FAREED ZAKARIA GPS.

(BEGIN VIDEOTAPE)

ZAKARIA: It's been a tarred few days in the Middle East. An Egyptian mob burned Israel's Embassy in Cairo. Israel's ambassadors to both Egypt and Turkey have been forced out and the Arab World is coalescing around proposals to vote for Palestinian Statehood in New York this coming week.

Joining me now to make sense of all these four top experts, Elliot Abrams has held top foreign policy positions under Presidents Reagan and George W. Bush; Rashid Khalidi is a Palestinian-American historian who teaches at Columbia University; Gideon Rose is the Editor of Foreign Affairs; and Bret Stephens is the Foreign Affairs Columnist for the "Wall Street Journal." Welcome all.

Rashid, what is - what is the strategy here that the Palestinians hope to - to accomplish because the U.S. is going to veto any kind of Palestinian statehood and the Security Council, which is the only place where they can get it. So what's the point of - of going through this exercise?

RASHID KHALIDI, COLUMBIA UNIVERSITY: It's true that there will not be a Palestinian State Member of the United Nations at the end of this process, because of the U.S. veto if in fact they go for that. I don't think it's clear what their strategy is. It may - it may in fact be changing. They are under enormous pressure not to go ahead.

I should say that nothing that they do is going to change the realities on the ground. The occupation will continue, settlement will continue. The United States will be an obstacle to any sound, peaceful, just resolution of this conflict. But it may change the diplomatic atmosphere. It may also - and I think this may be the most important result. It is going to lead to severe sanctions against the Palestinians, very likely by our Congress and unquestionably by Israel should some kind of statehood resolution, even observer - observer status of a Palestinian - of a Palestinian.

ZAKARIA: Is it a mistake?

KHALIDI: I - I myself think that this is not going to advance Palestinian statehood. But if it ends the illusion among Palestinians that the United States is actually going to help facilitate real self- determination for the Palestinian people, it's probably not a bad thing.

ZAKARIA: Brett, what about the issue of what it does to Israel? And you have - you will have the spectacle in the General Assembly where the vast majority of countries in the General Assembly will vote with the Palestinians and against Israel. You probably have a handful of countries voting with Israel. Does that matter, do you think?

BRET STEPHENS, THE WALL STREET JOURNAL: Well, Israel is used to being in the minority in the - in the United Nations and it has been for a very long time.

But, look, I think your question gets to the heart of what this Palestinian gambit is all about, which isn't trying to achieve any kind of genuine statehood. It's another tool in an arsenal to delegitimize Israel. President Abbas wrote an Op-Ed in the "New York Times" a few months ago in which he spelled out that the goal or one of the goals of this declaration is to expand the ambit by which Palestinians can make claims against the Israelis including in the International Criminal Court.

One of the reasons that Israelis and particularly the Israeli Military fears what the Palestinians are now doing is they - they fear that their generals and officers will find themselves being arrested when they set foot in - I don't know - Germany, France, the U.K., you name it because there is a particular lawsuit pending against them. So it contributes to the Israeli eyes to the efforts by the Palestinians to ostracize Israel, not only in the court of international public opinion, but an actual international courts.

GIDEON ROSE, EDITOR, FOREIGN AFFAIRS: I think that's going too far, Bret. And I think it is a dumb move, but it's not purely an anti-Israel move. It's an attempt to actually try to get something going off the dime. It's a dumb way to do that and it's not going to work, but the Palestinians are facing a situation in which the Israelis haven't been forth worth - forthcoming in doing anything to move the situation because they're more satisfied with the status quo.

So the real question is, how can everybody get the parties talking to each other rather than doing stupid demonstrations acts that don't actually advance real negotiation.

ZAKARIA: Do you - go ahead. ELLIOT ABRAMS, COUNCIL ON FOREIGN RELATIONS: I think you're too kind to the Palestinian leadership. Poll data suggests there's no great demand on the part of the Palestinian people that he go to New York. In fact, there's a lot of doubts amongst most Palestinians according to polls.

I think you have to ask why President Abbas is doing this personally. What is it about him that needs him to do this? And I think he is a decreasingly legitimate president. He hasn't held an election. He keeps kicking off elections. He has said he's going to retire. He is today the man who lost Gaza.

So this is about some symbolic victories for Mahmoud Abbas as an individual. It's going to hurt Palestinians. It may help him in the history books in some way.

ZAKARIA: We need to go to the Israelis. I mean, Gideon, to the point you're making, do you - do you sense that that is - that, you know, you're seeing this stuff in London where the Israeli orchestra was playing and there was - there was an effort to delegitimize it. It does contribute to this feeling.

Tom Freidman said in this program, Bibi Netanyahu can come and give an address at Congress and he will get a standing ovation, he'll get (INAUDIBLE). But he'd get that if he read the phone book.

KHALIDI: More ovations than Bashar al-Assad with his captive assembly is what he's got in front of Congress, yes.

ZAKARIA: But the point Tom was making is could he do that at any American university campus. Could he do that in any western university campus?

ROSE: No.

ZAKARIA: There is a sense that Israelis are under siege.

ROSE: Well, it's under siege and it - it develops a bunker mentality, which makes it take further actions which don't lead to progress. The tragedy of this situation is everybody knows what it should be at the end of the day. Two states for two people, and yet the local parties aren't willing and I decide to make the full compromises necessary and the United States is too self-absorbed or unable to move them forward.

And so the situation persists and goes backward. And it's just - it's like watching a train wreck unfolding in front of your eye.

STEPHENS: But in a sense - but in a sense, what's happening is symptomatic of the broader patterns of the Middle East, the kind of the fecklessness of the Palestinian maneuver at the U.N., the lack of progress towards any kind of resolution just tells you that this is a conflict that's in stasis. It's going to be a remainder for a very long time.

Broad and important things are happening throughout the rest of the Middle East. If I were the Prime Minister of Israel the least of my concerns would be what happens at Turtle Bay in the next few days. My real concerns are the future of the relationship with Egypt, particularly the matter of the Sinai and the very, very depressing turn of events with the relationship with - with Turkey.

ZAKARIA: But aren't they related? That is to say the Turks and the Egyptians are responding to a public opinion - in both cases the Turkish public and the Egyptian public that wants their governments to be anti-Israel because of the Palestinians.

KHALIDI: That's part of it. But part of it is that the so- called delegitimization is a response to Israeli's actions. I mean, take the Turkish situation (ph). All that might have required would have been an apology for the murder of a bunch of Turkish citizens. Activists, whatever they may have done on that boat, an apology. All that would have been required vis-a-vis Egypt. It might even have prevented the burning of the embassy.

It would have been an immediate apology for the deaths of five Egyptian soldiers. Say, we were on an - whatever they want to say beyond that that's all that would have been necessary.

UNIDENTIFIED MALE: I think -

KHALIDI: The other thing, just - just to finish, the other thing is, yes, popular sovereignty is gaining ground in the Middle East. Turkey is now more democratic than it's been for a very long time. Egypt hopefully will be. And that's something that if Israel is wise - if Israelis are wise, they will come to terms with it.

ZAKARIA: We'll come back to all of this in a moment. Be right back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: And we are back with Rashid Khalidi, Bret Stephens, Elliot Abrams and Gideon Rose talking about the Middle East.

Elliot, you were talking about popular sovereignty and the - and the Middle East. And I - I remember a piece you rote in the "Weekly Standard" which said, first Tripoli and then Ramalla. And you were castigating the Obama administration for wanting democracy in every part of the Arab World except the Palestinian territories.

But I'm wondering, after you watch what the more democratic Turkey's foreign policy is, after you watch what a more democratic Egyptian foreign policy is, after you watch what perhaps a new Libyan foreign policy will be toward the United States and toward Israel, which I know you can worry about, maybe it's not such a good idea to have democracy in the Palestinian territories.

ABRAMS: Well, I think it is. Because I think it's the lack of democracy and the lack of legitimacy that leads someone like Abbas to do something stupid in New York. He would be better off holding an election. He was not forced to do this.

I really think the - the leadership question is critical here for Turkey as well. This is why I disagree with Rashid. I remember when Erdogan went to Davos and for no reason at all attacked the (INAUDIBLE) Shimon Peres.

Erdogan has a policy. He has a plan. The people of Turkey are not demanding that he impose a hugely anti-Israel policy and threaten war in the Mediterranean. That's Erdogan. He is leading Turkey that way. That's not Turkish democracy. That's Erdogan and I think he has to say more -

ZAKARIA: But if you look in the polls, and I was at Davos as well when he went back at 4:00 A.M. he had 100,000 people in the airport waiting to, you know, besiege him with cheers of joy.

KHALIDI: Look, that's public opinion of the time that Israeli is actually in Lebanon -

UNIDENTIFIED MALE: (INAUDIBLE).

ABRAMS: (INAUDIBLE) and it works. But he's an irresponsible and dangerous leader. That's the problem.

KHALIDI: So when we don't like the outcomes it's demagogue and then when we do it's democracy? No.

ZAKARIA: Egypt, Libya, you know, we have a story in the "New York Times" this week about Libya's Islamist (ph). So is this now something we are going to have to worry about? Everyone says about them in both - in both Egypt and Libya, not a majority, but probably the most organized force. So are we likely to see a kind of new Islamist foreign policy?

KHALIDI: Well, we are likely to see a new - a new form of activism by Islamists - Islamists who are able to come above ground now that these kinds of regimes have disappeared and we would see how that -

ZAKARIA: Should we worry about that?

KHALIDI: We will see. We will see how these people operate in the new hopefully more democratic political climate.

(CROSSTALK)

ROSE: We should worry about - we should worry about behavior, not about the character or the religion of the groups involved. The key thing is to set up clear red lines for what kind of absolutely impermissible behavior, violence, complete suppression of minority rights locally, violence externally and so forth, those are things that we should essentially make local parties pay penalties for, but other than that we should let the natural messy democratic politics play out while trying to do what we can to make it benign. STEPHENS: Well, to Gideon's point, it's interesting that in the near-sacking of the Israeli Embassy in Cairo it wasn't the Islamists who were - who were involved. It was soccer hooligans who are of no particular - no particular religious description. But it does get at a - at a real problem in Egypt which is that you have a well organized Islamist political movement, partly Muslim brotherhood, partly (INAUDIBLE), these various other groups, but you have a weakly organized and intellectually incoherent secular movement.

The group that was capable of deposing Mubarak in Tahrir Square earlier this year has no real political agenda except to get on the bandwagon of -

ZAKARIA: Or organization.

STEPHENS: -- or organization of getting on the bandwagon of being part of the - of the hate Israel gang in - in Egypt. That's a problem all of these countries are going to confront. It's that the -- as Yeats said, the best lack all conviction.

KHALIDI: You know they hate Israel. You don't kill five Israeli soldiers and you don't create the kind of reaction you got.

STEPHENS: Well, five - I'm sorry -

KHALIDI: Five Egyptian soldiers.

STEPHENS: Well, before that a number of Israelis were killed in a cross -

KHALIDI: I understand that.

STEPHENS: -- in an attack that came across the Egyptian border.

UNIDENTIFIED MALE: I understand.

ZAKARIA: We'll come back to the - this issue with Egypt. Because I heard a talk you gave about the Arab spring and you were quite - quite pessimistic about what was going to happen. So why - I mean, you spent 25 years promoting democracy everywhere from the Reagan administration onwards. Are you worried that - and you must be worried that in the Arab world it's not quite working out.

ABRAMS: Of course I worry. I think we all have to worry as we watch Islamist groups and other extremist groups come out from under and try to make their case. But the antidote has to be democracy, too. The antidote has to be to make the argument, not for us, but people in those countries to make the argument. This is a dead end. This is wrong. This is not the kind of Islam we want in this country whether it's Egypt or Libya.

We cannot ultimately - I think we've proved, we found this out in the Arab spring. Suppression will not work forever. There's got to be an argument within the Islamic world, particularly within the Arab world about what kind of societies they want. It will be a bumpy ride. During this bumpy ride, we're going to need to do things like help protect our ally in Israel from what may be the kind of thing we're seeing in Turkey which I think is just troublemaking. But this - this a reminder, by the way, this is not about Palestine.

Egyptians have had several wars with - with Israel. Egyptians have had a negative view towards Israel but nothing to do with Palestine. The notion that if you improve conditions on the ground in the West Bank, Egyptians will say, OK, now, it's fine. I think that's just not - I think this is a historic. This is a long, difficult path ahead.

ZAKARIA: Do you - you obviously disagree. You think attacking the Palestinian issue will defuse some of the anti-Israeli sentiment in the Arab world.

KHALIDI: Absolutely no question whatsoever that in most countries, certainly in the Arab world, Israeli treatment of the Palestinians, as it is seen on television and in the press and will be seen more as there - as there is a freer press is a central issue and feelings about Israel.

It's not hate Israel. You kill Egyptian soldiers and you increase the things, but there is a base level of concern about Palestine. And you could see that with the waving of Palestinian flags in Tahrir Square. You can see that in demonstrations all over the Arab world during the time of the Gaza War and the time of the Lebanon War. I mean, this is - you just have to look at what's happening.

ZAKARIA: All right. Having solved the Israeli-Palestinian issue, we'll -

KHALIDI: So easily.

ZAKARIA: -- we will be back. Thank you all.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: French President Nicolas Sarkozy and British Prime Minister David Cameron traveled to Libya this week to meet with the leaders of the National Transitional Council, which brings me to our question of the week, the "GPS Challenge" which is - before David Cameron, who was the last British Prime Minister to visit Libya? Was it A) William Gladstone in 1893; B) Winston Churchill in 1943; C) Margaret Thatcher in 1980; or, D) Tony Blair in 2004?

Stay tuned and we'll tell you the correct answer. Make sure you go to CNN.com/GPS to try your hand at the full "GPS Challenge." While you're there check out our website, the Global Public Square. It really is terrific. You'll find fresh content every day about the world we all live in. And don't forget, follow us on Twitter and Facebook.

This week's "Book of the Week" might seem like a bit of a departure for me. It's titled "A Jane Austen Education: How Six Novels Taught Me about Love, Friendship and the Things that Really Matter," by William Deresiewicz.

No, you don't have to have read Jane Austen. This is an absolutely fascinating, beautifully written book. It tells us what we can learn about real life from great literature.

Now, for "The Last Look." One of the recurring themes you might have noticed from watching GPS is we often take a look at places where the United States has fallen behind. America's 15-year-olds are ranked 19th in Science and 24th in Math. And we talk about ways to bring us back to number one - innovation, reform of governments, et cetera.

Well, there is a new survey out there that should put an extra spring in the step of all those Americans who were getting depressed. It turns out we are back on top. We beat France. We beat Italy. We beat Spain. We beat Brazil.

So what's the category? The category is cool. Social Network Bidou.com asked 30,000 people from 15 countries what is the coolest nationality and we came out number one. Congrats, America.

By the way, Belgium, you finished dead last.

The correct answer to our "GPS Challenge" question was, D, Tony Blair went to Libya in 2004 to make the deal in the desert with Colonel Gadhafi. It was part of Libya's normalization of relations with the West. Go to our website for more "GPS Challenge."

Don't forget, if you want to know how we are going to solve this jobs crisis, don't miss the GPS Special, "Restoring The American Dream, Getting Back To Work" tonight at 8:00 P.M., Eastern and Pacific right here on CNN. I'll talk to America's leaders about how to create jobs.

Thanks to all of you for being part of my program this week. I will see you next week.

Stay tuned for "RELIABLE SOURCES."