then robert zoelik will step down as head of the world bank. his exit interview here on "gps." next, we go to israel which has anointed a king. what in the world does it mean? and, finally, the curious case of the guy who has come to be known as american french fry brother. a cultural lost in translation all the way from china. you won't want to miss it. first, here's my take. everyone is looking at europe these days as economic and political protests mount across the continent. the downward spiral in europe has produced a great debate over the virtues of austerity. the idea that government with large budget deficits must reduce these deficits mainly by cutting spending. if they don't get their budgets in order, they won't be able to borrow money and will face a fiscal nightmare of ever rising interest rates. the problem is that as governments have cut spending in very depressed economies, it has caused growth to slow even further. do you see government workers who have been fired tend to buy fewer goods than services. and all this means falling tax receipts and, thus, even bigger deficits. so economists like paul kreugman say abandon the austerity program, spend more and get budgets in order once the economy has recovered. the problem in the minds of kensians like kreugman is that european elites particularly in germany have embraced the wrong economic doctrine. i have to say i don't think europe's elites, especially other elites, have really embraced some alternate view of economics. most do understand that cutting spending during a recession slows down the economy further. but here is what motivates them. they don't believe at all that any of the governments in question would ever get their budgets in order once the economy recovered. they believe that many of these countries in trouble have economies that are uncompetitive, huldzed by bad frame works and by large or inefficient governments with ever increasing entitlements doled out to their citizens. the crisis provides an opportunity to start wholesale reform. markets have signaled that they will not bend to this these -- these governments unless they take measures to get their houses in order. many germans do seem to understand that economically the smart thing to do might be to spend now and to cut later. but many in europe, especially in germany, believe that later will never come. in reality, governments spend in bad times and then spend more in good times. the disagreement may not really be over economics, but over politics. this is a sad state of affairs because what many people are worrying about at root is whether democracy has become part of the problem. after all, politicians have gotten elected over the last four decades in the west by promising voters more benefits, more pensions, more health care. the question is can they get elected offering less? that's what stops many europeans from abandoning austerity and embracing another round of stimulus spending, and i think these worries are shared by many in the united states as well. let's get started. it's been a big week in europe, and i have some distinguished experts to make sense of it all. peter mandleson is in london. he has not only held top cabinet positions under the labor governments of tony blair and gordon brown. he has also served as a member of the european commission. joseph joffrey joins us from hamburg. he is the editor of "the german weekly." elaine also joins us. she happens to be in new york, but she is the paris correspondent for the "new york times", a beat she has covered for more than a decade. and david frum rounds things out from d.c. he is a regular on the show and a former speechwriter for george w. bush. welcome all. elaine, let me start with you. you know francois hollande. you have interviewed him. is he a radical? is he a moderate? how does he strike you? >> francois hollande is mr. normal. he got elected president of france because he promised to be a normal candidate and a normal president. when i was traveling with him in 2007, he was so normal that not -- neither the conductor, nor anyone on the train even recognized him. he is disciplined. he ran the socialist party for over a decade, and he did not make enemies. he is likely to be much more concillatory and moderate than we might expect from a socialist. >> peter mandelson, you were the architect -- one of the architects of the new labor movement. you helped get tony blair elected, and the effort was by blair and clinton to move the left somewhat to the center and make it more pro-market, pro-trade. do you look at the election of francois hollande in france and the kind of rhetoric surrounding him and many of his proposals as some kind of a swing to the left? >> yes, i think it is, to just put it in simple terms. i'm not sure that francois hollande was ever on the clinton/blair bandwagon, but he is certainly not part of it now. that doesn't mean to say that he is a madcap left winger. he is not. in many senses, he is part of france's political establishment, an insider in the sense rather more than president sarkozy was. he is a man of decency and commonsense. he is a pragmatists. he is also a product of the post-financial crash era which has given markets and business and finance a worse name than it had before. >> but peter, do you think this will reverberate across europe? you understand how these things work. will other politicians in europe look at this and say ah-hah, there is a market for some very strong left-wing rhetoric, and i'm going to fill it? >> but have you seen this already with president obama. i mean, his rhetoric and what he says about finance and markets and the need for greater regulation is different from the sort of turn that we heard from president clinton. and here in britain, you have the new labor leader, a younger labor leader who is very much in the swim of the obama and francois hollande rhetoric and approach. now, what it will actually mean in policy terms is a different question. it will be very interesting to see how the rhetoric of the francois hollande campaign fits with what he now has to do in picking out the exactly the same challenges that france faces when president sarkozy was in office. >> david frum, you look at the election of francois hollande, and you say that you can't really think of this as a left -- left-wing reaction to a right-wing presidency because, actually, sarkozy in your view wasn't particularly right wing. he was -- >> sarkozy repeatedly failed to undertake the important reforms he promised at the beginning. he had lots of courage, but maybe not a lot of wisdom. can a president who is elected on a promise to be normal deal with europe in the throes of a crisis of abnormality? it's worth remembering that the first round of the vote the radical rejectionist parties of left and right got a bigger share of the vote together than francois hollande did. in greece, the parties that reject -- that want radical change won two-thirds of the vote in their election on the same day. european political elites are telling themselves that what we have here, you know, is a normal kind of unemployment problem, some structural reforms will do it, in the face of 50% unemployment in spain and rising unemployment, radically rising unemployment everywhere else. i think we have to worry about the whole question of european political stability. and i wonder whether francois hollande is the man with the empathy and the charisma and the courage to deal with a continent really in the most desperate economic crisis since the war. >> joseph joffrey, you know that much of the rhetoric and the anger is directed at germany. the idea is the germans are forcing all this austerity in europe. european governments have been forced cut their budgets. it's causing misery, unemployment. it's even causing bigger budget deficits. but you've sort of defended the german position, isn't it fair to say? >> well, i mean, angela merkel is -- makes for a nice whipping boy for problems which are deeply rooted in the societies by the way, unemployment in spain is 50%. youth unemployment is, and that's, of course, very serious because it tells exactly where the problem is. or the happy few or happy many have lifetime employment and high wages, whereas the outsiders get stuck in misery. the problem is that the rest of europe is ganging up on germany, and that german economic miracle, the export miracle, which everybody is complaining about, has a very simple reason. german unit labor costs didn't rise at all. almost at all. in the last decade, it went up by, you know, 35% in italy. same number in the iberian countries, and it went through the roof in ireland. one last point. the irish, who went through the roof that had a 50% increase in labor cost, so they've now come down to just 25%. in other words, it can be done. if you put your mind to it. >> all right. fascinating conversation. we will continue this conversation when we come back. in that time there've been some good days. and some difficult ones. but, through it all, we've persevered, supporting some of the biggest ideas in modern history. so why should our anniversary matter to you? 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[ female announcer ] new ensure clear. nine grams protein. zero fat. twenty-one vitamins and minerals. in blueberry/pomegranate and peach. refreshing nutrition in charge! in blueberry/pomegranate and peach. do you guys ride? well... no. sometimes, yeah. yes. well, if you know anybody else who also rides, send them here -- we got great coverage. it's not like bikers love their bikes more than life itself. i doubt anyone will even notice. leading the pack in motorcycle insurance. now, that's progressive. call or click today. aarrggh! try capzasin-hp. it penetrates deep to block pain signals for hours of relief. capzasin-hp. take the pain out of arthritis. we are back with peter mendelson, elaine scholino, peter joffe, and david frum. peter, i suppose i should stay lord mendleson, but at cnn we're a little egalitarian. maybe my lord mendleson. peter, when you look at the situation in europe, how is this going to end? because right now, as you cut budgets, it is producing a kind of downward spiral where it is producing more unemployment, but also lower tax revenues and, therefore, bigger budget deficits. is the idea that this is kind of a rough patch that these countries will have to go through and then they'll come out of it? >> it depends on the country you're talking about. there are some countries in europe, very highly indebted, with very large deficits, which have got to take the action necessary to repair their public finances and bring them under control and that must be the medium-term objective, to rebalance public finance across europe as a whole, but there are other countries, surplus countries, creditor countries like germany and others who have more policy space at the moment and more latitude to help lift demand and to help stimulate economic recovery in the meantime, in the short term, but i think what everyone has to be agreed on is that in the longer term, europe is not going to be able to pay its way to earn its living in a very tough competitive world and unless we all take the action necessary to lift levels of competitiveness and productivity. that in the long run is what we've got to aim for. it's silly in my view to say in the meantime, you know, that there's an argument on the one hand growth versus austerity. there are different policy -- there are different policy scope, which is available to different countries in europe, and we need a combination, a mix of both. >> elaine, how do you think the french will react to that message, the idea that the end of the day you are going to have to get more competitive? france has a very big public sector, by some measures, the largest in europe. as a result, it's been somewhat shielded from some of these forces. >> well, look at what sarkozy tried to do as president. i mean, he in a way was a very american kind of president. he promised that, you know, you work harder, you will earn more. the american dream is possible in france. i'm going to make it easier for you to create your own businesses. i'm going to loosen up rules on employment, overtime. i'm going to do what i can to get rid of the 35-hour week, which was a socialist -- a very bad socialist legislative plan. it didn't work. why didn't it work? well, we can argue that, you know, sarkozy lost because there's an anti-incumbent wave sweeping europe that his personality and his style of governing was unacceptable. you have hollande promising growth and saying austerity is a bad word, but it's going to move very slowly. it has to in france. it's going to be sort of like turning around an aircraft carrier, and i don't think you're going to feel very many results quickly either in terms of austerity or growth. the bank of france has just said that there will be no growth in the french economy in 2012. francois hollande has said correctly i want to do a complete study by the governmental -- the quasi-governmental body about the government. so we have to let this guy have a little bit of a honeymoon before we start making dire predictions about, you know, consumer revolt. >> there's no time. europe is like a man who has been hit -- who is suffering chronic arterial sclerosis and has also been hit by a truck. everybody wants to put this patient on a program of diet and exercise to deal with the arterial sclerosis, but the truck, the mad euro project, the truck, which is responsible for the disaster, that's what has to be addressed now. the adult -- the overall unemployment level in spain, 25%. great depression levels. it is not because of debt. it is not because of the various structural problems that are all true. it is because of the mad euro project. unless either europe is radically reformed and the euro is abandoned, the -- this crisis will continue. >> peter, do you want to jump in? the argument, of course, that david is making is that if these countries had their observe currency, they could devalue and become competitive in the export market. >> look, if greece were to fall out of the euro zone now, where would it fall to? yes, devaluation can help in the short term, but what greece lacks are the conditions, the policies and the political will to take advantage of any such devaluation. devaluation is not going to transform the size, scale, output, competitiveness, and productivity of greece's economy, and that's what needs to be done. >> what will happen in germany in the elections? will angela merkel's party do well? will the left do well? what are the political winds in germany like? >> there is no revolt, the way you had a revolt on the left in france or the kind of revolt you had on the kind of neo-nazi right and the ultra left in greece. i have no worry about that, and i think angela merkel will be chancellor again in 2013, precisely because it's not quite her own doing, precisely because she now reaps the fruits that her predecessor, schroder, you know, who is one of the new left three in the past. germany, politically speaking, is the most problem. she is constrained by our populous from doing what everybody is now yelling about. if the germans are allergic to one thing, it's inflation. and her leeway on kind of approaching hollande is not the broadest you can think of. >> a pleasure to have you on. up next, what in the world? israel seems to have appointed a king, but will he make the right choices for all his subjects? when we come back. taking a close look at you tdd# 1-800-345-2550 as well as your portfolio. tdd# 1-800-345-2550 we ask the right questions, tdd# 1-800-345-2550 then we actually listen to the answers tdd# 1-800-345-2550 before giving you practical ideas you can act on. tdd# 1-800-345-2550 so talk to chuck online, on the phone, tdd# 1-800-345-2550 or come in and pull up a chair. now for our "what in the world" segment. while incumbents around the world are struggling to hold, one is thriving. so much so that he has been called a king, the king of israel. i'm talking about prime minister benjamin netanyahu who last week struck a deal to bring one of his main rivals into his government. netanyahu's coalition now commands more than three-quarters of the kenesset, the largest parliamentary majority in israeli history. he faces no plausible rival as prime minister. so he has an unusual, perhaps unique opportunity, to use his new power to secure israel's future. you see, when pushed on the palestinian issue, netanyahu has often cited the constraints of his coalition to explain why he has not taken bolder steps towards resolution. in the past, he seemed to like to be constrained. he refused to form a national unity government in 1996 with shimon peres and refused again in 2009 with zippy livny, but now he has enough broad support, a big enough base with many moderates that he could move towards a peace settlement without endangering his hold on power. netanyahu presides over a country that is stronger than at any point in its history. israel's per capita gdp rivals italy's now. it is behind only the united states and china in the number of companies listed on the nasdaq stock exchange. militarily, israel is the region's super power, with an armed force that could easily defeat any of its neighbors. it also has one of the world's largest nuclear arsenals, estimated at more than 200 missiles. at home, the wall along the west bank has essentially solved the problem of palestinian suicide bombing, rendering israel safer than at any point in its history. now while iran does pose a threat, a former army chief, the head of the kadima party and now the incoming vice prime minister of israel, has said that the far greater threat than iran is the danger that israel does not solve the palestinian problem and becomes a binational state. in his book, the crisis of zionism, the writer, peter beinart, says there's a distinction between the ethic of weakness and power. if you see yourself as weak, besieged by the world and as a victim, you will embrace any policy that allows you to survive regardless of its impact on others. on the other hand, an ethic of power recognizes that you are strong and while you must promote your interests, do you so with some concept of responsibility as well. worse, beinart argues, the obsession with statehood, continues to be at issue. at some point, israel will not be able to continue to rule millions of palestinians without giving them the right to vote, at which point israel will cease to be a jewish state. look, israel faces real dangers. it sits in a hostile neighborhood, anti-semitism is rising. there are obstacles to israeli/palestinian peace, and they include the weakness of the palestinian authority. radicalism from hamas, the terror group. but a politician of netanyahu's skill can find ways to navigate this to win. the larger questions are does he see an opportunity to become a truly great figure in israeli history. can he use his power for a purpose other than his own survival? up next on "gps" the outgoing president of the world bank. his first exit interview. premium steak. ♪ this is really good. like what i grew up with. only one out of five steaks is good enough to be called walmart choice premium beef. can i let you in on a secret? you're eating a walmart steak. no kidding. noooo! i promise. it's very tender. you could almost cu