Interview

'We've Got Bigger Problems Right Now'

Nouriel Roubini and Ian Bremmer reveal the surprising winners and losers of the coming year, and debate whether the big brains at Davos can rescue a global economy in crisis.

As the global elite gather for the World Economic Forum this week the topic of discussion is less about creating wealth for the less fortunate or helping the developing world -- it's about saving the core. Perhaps not surprisingly, economist Nouriel Roubini says don't hold your breath, calling 2012 a year of "no progress." But Eurasia Group's Ian Bremmer is also worried about the retreat of democracy and inequality becoming a global class war. The two experts also reveal their surprising predictions for the big geopolitical and economic winners of 2012 -- and which former European finance minister shouted at Roubini to "Go back to Africa!" Excerpts below (and, for a inside look at the goings on in Davos, keep an eye on Bremmer's daily blog):

Foreign Policy: So, you're both off to Davos. And the World Economic Forum's foremost global risk this year is "dystopia." Is it all that dark?

Ian Bremmer: The folks at Davos intelligently recognize this problem, and they're calling it the great transformation -- it's a search for new models. I think it's appropriate because we're not at the new normal yet. The new models have not shown up. Nouriel and I both believe that we're presently at a G-zero, where there isn't global leadership, and that is articulating itself economically [with] the eurozone. If the Europeans don't get themselves out of this, the U.S. obviously isn't going to, the Chinese obviously aren't going to, no one else is. It's also proving itself in terms of political transition in places like Syria, across the Middle East, Pakistan, and Afghanistan. If the United States isn't going to be able to ensure democratic transition, well, who else is? They're going to have to do it themselves.

Last year's Davos fell in the middle of the financial crisis, and then Egypt hit right in the middle -- and no one knew what to do with that. Looking at it a year on, it's not like we've moved back to Frank Fukuyama and the "End of History." This has not been a year where democracy is bursting out all over; it's vastly more complex than that. Part of the reason is the existence of major economic disjunctures, but part of it is because the global backdrop is not one where Western, democratic values or the free market is actually leading the charge. In the old days, you had the International Monetary Fund and the World Bank providing money, but they also influenced economic shock therapy and political reform. Well, the Chinese have no interest in doing that. The Chinese Development Bank is putting more money on the table than the World Bank and the IMF combined.

Nouriel Roubini: Last year was one in which there was a whole series of tail risks that led to uncertainty, to volatility. They optimists said that these were just temporary shocks: rising commodity prices, the Arab Spring, the Japanese earthquake, the eurozone problems, the worries about the U.S. fiscal environment. But if you look at all these things, they're not temporary, they're not reversible, and these shocks are going to persist -- and the sources of uncertainty as well. You know, for commodities, demand is rising because of growth, industrialization, and urbanization in emerging markets. But supply is not growing as much -- for many reasons. And therefore energy and food insecurity is here to stay with us.

The problems of the Middle East have spread: Tunisia, Egypt, Libya, Syria, Yemen, now tension in Iraq, possible conflicts within U.S., Israel and Iran, conflicts between Turkey and Israel, Turkey and Cyprus, between Israel and Palestinians -- that's going to keep all prices higher. Even these natural events that are unpredictable, like earthquakes, tsunami in Japan, many of these damaging events are man-made. There is now scientific evidence that these extreme weather events, whether it's a drought in Russia, Argentina, or Texas -- or floods in Pakistan, China, or Thailand -- have to do actually with global climate change and these things can disrupt economic activity, as we've seen in the case of the Thai floods.

The eurozone problem has spread from Greece to Ireland to Portugal, to Italy and Spain, to their banks, to their sovereign. Now it is spreading to the core of the eurozone, with French banks and Belgium's banks under pressure, with the downgrade of France and Austria. It is not going away. And the U.S. saga about fiscal deficit and the gridlock between Democrats and Republicans is there to stay. This year is going to be a year of no progress. But next year, whether Obama is elected or Republicans go for Romney, neither party is going to have 60 votes in the Senate -- so one party can veto tax increases, the other can veto entitlement reform. We live in a world in of risk: market risk, financial risk, fiscal risk, sovereign risk, regulatory risk, taxation risk, and -- as Ian says -- geopolitical and geostrategic risk. And it's here to stay.

IB: When you see all of the social movements that have so grasped the attention of the press over the last year -- whether you're talking about the Arab Spring, the protests in Russia, the 180,000 demonstrations in China, or Occupy Wall Street, that's the narrative that people are talking about. It's the one that the Western press is really articulating, and the implication is that it's all about economic dislocations. It's all about rich vs. poor, the gap and divide. It's all about class. And, you know, people have made that mistake historically, and I think we're starting to make that mistake again today.

There's no question economic dislocation is a very, very big issue. But the state is very important. In fact, the state is going to be a more important actor coming out the financial crisis than it was before. I think as a consequence of that we're seeing that it's not just about intra-governmental strife, it's also about inter-governmental strife. There's a lot of nationalism that's emerging. And there's also a lot of sectarianism that's emerging. And much of those trends are distinctly anti-democratic, so even in the places where you do get transitions that come as a consequence of this economic volatility, combined with social networking, global communications, and all the rest, it's not at all clear that the direction you move is the one that the West has been hopefully predicting over the past decade.

FP: But the issue of economic inequality is certainly a factor. Is there a plan to deal with that?

IB: And I think the answer depends enormously on where you look. In the United States, not to in any way downplay the Occupy Wall Street [OWS] movement, but it's not going to lead to significant change in policy. And, frankly, the American system is immensely resilient; it's the most resilient governmental system in the world, and it's not under a lot of pressure to change. And I think despite the fact that it's going to get a lot of attention, and in some ways, it's getting more attention because the Republicans are fighting over the issue internally. Ultimately, I suspect that OWS is going to be subsumed by the Democratic Party, in the same way that, historically, the Green movement has -- and, in some similar ways, to the way the Tea Party has been subsumed by the Republicans.

But I believe that major wealth disparities that are growing in China are probably not as important as Chinese nationalism as a factor in determining where cleavages and where conflict are likely to really pop up over the coming years. And that may very well be true in Russia as well. In other countries -- in countries that Nouriel knows exceptionally well -- in places across Europe, I think the economic cleavages are huge and are becoming bigger.

NR: I don't want to overstress class factors -- nationalism, race, religion, even inter-generational cleavages. Yes, they are going to be important, but there's a broad nexus of economic and financial concerns. It's about income and wealth inequality, but it's also about jobs -- whether your children are going to be better off than you. It's about economic insecurity, about whether the benefits of social security, health care are going to be there. It's about underemployment, or unemployment. So it takes different manifestation in different places, of course. There's the Arab Spring, Occupy Wall Street, the riots in London, the middle class in Israel demonstrating because they cannot afford their homes, the Chilean students that cannot afford good education, anti-corruption in India, people saying enough of what's going on in Russia, and in China where people cannot go out on the streets to protest so they turn to the microblogs to voice anger about corruption and inequality.

So it's a whole nexus of things that have to do with economic insecurity, whether it's poverty, education, skills, the ability to compete in a global economy, keeping your old-age benefits, and then inequality. The manifestation of them can be class warfare as opposed to nationalism, or religious warfare as opposed to inter-generational cleavages between young and old. But I think there's a complex nexus of economic concerns that are at the basis for many of the things that are happening in different ways in different countries.

FP: Ian, you've both mentioned a lot of risks and fears that people have going into this year. But what are the big stories and personalities in Davos in 2012?

IB: You know, it's funny, because last year [IMF Managing Director] Christine Lagarde did incredibly well at Davos, and so did [German Chancellor] Angela Merkel. But the IMF is in a more marginal role today than it has been historically. It's weaker. And the Germans are too -- so there are more questions to what extent the Germans are going to be able to get things done, although they're clearly taking on a lot of leadership. So, I think Europe is going to be the focus of a lot of scrutiny, but they're not going to look like winners.

The United States would be a winner because the U.S. economy is doing better. But the U.S. does not typically take Davos very seriously -- especially during a presidential election, where we're talking about Occupy Wall Street and the 1 percent and Mitt Romney's 15 percent tax. So I think a lot of people will be seeing that the United States is doing better, but it won't get a lot of attention. American corporate CEOs will be feeling a lot better, if even still skittish and gun-shy, given the volatility in the world, they'll look like comparative winners.

Beyond that, I mean, you've got to look at China. They're in the middle of a leadership transition, and they're handling it incredibly competently and confidently. They're still showing very, very strong growth, though, obviously it's coming off the burn. And, yes, there are 180,000 demonstrations a year, but those numbers are going up in large part because urbanization is going up in China. Of course, there are more people demonstrating in the cities -- there are more people in the cities. But actually, given the massive transformation that's been going on in that country, they've been handling it very, very well. And I think there's a reason the Economist runs with state capitalism as their cover for the week that Davos is going to be in town. Frankly, it's because this has moved to becoming conventional wisdom.

FP: Nouriel, you've been a lot more pessimistic on China. In our previous conversations, you've said you've seen this bubble bursting soon rather than later.

NR: Well, the data in China already suggests an economic slowdown. Residential investment now is falling at an annualized rate of almost 20 percent. Net exports are weakening because export growth of China to the world has slowed down and to the eurozone periphery is actually falling and so you see the economic data for Q4 is lower and for Q1 is also going to be lower. Given that it's a transition year this year, they're going to do any necessary to maintain at least 8 percent growth to additional stimulus.

The point that we're making is that no country in the world can be so productive that you take half of your GDP every year and you reinvest it into new capital stock, whether it's real estate or infrastructure or industrial capacity. You're going to have down the line 3 problems and we see the risk this happening in 2013/2014: the first problem is that massive non-performing loans in your banking system lead to a credit crunch. Secondly, the public debt of China is in our estimates is already 80 percent of GDP and when you add all these different loans of provincial governments, policy-development banks…you name it. And third, every investment boom has ended up eventually in a hard landing -- there is no historical example of a soft landing from a 50 percent of GDP, even a 40 percent of GDP, investment boom. So we are right to worry that China's reforms that are going to lead people to save less and consume more are occurring too slowly. After all, consumption is only still 33 percent of GDP while investment is 50 percent and once the investment bust occurs and exports cannot grow because the U.S. and other countries cannot be anymore the consumers of first and last resort, then the weakness of consumption growth is going to manifest itself in a hard landing.

FP: We haven't really spoken much about the resource economies -- about OPEC, Russia -- countries that haven't been touched as much by reform and democratic movements. But if you look at the Davos agenda, "enabling green growth" -- which is perhaps code for disengagement from these strong resource economies -- is far down the list. Why?

IB: I think "down the list" is code for we've got bigger problems right now; we can't deal with this. I mean, in the United States, how much are we talking about climate right now? In Japan, they've got to get energy, right? Fukushima means no more nukes. Germany is having that problem; even France is having that debate. China -- the world's largest carbon emitter -- is also the one country that doesn't have to worry about regulatory problems or the safety of nuclear reactors. So the consequence is that they can continue to build with reckless abandon, but they're still going to be overwhelmingly dependent on dirty coal.

There is a lot more geopolitical risk around energy this year. The reason for that is that the Middle East is more problematic. Iraq is still the most exciting story in terms of new oil coming on to the markets this year. But Iraq is becoming much more unstable, and there's a potential for more fragmentation through sectarian fighting as the United States has left, and [Prime Minister] Nouri al-Maliki's center will have a hard time holding. That's a real risk. Add to that the likelihood of provocation from Iran, and between Iran and Israel is absolutely going up.

All of that is implying there's not a lot of spare capacity in the world, even with the comparative slowdown, now that the U.S. numbers are coming back up a bit. Clearly, now you are going to see demand increase, and there's going to be a squeeze on global energy. That, of course, is continuing to provide an awful lot of cash for the Russians, for the Saudis, and for the other Gulf economies, and they aren't being hit very hard, and they're not going to be. You know, unemployment in Saudi Arabia is structurally different than unemployment in Egypt, there are just lots and lots of jobs that Saudi men are not prepared to do, and that go to immigrants into Saudi Arabia -- Bengalis, Pakistanis, Filipinos, and the rest. The Saudis have tried "Saudization," it's worked in neighboring Oman, but it's not working very well in Saudi Arabia.

FP: Nouriel, what about the bottom billion? Previous Davos's have seen Bono parading up there, getting developed nations to commit money to focus on poverty. Is this just not the time? Does the insecurity in global markets mean that this goal has to be put aside?

NR: Well, people don't talk about it as much when the new human development goals have not been achieved. But what has happened in the last year is that people have understood that you need growth but you also need inclusive growth. And economic and financial insecurity combined with rising inequality across countries and within countries can be a major source of social and political instability.

So, we cannot ignore this issue of inequality. We must make sure that growth is inclusive -- in China, in India, in Latin America -- and that we do create opportunities for young people in Europe and United States to have jobs and succeed in life. We have a huge amount of social and political instability. The issue you raised is usually couched as the bottom of the bottom, meaning the starving people in sub-Sahara Africa. But there is a bigger issue because now we have several billion people in the world working in advanced economies, in emerging markets, who feel very insecure about their own future.

And unless we're going to address that, everything that happened in the last year -- from the Arab Spring to Occupy Wall Street to riots throughout Europe -- is going to get worse. Even in sub-Saharan Africa, you could start to see a lot of social and political instability. We've seen, for example, what happened in Nigeria, when they started to phase out subsidies on oil, and prices went up by 200 percent. Which is why there are now riots in the streets.

So we have to think about these issues; we have to discuss them and figure out how to address them. Not only are a lot of people starving, but actual social and political instability comes from potentially middle class people who see their hopes being dashed.

FP: Ian, what's the biggest winner of the coming year?

IB: United States.

FP: Really?

IB: Oh, absolutely. First of all, it's all a relative game. If you're concerned about the euro, the dollar looks really good, and that gives us a lot more flexibility in this country. I'm a believer in American entrepreneurship. I'm also a believer in quality of life, and when things start falling apart, people look to the U.S. more. The reason [President Barack] Obama's Asia trip went so well is because when you pull out, everyone is like, ‘Oh my God, we need these guys.' If there was anyone else filling the breech, it could be a different story; in many parts of the world, there isn't.

FP: So that makes the United States a leader of a last resort?

IB: Well, hey, "leader of last resort" in Libya worked really well for the United States. I mean, you managed to get rid of Qaddafi, you didn't lose a single troop. So increasingly, the United States is not the global policeman; it's not going to be doing everything. You know, without any question, "leader of last resort" is less problematic for the U.S. than it is for anybody else.

Beyond that Brazil is looking good. They've got the World Cup and Olympics coming up, and the Brazilians are hosting the Davos banquet this year, which they've never done before. It's their time. [President Dilma] Rousseff got rid of a host of ministers for corruption and she's shown herself to be competent and capable, not just an emerging market leader. She's much more able to balance between the United States and China, balance between being a BRIC and being a country that's been a safe destination for capital for a long time now. Plus, they've got massive commodity wealth and more coming from the pre-salt offshore. This might be Brazil's year in Davos.

FP: Biggest loser? Or biggest retrenchment? Biggest country taking a step back?

IB: Europe's is still going to look like big losers this year because they're not coming out of crisis. At best, they're muddling through. And I think "muddle through" is going to continue to happen. So it's not looking pretty, and that's particularly true for the countries in the periphery. This is also not a good year for Russia. You know, I don't agree with the Fitch downgrade, personally. I think that if anything, after Russian elections, [Prime Minister Vladimir] Putin might actually say, "Oh, I need to take governance a little more seriously, bring some more serious people in." But clearly, of all the BRICS, Russia doesn't deserve to be there -- they really don't. They're so consolidated around a single individual; their governance is so poor, so opaque, so corrupt. You've had years in the past where [President Dmitry] Medvedev and Putin have gotten up and they've given really great speeches. This time around, everyone knows that they're running into elections that are going to be a bit of a farce; that those demonstrations are not going to matter very much. Russia has been left behind, despite all its commodity wealth. It really hasn't done anything else right compared to the other BRICS. They're a big loser.

FP: Nouriel, do you concur?

NR: I agree that Russia might not be left among the BRICS. Actually, I wrote an article about a year ago saying that maybe they should drop Russia and add Indonesia. I felt quite positive about Indonesia when I visited there recently, and I am going to go soon again. Another rising power outside of the BRICS is Turkey. It is rising economically and flexing its diplomatic muscle throughout the Middle East. It could become a model, over time, for a successful, moderate Islamic state. Plus, it has taken an assertive role towards Syria, towards Iran -- it may be able to help the United States in many ways in the Middle East in spite of the current tension that exists between Turkey and Israel. So I would say Turkey is a relative winner.

But, certainly the periphery of the eurozone is the big loser. You know, at Davos 2006, I was in a session together with [Guilio] Tremonti, who was then the finance minister of Italy, and [European Central Bank president] Jean-Claude Trichet, on the future of the eurozone. And I dared to say then, in 2006, that if the divergences in the eurozone were to continue, in five years Italy and Spain and the periphery might end up like Argentina -- in default and currency crisis. Tremonti got very angry and shouted at me while I was giving my talk, "Go back to Turkey!" I happened to be born in Turkey, but it meant, "Go back to Africa" or to some other underdeveloped country.

Now, five years later, what I predicted is happening: It's a disaster in the eurozone, Greece is collapsing, and Turkey is doing well. And I think the Europeans made a big mistake in slowing down the negotiations about having Turkey -- a young, dynamic country -- join the European Union. And that's the world we are in right now.

FABRICE COFFRINI/AFP/Getty Images

Interview

Interview: Dennis Ross

Washington's guru of Middle East peace talks to Foreign Policy about whether Obama's Iran policy will backfire -- and why the Palestinian push for statehood could wreck the United Nations.

There are few people in Washington who know the complex diplomatic shoals of the Middle East as well as Ambassador Dennis Ross. Over the course of three administrations -- both Republican and Democrat -- he has witnessed multiple efforts to create a lasting peace between Israel and Palestine, crafted a strategic policy of sanctions on and containment of Iran, and most recently held a portfolio at the National Security Council that ranged from the Mediterranean to the Bay of Bengal.

In a wide-ranging interview with Foreign Policy following his December departure from Barack Obama's administration, he claimed that the sanctions on Iran are working, that Syrian dictator Bashar al-Assad can't hold on indefinitely, and that Israel and Palestine are perhaps further from peace than at any time in recent memory.

Foreign Policy: There's an intense debate right now about what to do with Iran's nuclear program. If you were the Iranians, why wouldn't you say, "Look, I know there are certain costs involved in getting nuclear weapons. But when we get one, the world will have to deal with us and we will not be as isolated. We will become a power on the global stage."

Dennis Ross: If the Iranians get a nuclear weapon, they can cast a shadow of power where they couldn't before, and they can engage in greater leverage and coercion. There will be an impulse by their neighbors to counter that, and if they end up producing a Middle East with a number of countries that have nuclear weapons, they're certainly not going to be better off. In fact they're probably worse off.

So now they're experiencing very high costs. Look at what's happening in terms of the fluctuation of their currency. They're going to lose their sources -- or at least some significant source -- of their revenue, meaning the emerging oil boycott coming out of Europe.

When they look out and see this, are they really going to be better off? They also have a way out, because what they say they want is civil nuclear power. There's always been an option for them for civil nuclear power. What there isn't an option for is a nuclear-weapons capability. At least publicly, that's not what they're aiming toward, and yet their behavior belies what they're publicly saying. Nonetheless, if they wanted a way to save face and to say they have achieved their objective, there is a way for them to do that and to take off all the pressure at the same time.

FP: How much do the politics of an election year here affect the Obama administration's calculus or the line that they are taking towards Iran this year?

DR: You know, I really don't see that as being an instrumental factor…

FP: I just wonder if, in terms of rhetoric or approach, we'll see a change this year?

DR: There has been a consistent approach to the Iranians from the beginning of the Obama administration. When the Obama administration came into power, the Iranians were not isolated internationally, were seemingly on a roll in the region, were progressing in their nuclear program, were not paying an economic price that convinced them that they had to make a choice.

The thrust of the administration's approach was using engagement as a means, not an end, and as something that could mobilize pressure if the Iranians didn't respond. The whole approach was based on the premise the dynamic has to change.

The Iranians have to be put in a position where they have to understand that they cannot continue on the path they're on without paying a price. They have to make a choice; they can't think they can evade a choice. If they continue on this path, then the pressure is going to be ratcheted up and will be continued to be ratcheted up until we see them make a change in their behavior.

Look at the degree of Iranian isolation now, internationally or regionally, and the scope of what's happening in terms of sanctions on them right now, where they can't do business with a reputable bank internationally, they can't do business in dollars and euros, they can't get insurance for their ships. You have the Iranian president declaring a year ago when sanctions were being posed that the Iranians sneezed at the sanctions, completely belittling them, but now he describes them as the most severe economic onslaught that any country has experienced.

The point is that there was a natural progression here. Along the way there has always been an opportunity for the Iranians to find a way out. They haven't done it, even though their nuclear program is not where it was projected to be, though they continue to make progress.

FP: What's the red line for kinetic action or a strike?

DR: I can't say what the administration's red line is. [Defense Secretary Leon] Panetta has described his red line in his interviews, which relates to [the Iranians'] crossing a threshold on weapons.

I think you want to be careful how you describe red lines, because one consequence of defining red lines too narrowly is that it sends a message to the Iranians: "We can do everything up to that red line," and that may not be what you want. What Secretary Panetta has outlined is an understandable red line, but it may not be the only red line.

FP: What do you think the effect of an Israeli strike on Iran would be, regionally, if it comes to that? Would we see an all-out war?

DR: There are a lot of different dimensions to the question. I have no doubt that Hezbollah would do something at a time when change is coming in Syria, which has been the conduit for most of its military assistance. But Hezbollah may not want to expose themselves so much. They would have to think about what their own future would be.

I think the effect on the region might not be as widespread as one thinks, though certainly Hezbollah would do something. That can't be dismissed. And the Iranians themselves would have to think about how much they would want to escalate, because they would try to present themselves as a victim with the hope that it would reduce the pressure on them.

But this is a region that has no sympathy for the Iranians. They're so out of step with what's happening with the region, and the support for the Syrian regime's killing of their own people has further cemented the image that the Iranians are basically a sectarian force, and little more than that.

FP: What is the status now, from your vantage point, on the relationship between Jerusalem and Washington?

DR: There isn't a Republican or Democratic approach to Israel; there's an American approach to Israel. I think that's been consistent, and certainly in the area of security, the nature of this relationship today is more advanced in many respects than it was going back a number of different administrations. The scope, character, intensity of the dialogue across the whole range of national security issues -- the level of cooperation, sharing of assessments, the kinds of exercises -- there really isn't a precedent.

FP: Does the personal animus or the distrust between [U.S. President Barack] Obama and [Israeli Prime Minister Benjamin] Netanyahu affect the calculus in any way?

DR: I know there's a conventional wisdom out there about that…

FP: The overheard conversation at the G-20 [summit], I think, furthered that somewhat…

DR: Well the context of that conversation was the president going over to [French President Nicolas] Sarkozy, emphasizing to him that what the Palestinians were doing at the U.N. was threatening the whole U.N. push for.… The point is that Sarkozy then responds, and the president is in a sense saying, "Alright, look, I deal with him every day," but by the same token, shifted the conversation right back to what he raised, which is: We have to lean on the Palestinians to stop this behavior at the U.N.

The context I put it in is the following: The president [Obama] and the prime minister [Netanyahu] have probably had more extensive one-on-one conversations than the president has had with any other leader. Whenever Israel has faced a real problem -- the prime minister has faced something of deep concern to him -- the first person he's called has been the president. When the [Gaza] flotilla incident took place, the first foreign leader he called was the president. When the Israelis had six people in their embassy under siege in Cairo, their survival literally in question, the first foreign leader he called was the president. Whenever he has any sense that Israel has a major problem, he calls the president.

There's a reality to the relationship that is quite professional on issues that are fundamental and matter. There is in fact a high degree of trust.

FP: Regarding the peace process, peace seems almost further away than ever. Do you agree?

DR: I do think there's a paradox today. When I go back and I look at the time I worked on this issue, and I look at where the two sides actually are in terms of substance, it isn't to say that on the core issues there aren't differences. Of course there are differences. But the differences substantively, they're not as profound as the psychological gaps.

When you look at polls [of Israelis and Palestinians] where the terms of a possible outcome are identified, you find an extraordinary convergence -- between 60 and 70 percent of the public on each side prepared to embrace those kinds of terms. And yet the same 60 to 70 percent are convinced it's never going to happen. So there's a real psychological gap, and that psychological gap creates a context for the two leaders. They have not had communication, and I think the psychological gaps have compounded the substantive gaps and made it really hard to get to the substantive gaps.

We're not on the brink of any kind of breakthrough. But there's a cost when there's a stalemate. There's no such thing as a status quo, particularly in this part of the world. It's never static. What you can't afford is to have a stalemate when those who reject the very idea of a two-state solution are able to exploit it to increasingly undermine the prospect of it. I think the premise of your question is right -- we're not on the brink of a breakthrough. And yet it's important to try to find ways to overcome the stalemate.

FP: Do you think the current Palestinian government is one that Israel can work with and the United States can bring into negotiations?

DR: I think it's very difficult. I think that Abu Mazen [Palestinian leader Mahmoud Abbas] has made a decision that he doesn't really believe that this Israeli government is capable of doing a deal, or at least one he can live with. Therefore, he continues to impose conditions for going into negotiations.

There are preparatory talks right now. They're decidedly portrayed not as negotiations but as preparatory talks, and that's a good thing. I hope the Palestinians give them a chance.

Abu Mazen doesn't want to get into formal negotiations that he thinks are going to fail. But the more you continue to avoid getting into formal negotiations, the higher the bar you create for those negotiations, and the harder it is to justify them. I don't think that will ultimately suit the Palestinian interest.

FP: Do you think the congressionally mandated funding cuts to the Palestinian Authority are a good idea?

DR: I don't think they're a good idea because in a sense, the one thing that still makes sense is to preserve the possibility of a two-state outcome. I think you want to be validating those who believe in nonviolence and coexistence, and to his credit, Abu Mazen does believe in nonviolence and coexistence. Even when you're having a hard time overcoming difficulties, you need to look at where are the openings possible and how can one continue to validate those who actually believe in a two-state outcome and nonviolence.

I understand very well why the Israeli government did the deal to get Gilad Shalit back; there's a basic compact between the Israeli government and the Israeli military. Everybody in Israeli society serves in the military. But the consequence of that deal was not to validate those who believe in nonviolence, but Hamas and those who believe in violence.

FP: Do you think that future progress is impossible as long as the Palestinians continue to unilaterally push for statehood at the U.N.? Is this something that they need to back away from for negotiations to work?

DR: I understand they're frustrated, and I understand they want to resume means that are nonviolent. But the more they pursue the U.N. route, the more they raise questions in the minds of mainstream Israel about their purposes, and the less the prospect they're going to achieve what they want.

If those who believe in nonviolence and coexistence can point to the fact that Israeli control is being reduced and that their way is ultimately going to be the one that produces a state, then there's a payoff. But if you're going the U.N. route, there's not going to be a payoff. It's all symbolism. It alienates the mainstream in Israel; it convinces them that it's about delegitimizing Israel, not trying to coexist with it, so it ends up being self-defeating, and it also puts us in a position where it literally threatens the U.N. system.

FP: Do you think it was a mistake to call for a settlement freeze back in the first year of the Obama administration?

DR: Settlements have been an issue for a long time. I prefer to look forward and not backwards. I do think the whole effort that was made, in the president's speeches last May to talk about borders and security, was a way to make the settlement issue moot, because if you can resolve the borders, it's no longer an issue. The fact is that settlements are a permanent-status issue. They're a permanent-status issue that can be resolved through negotiations.

FP: Didn't the settlement freeze push the Palestinians into a position where they said, "We can't be seen as being less aggressive than the United States on this"?

DR: The administration never made it a precondition [for talks]. The Palestinians made it a precondition.

FP: Looking forward, as you said, what are the next steps? Is [the peace process] a second-term issue for presidents, by and large?

DR: I don't think it has to be. The essence of statecraft is to recognize that you may have an objective, but if you can't achieve that objective now, look at what you can do to try to change what is impossible today to what is possible over time.

One thing that can be done at this stage is to be thinking about approaches where you can change the realities on the ground in a way that validates the Palestinians who believe in nonviolence and coexistence. And by the way, if you're validating them, it becomes easier for them not to be pursuing steps like the steps at the U.N.

So there can even be a kind of reciprocity. You can create a package of approaches, but there's no reason to think that nothing can be done just because it's difficult at this point. Even if there isn't going to be an immediate breakthrough, you can do other things that change the context and that make breakthroughs over time more likely.

FP: I want to move onto Syria. You've said before that [Syrian President Bashar] al-Assad is on his way out. Do you still hold that line?

DR: A regime that is based on coercion and fear, that is not able to use coercion and fear to stop an opposition -- by definition, its time is limited. I don't know how long it's going to take.

But the longer he's there, the worse it is for Syria. The longer he's there, the more he deepens the sectarian divide. He's trying to portray others as being the source of this, but he's the one who is doing it. They're not. And internally, he continues to create a fantasy of [the protests'] being driven by a foreign conspiracy.

It's very hard to predict, but I do think there will be certain kinds of defections on the inside that will likely accelerate [the regime's collapse]. The more there is pressure from the outside -- not only in terms of the economic pressure, but more in dealing with the [opposition] Syrian National Council (SNC) to demonstrate that it really represents the future -- the more I think that will lessen the time [it takes for Assad to fall].

The regime acts as if it has a license to kill. So I'd like to take Assad's own words and turn them against him. If he's so convinced there's a foreign conspiracy, he should be one of the first to have an interest in trying to reveal what's going on. One of the best ways to do it is to bring a lot more monitors. If Assad believes what he claims, he shouldn't be opposed to having dramatically more monitors in there as one way to protect Syrian civilians. If he's so certain that he's right about this, he should have no reason to fear not just 165, but a couple thousand monitors. If he has nothing to fear, then allow a large number of monitors in there, allow journalists to go in there, and at least increase the prospect that there can be greater protection for the Syrian people.

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