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Fareed Zakaria GPS

Europe's Role in Greek Tragedy; U.K. Elections, Terror Attempt in Times Square

Aired May 09, 2010 - 10:00   ET

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

FAREED ZAKARIA, HOST: Welcome to GPS, the Global Public Square. I'm Fareed Zakaria. It's been a crowded week with a terrorist plot uncovered in Times Square, and political turmoil in Britain. Even the prospect of a hung Parliament.

But perhaps most startling have been the images out of Greece. And as a result, the images are of the world's stock markets. The issues involved when looking at the Greek prices are complex, but mostly everyone seems to agree that it's all Greece's fault.

And at one level, obviously that's true. Greece has lived beyond its means for years. But the real story here is not about the problems with Greece, but the problem with Europe. The Eurozone, the zone countries that have adopted the Euro is made up of countries in widely differently economic situations all sharing a common currency.

Now that means when Greece falls into deep recession, as it has, it can not do what many countries would do at that stage, which is devalue its currency. That would make Greek goods more competitive on world markets and get its economy growing again.

Now an American state that's in recession -- say Michigan -- also can't devalue its currency. But Michigan would get large sums of money from Washington to stabilize the economy in the form of unemployment insurance, Medicare and other federal assistance programs.

But Greece gets none of that. So Greece has the disadvantage of being locked in to a common currency, but without the key advantage -- a government that would give you money when you need it. The EU, which is headquartered in Brussels, has a very small budget for stabilization of this kind.

Now add to all this Europe's crisis management problem. Europe's crisis management has been hesitant, divided and confused. The treasury secretary, Timothy Geithner, says that his lesson from years of watching economic crisis is simple -- act fast and with overwhelming force. A kind of Colin Powell doctrine of economic management.

Otherwise, he says, markets will panic, and then you will have to pay more later. That is exactly what has happened with the Greek crises. European leaders have fiddled while Greece burned, and the sparks have now become a mighty conflagration. Plus, whatever the outcome of the election in Britain, we are now guaranteed it seems a government in London that is somewhat fragile and perhaps lacking in a mandate, which could further paralyze Europe's decision-making.

And it is Europe's weakness, both of its institutions and its leadership that has made markets plunge and that will continue to keep them on edge.

To discuss all of this in just a moment, I will talk with Martin Wolf of The Financial Times, the foremost economic columnist in the world. Also on the program today, I'll talk about terrorism and the Times Square plot with Richard Clarke.

(BEGIN VIDEO CLIP)

RICHARD CLARKE: We're going to have one of these attacks succeed, and I think what we have to start talking about now as a nation is what our reaction is going to be, because the last time, 911 happened and we panicked.

(END VIDEO CLIP)

ZAKARIA: And then we'll talk about how a guy like Faisal Shahzad, with a good job, a wife, kids, and a mortgage gets radicalized with Bernard-Henri Levy and others. Don't miss any of this. Let's get started.

Joining me now, Martin Wolf, the chief economics commentator of The Financial Times. Martin, thanks for doing this.

MARTIN WOLF, FINANCIAL TIMES: It's a pleasure.

ZAKARIA: How serious is the problem we face? Why has this crisis had this kind of drip, drip, drip feeling where it got bad and then there was some kind of haphazard measure to do something about it, but then it kept getting worse? And it's gotten even worse. What is it that markets are getting more and more disillusioned about?

WOLF: Well, what's happening is one of these sort of terrible interactions or frightening interactions between economic forces, market forces, and very slow, very reluctant politics. A little like what we saw in the relationship to the financial markets in 2008 -- 2007 and 2008 before everything blew up.

So for a long time, the Eurozone member countries thought everything's wonderful. It's terrific. That's nicer said. Everybody can borrow easily, the economy's growing quite well. There's no problem at all. Then, of course, there was this financial crisis. They thought that was all America's fault; nothing to do with us. We don't need to worry about that.

Then finally, markets began to notice there was some countries with really big debt, and they should actually pay a proper risk premium, just like everybody else because we were re-rating risk. And the Europeans couldn't respond to this, because don't forget they have to agree among all the members.

There's a huge number of member countries that have to agree on anything. So they were constantly caught flatfooted as the crisis got worse, and then of course what made it really bad is the Greek's new Greek government came along and said, by the way boys, we lied.

All the figures we gave you were wrong, and actually our fiscal deficit is going to be about 12 percent of GDP, and our actual debt is close to 120 percent of GDP. And at that stage, the markets really started to get in a panic, and the Europeans simply didn't know how to respond.

ZAKARIA: Why is it having an affect on American markets? Why did the DOW plummet? Forget about the computer glitch, but clearly there was, you know, it fell both Thursday and Friday.

WOLF: Difficult to understand. One obvious reason might be that all the stories people have been getting now for quite a long time, everything's getting better. The emerging markets have been doing very well, U.S. economy is recovering, we've got recently actually very good jobs data.

So the general view was everything's going fine. The market has had a huge recovery, and now suddenly people are thinking, well maybe it isn't fine. Maybe this is really a serious crisis in the Eurozone, and the Eurozone remember is about as big as the United States.

These are really big economies. Much bigger than China. So if these were to turn out to be a big problem for the Eurozone, which I don't actually really believe in terms of the economy. But if it were, then it does have significant economic effects.

So in terms of, like, markets respond to news, suddenly we're getting serious bad news, which suggests that the European economy might be in real trouble. And then I think people start saying, well, put everything down. See what happens. I think actually the markets have almost certainly overreacted. At least the equity markets have overreacted. I think the bond markets are a different matter.

ZAKARIA: But you said you don't think it's as serious and presumably that's because Greece is, what, two percent of Europe's GDP.

WOLF: Yes. Greece is trivial.

ZAKARIA: But of course if you add Portugal which is also in bad shape, Belgium which is in bad shape, Spain -- which is not in so bad shape but bad enough that if there's a kind of crisis of confidence -- and then you get to Italy, and that's a good chunk of Europe's GDP. Could there be a kind of domino effect here?

WOLF: Well, first of all, I never say never about markets. You know, markets can tip over in ways that are very frightening. But what we can say at the moment is -- first of all, Greece is unique in the extent of its problems. I think it's very important to understand that the corruption, the scale of the debt, the scale of the deficits. Portugal is possibly the next in line -- I'll leave aside (Island) for the moment which is also vulnerable. But remember, Portugal is again, much the size of Britain. This is a very small place.

Spain has a very large deficit and it does have big, structural problems there's no question. But its current debt is still very low -- very, very low. Lower than the Eurozone average in fact.

ZAKARIA: But -- but when markets ...

WOLF: So that's a long time before that looks insuperable. And Italy has a really quite modest deficit. Yes, the debt is high but Italy has actually adjusted astonishingly well. I must say astonishing to me, to be a no-growth country. It doesn't grow very much, but the fiscal position has been maintained reasonably well. And of course, any government gets in to trouble if it can't roll over its debt.

The same would apply even to the U.S. if it couldn't roll over its debt, it would be in trouble. At the moment I don't see Italy falling to this, but of course Italy is very big.

Spain is the more plausible largish country. Even if Spain were in this, they could manage it. The sums involved are not unmanageable given what we've already seen in support.

But then it becomes politically really difficult. They key question, which people are asking is does the European Union, the Eurozone above all, have the solidarity to manage these problems without creating a sort of uncontained debt restructuring, and a huge financial mess.

ZAKARIA: Now what does that mean? Does that mean, will they be willing to pony up enormous sums of money?

WOLF: The question you obviously ask there is what are they going to do? Will they put up enough money if necessary to take these countries out of the market for some years which has effected what they've done with Greece. They've taken it out of the market for between two and three years.

Would they do that? The money involved would be quite substantial. It would be clearly many, many hundreds of billions of dollars or Euros. Clearly the IMF -- Yes, they can certainly afford it. The debt level of the Eurozone as a whole relative to GDP is lower than in the U.K.

It's, if I remember correctly, lower than the U.S. So they can afford it. If you aggregate the Eurozone, it clearly has the scale of the GDP to afford more debt. That's not the problem. The Central Bank could help, but again we're not clear that it can.

But the big question here is political. Are they willing to do this? And it's not at all clear that the Germans are willing to do this. On the other hand, the alternative which is this it the end of the Euro coming back to that.

You have to understand if they dismantled the Euro, the Germans will have to look at this; the French and say well -- This really is a mess, because the financial systems come completely integrated. So suddenly what you thought were Euros which were Euros wherever they were, you would suddenly find you owed German Euros, which are worth something.

You owned Spanish Euros and Italian Euros and they're all changing in value so you would no longer know what any bank was worth.

So the dismantling of the Eurozone -- if anybody thought that was likely to happen -- would be a stupendous mess for the financial system, and that is a reasonable thing for people to worry about as an extreme possibility.

ZAKARIA: So this sounds like an unholy mess.

WOLF: My own view is, personally, I was always very skeptical at creating the Euro and I never saw the sense of bringing in southern Europe for exactly the reasons we can now see. But when you look at it, trying to make it work -- which will be very, very difficult, I do understand the problem -- seems to be less painful than letting it collapse.

And one hopes -- but it may not be true because people aren't always wise -- that the political leaders in Europe will in the end conclude that making it work what ever that requires -- it does require a forum, there's no doubt about that -- is the more sensible path than to allow a collapse.

ZAKARIA: But it will cost Europe -- and let's be honest again, Germany, -- an enormous amount of money.

WOLF: And there were some other governments involved. But it is the most credit worthy major country, so it would -- whether it will cost a lot is not clear. That depends how much in the end there will be genuine defaults, OK?

There will be some countries that will probably have to reduce their debt, but others it is not so clear at all. It's not at all clear they have to, but they would actually have at least be liquidity support.

ZAKARIA: In other words what you are saying is the Germans would have to say we are willing to pay ...

WOLF: Yes.

ZAKARIA: ... and that might instill enough can confidence in the markets that you wouldn't need to pay it?

WOLF: Of if they did, at least they would have a very good chance of getting your money back. If you look at the money that was advanced by the IMF, for example, international monetary fund to Asian countries that were in difficulty 12 or 13 years ago they got it all back.

I would expect them to get the money back mostly, perhaps not Greece. But would you have to be willing to put it up and the part of the problem, which we discussed earlier, is they have always been too tentative, too nervous.

There is too much political difficulty, so the markets don't believe it, and then you get this confidence run and programs in which all the pain is imposed on the domestic citizenry, none on the financial institutions, which is why I think the Greek package won't stick.

ZAKARIA: Let's talk about Britain, you are a British citizen it is most likely, one would have to say, that David Cameron would be the next prime minister?

WOLF: Yes, overwhelmingly I would have thought.

ZAKARIA: Do you think David Cameron would be a good prime minister?

WOLF: Like any other British citizen, my answer would be I hope he would be a good prime minister. It's very difficult to judge a politician who's never held serious office. We've had a lot of experience with this went recently with Blair and brown and therefore, incredibly inexperienced.

He is nothing like as charismatic as Tony Blair was. He doesn't have the wonkishness of Gordon brown. I don't know whether he has the steel to cope with what will be, undoubtedly, incredible pressure from -- there will be public servant strikes. There will be trouble. I don't expect mass violence, but there will be trouble with anything he is going to do.

Ultimately, nothing that we've seen so far suggests that he can cope with the unbelievable moral/political pressures that will now come upon him and that he has the grasp, full grasp of the urgency-- or indeed he can get the support he will need given his weak position in the house and in the country.

So in the end, I just have to hope that he -- that he can. But the least, Britain has managed its public debt successfully for centuries, we have never had a default, so I remain moderately optimistic at least that we can continue to do this.

ZAKARIA: A sobering picture of Europe on the whole. Thank you, martin wolf.

WOLF: It's a pleasure.

ZAKARIA: And we will be right back.

(BEGIN VIDEO CLIP)

CLARKE: If this phenomenon of the singletons, these spontaneous terrorists continues to go on, one of them is going to be successful. This guy was almost successful, he just got the design of the bomb a little wrong.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: Richard Clarke understands terror and terrorists better than just about anyone. He spent 30 years in public service, the last 11 of those in the white house, advising presidents George h. W. Bush, Clinton and George w. Bush on security and terrorism.

In 2001, Clarke famously warned the George w. Bush administration of the impending danger from al Qaeda before 9/11. Clark is the co- author of a new book "Cyber War, The Next Threat to National Security and What To Do About It."

He joins us now from his offices in Arlington, Virginia. Mr. Clarke, thanks for doing this.

RICHARD CLARKE, PROFESSOR, KENNEDY SCHOOL OF GOVERNMENT, HARVARD: It's good to be with you.

ZAKARIA: When you heard about this times square attempted bombing and you read the details, what struck you as most interesting, most significant, most salient?

CLARKE: Well, Fareed, I think this is another example, and there have been several examples of people who are living in the society who look like normal who had normal jobs who had advanced degrees, who then one day crack, they snap.

The fundamentalist Islamic propaganda finally gets to them or there's some motivating event and they reach out for contact with terrorist groups. They get a little bit of training and they come back and they try to do an attack which throws away their life, the whole life they have made in that western society.

Sometimes, these people are even born in the country they are attacking, born in the united states, born in the united kingdom. And yet, there's an appeal, there's a draw that is greater than the draw to the society they live in that turns them against that society.

It's very hard to find these people in advance, Fareed. There's just nothing you can do as an intelligence service to find people who are single operators, they're not part of cells and not known terrorists.

ZAKARIA: Do you think that the homeland security apparatus that we have is adequate to deal with this kind of terrorism with the big caveat, as you said, that if these people are single terrorists and they have no background, almost no system will deal with it? You know, that said, are there still things we should be doing?

CLARKE: Well, there are things we should be doing, but at the end of the day what we have to start to think about here is that if this phenomenon of the singletons, the spontaneous terrorists continues to go on, one of them is going to be successful. This guy was almost successful, he just got the design of the bomb a little wrong. The guy on Christmas day just got his bomb a little wrong.

We are going to have one of these attacks succeed and I think what we have to start talking about now, as a nation is what our reaction is going to be, because the last time 9/11 happened and we panicked. I panicked, everyone did, we overreacted, and in many ways the things we did were counterproductive.

Other things we did were wasteful. Some things we did destroyed our own value system. So, we should have this discussion now, if there is another attack and it's successful, what are we going to do and what are we not going to do this time?

ZAKARIA: And would the goal be a kind can of resilience, an ability to show the terrorists really, more than anybody else, but also ourselves, that we understand that these things happen, that we are an open society, you can't protect every cafe, you can't stop every singleton and we are going to show that we bounce back? We, of course, try to deal with it, but we, in a sense, get on with life as well and don't become obsessed and paranoid as a result of it?

CLARKE: That is the message that the British tried to impart and I think they do a pretty good job. Their reaction is don't panic, carry on. That is sort of the world war ii spirit from the blitz and they did very well with that after the attacks in the London underground.

But the British and the Israelis, another example of a country that has a lot of terrorist attacks and gets on with it both Israel and Britain have changed as a result of the terrorism that has been taking place over the years.

Their laws are a little bit more draconian, their civil liberties are a little bit more restricted and I think we have to be very careful in this country that we don't change in that way. Because it's not necessary in order to fight terrorism to really erode your own civil liberties.

ZAKARIA: You said there is very little you can do to pick up a single, a lone operator. This guy had no background that suggested terrorism or even crime of any kind. Is there anything you think that the authorities missed? Anything here where you would fault anyone in the law enforcement or counterterrorism groups?

CLARKE: Not really. I mean, the only thing that you could say is that perhaps when he went and lived in Pakistan for three months this year and came back, that somehow we should have known about that. Somehow, we should have interrogated him.

There are hundreds of thousands of people coming back to the united states or coming back to the united kingdom from Pakistan. And you can't interrogate all of them. You can't look at all of their e- mails or all of their phone calls. Some people think that perhaps we should have picked this guy up in our intelligence, not because he was in north Waziristan, but that is very, very difficult to do.

ZAKARIA: And very difficult to know he was in north Waziristan. North Waziristan is kind of -- it is the badlands of Pakistan it is not like you get stamped on your passport, you know this guy was in north Waziristan.

CLARKE: No, exactly it is a bit like saying you need to know if anyone is coming into the country -- anyone is coming into china who has been to Montana and it's difficult to do.

ZAKARIA: Richard Clarke, I always learn a great deal listening to you. Thank you so much.

CLARKE: Thank you, Fareed.

ZAKARIA: And we will be back.

(BEGIN VIDEO CLIP)

LEVY: This mystery, this enigma of well-bred, learned, perfectly assimilated real good citizens becoming all of a sudden these mass killers, it is the same story.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: What makes a man like Faisal Shahzad drive a would-be car bomb into times square on a crowded Saturday evening, hoping to maim and kill innocent people? It is one of the biggest questions of our time in this post 9/11 world.

Ask 100 people and you get 100 different answers. We have gathered what we think are among the smartest three you could get, Fawaz Gerges is professor of Middle Eastern politics at the London School of Economics. Bernard is perhaps France's most important public philosopher, the author of the book "Who Killed Daniel Pearl" and Irshad Manji, a Muslim determined to reform her faith. She's the director of the Moral Courage Project at NUB.

Bernard, when you watched this times square bombing and you learned that this man came from Pakistan originally and then went back and seems to have gotten radicalized, did it remind you of your journey in Pakistan tracking the killers of Daniel pearl?

BERNARD-HENRI LEVY, AUTHOR: Of course. On many respects, many regards, first of all, the camp where he seems to have gone in order to be trained I know it a little, the camp of Koha (ph) near (inaudible), which is one of the Taliban-Al Qaeda ruled camps where Omar Sheik, the kidnapper of Daniel pearl, the journalist who was beheaded, was also trained.

So it is the same place. And the two characters, the two men are very similar. This mystery, this enigma of well-bred, learned, perfectly assimilated, real good citizens becoming all of a sudden, these mass killers it is the same story.

Omar Sheik, which I studied very carefully, I spent month and month in the brain, I tried to spend a few month in the brain of Omar Sheik. It was the same story. He was coming from London school of economics. I'm sorry.

GERGES: No. No, of course.

LEVY: He was a real product of British education. As the Faisal is a product of American dream. And something happens in the libido, in the brain, this has to be clarified which suddenly makes the twist and put into that.

ZAKARIA: I have to say you use wound word there that struck me, in the libido?

LEVY: Yes.

ZAKARIA: You think something happened in Faisal Shahzad's libido?

LEVY: I don't know. But in the case of Omar Sheik, it was clear. In the case of Omar Sheik, there was one dimension which was clearly determinant which was relationship to women, relationship to the supposed impurity or purity and so on of femininity, womanhood, a sort of fear, hatred and fascination toward that.

Faisal is too early, of course, nobody knows. Nobody knows. But something very big must happen in order to produce that, of course.

ZAKARIA: What's your answer, because the puzzle I think Bernard puts is exactly right, these are assimilated immigrants, they seem to be successful, at least by any conventional metric and then some small crises happens in external terms, it doesn't seem a big -- you know, he loses his apartment, his house, or something like that. And he becomes -- and it drives him to terrorism?

IRSHAD MANJI, PROFESSOR, NEW YORK UNIVERSITY: Ultimately Fareed, I think what we are seeing now a what I call the globalization of grievance. Thanks in part to the freedoms of the Internet and the fact that online jihadis are using and abusing these freedoms to preach what I would call a false narrative. And the narrative I think is something that Faisal Shahzad actually fell into. The false narrative is that the west hates Islam. After all goes the argument, look at how indiscriminately America is (INAUDIBLE) and their allies are slaughtering Muslim? But the reality is that more Muslims are being tortured and murdered at the hands of fellow Muslims than any foreign power.

ZAKARIA: Why is the narrative called false?

MANJI: Because first of all, it is simple. Secondly, because it feeds into existing suspicions and conspiracy theories. The "New York Times" this week has reported that many members of Faisal Shahzad's village in Pakistan have just decided that his arrest is simply an American conspiracy, a plot to justify the war in Afghanistan. And so these are easy and crazy (ph) narratives. What I would suggest to you is that moderate Muslims around the world have not been aggressive enough in pushing back against this narrative, for one reason. That is that moderate Muslims are so caught up in their own defensiveness about what they consider to be western colonization that they have been distracted from the imperialists within Islam.

ZAKARIA: Fawaz?

GERGES: One thing is clarified is that Afghanistan, Pakistan has emerged as a critical theater for the new militancy. In fact, the Pakistan/Afghanistan theater now is the main source of radicalization. It was not the only one and it will not be the only one. The nature of the conflict has shifted as American war aims have changed dramatically in the last three years. Now the United States is not just waging a war against the few remnants of al Qaeda. The United States is waging all-out war against the Taliban in Afghanistan and the Pakistani Taliban. President Barack Obama has ordered more drone attacks against the Pakistani Taliban than President Bush in his entire full presidential terms. And as you well know, the drone attacks often cause civilian death. And as a result, Pakistan and Taliban nationalism is fueled. Anti-American sentiment will have many cases, many cases of young Muslims in Afghanistan and Pakistan and also some in the west who have been radicalized by a perception, as you said, that the west, particularly the United States is waging the war against their culture.

ZAKARIA: Are we, Bernard, in danger of overreacting here? This is one guy. He does not seem part of a particularly clever plot. I mean, the attack failed. It was pretty amateurish. What does it tell us?

LEVY: I don't know if you are overreacting but what is possible is that this is the target of those who sponsored the attempt of terror. It might be the intention of the Taliban and they might have the idea that this failed amateurish attempt of attack could lead to another reaction to America to an involvement in Pakistan, to a military attack and to the opening of a second front in Pakistan itself, not only drones. And so on, so on. So this might be the target of the sponsors of Faisal. This is a plausible hypothesis.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: Let me ask you, when you look at Islamic terror over the last 40 years, one thing is striking to me. There are two countries that seem to be centrally involved, Saudi Arabia and Pakistan. And in both cases, you have a state that is founded as an Islamic state, where for all kinds of reasons, once you start that the state ideology is a kind of militant Islam, where it becomes very easy for agents of the state to be encouraging a certain kind of jihadist ideology and from that, it seems to me flows the kind of encouragement of jihadi culture. Everywhere else, it seems episodic and opportunistic. It is in Saudi Arabia and Pakistan that you have had sustained decades of support.

GERGES: Absolutely and not only that. Remember the Afghanistan war between 1980 and 1989, the United States, we, the United States of America played a key role in fuelling this particular phenomenon. ZAKARIA: We funded a lot of those jihadi (ph) groups (ph).

GERGES: Absolutely. But let me talk about the good news, if we can talk about any. So this is, again, to stress, a fringe, marginal phenomenon. The good news is that, I mean, look at what we are talking about here. Have we mentioned al Qaeda by name? We have not mentioned al Qaeda. We are talking about the Taliban in Afghanistan. We are talking about the Pakistani Taliban, Jaish-e Mohammed, Lashkar-e Taiba, what have you. And what has happened is and this is the good news, al Qaeda no longer exists as a centralized organization, as a command and control structure. Al Qaeda is in disarray. It's been fragmented. The top leadership is hibernating underground. It does not have the capacity to wage a strategic war in the same way that it did since the mid-1990s. What has happened now, we are talking about the new phenomenon what they call the bottom-up recruitment.

You have certain young Muslims, you are absolutely correct about identity crisis who buy into the premise that the west is waging a war against the cultural identity, whether you're talking about the Christmas Day failed bombing, Umar Farouk Abdulmutallab, or whether you're talking about the Afghan immigrant Mr. Zazi or whether you're talking about the Times Square -- they have something in common. This particular militancy, what we are witnessing, it transcends class, educational barriers and space. They buy into the argument that somehow their identities are under threat. They buy into the argument that somehow the west is waging a war and they buy into al Qaeda or the global jihad ideology. The ideology is very simple it is a collection of grievances and also the reason, the irony, al Qaeda is not coming to them. Look, the people are going to Pakistan. They are going into Yemen in order to find rationalization and (INAUDIBLE) in order to attack (INAUDIBLE).

ZAKARIA: You're saying these are disturbed people who have latched onto something?

GERGES: This is what we need to -- instead of really collapsing, I mean, the social sciences, you have to break down arguments. Al Qaeda now no longer exists. It is in disarray. We are talking about a fringe -- a fringe -- dangerous. I'm not staying it is not dangerous, Fareed.

LEVY: The good news is that al Qaeda does not exist as a central -- as a Vatican or as a Mecca of terror. Clear. Good news is that it is weakened in Yemen (ph). It is beheaded in Iraq. It is decapitated in Afghanistan. Good news also. But bad news is that Pakistan, as it is evidence (INAUDIBLE) more and more is the problem today. So maybe it is not call, it has not to be called al Qaeda. But the groups who we named before, Jaish-e-Mohammed, the army of Mohammed, Lashkar-e-Taiba, they are terrible groups, why? Very well trained with complicities inside the state power, inside the ISI, the secret services of Pakistan, which are constantly infiltrated by jihadist organizations and ideology and that since a very long time. So America and Europe and the western world and the democratic Muslim world have led an assault on verbal of (INAUDIBLE), of radicalism, of violence toward civilians, women, young intellectuals and victims of possible terrorist acts, grow in Pakistan.

The real problem today and since a long time I tried to say it even here has never been your lack of course. It is not Afghanistan off course, is maybe not even Iran. The real problem, the real enemy, the real point of consternation (ph) is Pakistan.

GERGES: Al Qaeda lost the struggle for Muslim minds. Muslims have won the war against al Qaeda. I would like Pakistan Muslims to win the war against the Pakistani Taliban and other militant factions. This is a point I'm trying to focus on. As long as the United States is engaged in all-out war, as long as there is a wide perception throughout the Muslim world and in Pakistan and Afghanistan that we are waging all-out war --

LEVY: The war is -- the war is being waged --

GERGES: I don't understand --

LEVY: You are right. There is a war between the two Islams. This is a war between moderate Islam and radical Islam. And we have to help the moderates. We have to help the democratic -- (INAUDIBLE)

ZAKARIA: We have to close this discussion. We will continue it in the green room. Thank you, Bernard-Henri Levy, Fawaz Gerges, Irshad Manji. We will be right back.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley in Washington. President Obama is delivering a commencement address this morning at the historically black college Hampton University in Virginia. Mr. Obama pointed out the wide disparities in access to education and called on all Americans to take responsibility to change the system.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: You are in a strong position to out compete workers around the world. But I don't have to tell you that too many folks back home aren't as well prepared. Too many young people, just like you, are not as well prepared by any number of different yardsticks. African-Americans are being outperformed by their white classmates, as are Hispanic Americans. Students in well-off areas are outperforming students in poor, rural or urban communities no matter what skin color.

(END VIDEO CLIP)

CROWLEY: Up next, much more Fareed Zakaria "GPS" and then "Reliable Sources" at the top of the hour.

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ZAKARIA: Now for our what in the world segment? What got my attention was Iran, which seems as assertive and confrontational as ever. Take a look at this week alone. Iran held its second set of war games in a month, a display of military might meant to scare off its enemies. And then there was President Mahmoud Ahmadinejad. Given a platform to speak to the world at the United Nations this week, he ranted and raved. The Iranian president spent most of his 35-minute speech berating the U.S. as the world's only quote, nuclear criminal unquote, while down playing his nation's nuclear ambitions. Meanwhile, the U.S. still doesn't have a deal with its counterparts on the Security Council to impose new tougher sanctions on Tehran for flouting UN nuclear agreements.

But the question becomes how much good would additional sanctions be anyway? There is a very disturbing report in the "Washington Post" this week that points out that some of the sanctions might not be working as intended. Indeed, these sanctions may be enriching the very people and institutions they were intended to cripple. Now, to be clear, one part of the sanctions system is working. Many western companies have left or are leaving once current contracts run out. Others have greatly reduced their business in Iran. Giants in their field, like Pricewaterhouse, Ernst and Young, Siemens, GE, Caterpillar, Credit Suisse, Hewlett-Packard. The list goes on and on. They are all out of Iran or substantially reduced in their activities.

And even more impressive perhaps is the list of companies working in the lucrative oil and gas sector in Iran that have pulled out or greatly reduced their business or said they won't sign any new contracts for work there. ExxonMobil, Lukoil of Russia, Ingersoll Rand, ENI, Italy's biggest oil and gas concern, Halliburton, Reliance, the Indian refining giant, Royal Dutch Shell and Total, one of France's biggest companies. The western companies pull out, the Iranian companies can't do the work, so the oil flow dries up. Sounds great, except that is not how it seems to be working out. Much of what used to be done by foreign companies has now been taken over by local companies that are owned and run by Iran's revolutionary guard. These companies are now minting money and the revolutionary guard are gaining greater control over Iran's economy, society and politics.

You see, if you thought the revolutionary guard were just the thugs who beat protesters up, you only know part of the story. After the Iran/Iraq war in the 1980s, the guard got into many sectors of the nation's commerce -- construction, transportation, trade, oil and gas. It is now one of Iran's biggest owners of business. One of the guard's top officials, Ayatollah Jovani (ph), boasted to state- run media recently, quote, today the revolutionary guards are proud to have such knowledge and capability that we can easily replace big foreign companies like Total and Shell. As with all things out of Iran, we might want to take Mr. Jovani's (ph) worlds with a grain of salt. While the guard's companies may have won lucrative no-bid contracts to do the work, the question still does remain whether they can actually do it. Many observers don't believe the guard has all the technology or the know-how to accomplish what western firms were doing. With the help of western companies in the past, Iran was able to export millions of barrels of oil a day. But that kind of outcome can be maintained, it would be yet another coup for the revolutionary guard and blow to those who believe that sanctions are the way to punish Iran. It might turn out that sanctions punish the Iranian people and enrich their oppressors. We will be right back.

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ZAKARIA: Now for our question of the week. Here is what I want to know. Do you think this week's terror response was handled well by authorities or did they just get lucky? Let me know what you think. Don't forget to subscribe to our podcast on iTunes. That way, you will never miss a show and you can't beat the price. It's free.

Now, as I do every week, I would like to recommend a book. This is one written by Pakistan's ambassador to the United States, Hussein Haqqani. It is called "Pakistan Between Mosque and Military." If want to understand Pakistan, its people, its politics and the military connection to Islamic terrorism, you must read this book. It is a wonderful book, very well written. It is all you need to understand Pakistan. Haqqani has himself advised three prime ministers, but don't think this is a party line book. It is really a solid work of scholarship.

Now, for the last look. You will remember, how could we forget, the U.S. 2008 election featured Obama girl, a female fan who is singing and dancing in favor of Obama went viral on the Internet. Well, the British elections had their own girls for liberal democratic idol, Nick Clegg, for conservative heartthrob David Cameron. But interestingly enough, we couldn't find any Gordon Brown girls. Maybe that tells us something. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."