With anti-American tensions simmering across the Middle East and anti-Japanese sentiment flaring across China, the European fiscal crisis all of a sudden seems like yesterday's problem. Not so fast, say Nouriel Roubini and Ian Bremmer, who argue that while the immediate disaster in Europe may have been averted, the fundamental problems haven't even been touched.
In this wide-ranging interview, Roubini and Bremmer see dark omens on the horizon: a "deteriorating" geopolitical environment, a potentially "dangerous" trade war with China if Mitt Romney were to win the U.S. presidency and label Beijing a currency manipulator, and a "fear premium" spiking international markets over what seems like inevitable conflict among the United States, Israel, and Iran.
Foreign Policy: Are we out of the woods in Europe yet?
Nouriel Roubini: The recession is still deep, and it's becoming deeper. The vulcanization of banks and of public debt markets is still ongoing, and therefore the economic side of the crisis is still with us. The positive is that now the Europeans realize that for a monetary unit to be viable, you need a banking union, a fiscal union, and an economic union to provide legitimacy for the transfer of power from national governments to the center. And they've finally put in play a coordinated bond program to provide support to struggling sovereign states. Those are positives, but the fundamental problems of the eurozone remain. The recession is deepening in the periphery, ascribing to the eurozone extreme difficulty in reaching agreements on these elements of a union. Take banking, or the first element of a banking union; if it is supervisory, there is still marked disagreement on how, when, and so on. So the challenges of restoring competitiveness, restoring external balance, restoring growth, are significant, and therefore I still see a very risky road ahead for the eurozone.
Ian Bremmer: George Soros, you probably saw it, came out and basically told [Angela] Merkel that the Germans basically have to support growth or they have to leave the eurozone. And of course, the reality is that Merkel is going to do neither, and that's precisely why Nouriel's downside for continued poor-growth recession, lack of competitiveness across the eurozone, is going to persist, because the desire to fix these long-term structural problems of eurozone governance comes part and parcel with very strong, long-term austerity, which is causing very significant problems across all these peripheral states. As a political scientist, I actually see an interesting problem emerging: I'm quite optimistic, as I have been for some time, that the eurozone stays in place and, ultimately, that governance gets stronger. But what's interesting is that as that occurs, you are weakening national institutions in Europe. And you're not just weakening from the top; you're not just taking sovereignty away from many of these governments in terms of banking regulation and in terms of budgetary authority and fiscal authority; you're also undermining them from below because as you continue with this crushing austerity, you're leading to a situation where every incumbent gets voted out and extremist parties start popping up across Europe who are just disgusted with their national authority. So as you work toward fixing the structural economic imbalances in Europe -- or should I say the structural governance problems -- you may start creating some unsustainable political conflict across the continent.
FP: Where's the leadership going to come from? There's no longer Nicolas Sarkozy in France, and Britain's David Cameron is not interested in playing any sort of a leadership role.
NR: Well, the problem with faith in the eurozone is, of course, that you have 17 countries, 17 governments, 17 coalitions, and sometimes they don't agree even within a coalition, like in Germany, within CDU, CSU, and Free Democrats. So any process that leads to more EU integration, whether banking, fiscal, economic, political, is going to be very challenging and take a long period of time. At the same time, as you suggested, the top leaders, who believe much more strongly in this European integration, are not there anymore. I mean, Angela Merkel comes from East Germany. We'll have to see the views of the French Socialists. Some of them are more pro-European; some of them, like the current foreign minister, Laurent Fabius, who was against the referendum in 2005 in France -- he voted no -- is a little more skeptical. And so, in other parts of the world -- and I spoke recently with [José María] Aznar, former prime minister of Spain, he believes that there shouldn't be a greater union, that Europe should remain a union of separate sovereign states, certainly not the federal system. So there are marked disagreements, and certainly there is no leadership.
IB: And that lack of leadership plays out internationally as well. Historically, the Brits were very interested in having an outsized international diplomacy role. Increasingly, you look at Cameron, you look at [Foreign Secretary William] Hague -- these are folks who really are focused on the economic side of Britain and trying to be part of the global growth story, but not trying to play a significant geopolitical leadership role. Under Sarkozy, France was much more interested in that. That's not true under [French President François] Hollande. Germany is overwhelmingly focused -- yes, they certainly are taking on a great deal of leadership in terms of the way we think about European institutions, but beyond that, if you want to talk from an extra-European position, outside of Europe, as Kissinger said, there's still no address.