The NewsHour with Jim Lehrer

ELIZABETH FARNSWORTH: Good evening. I'm Elizabeth Farnsworth. Jim Lehrer is on vacation. On the NewsHour tonight Japan acts to rev up its economy, a Detroit program brings jobs and hope to inner city residents, the jury deliberates Terry Nichols' fate, and a David Gergen dialogue with John Newhouse, author of Europe Adrift. It all follows our summary of the news this Wednesday. NEWS SUMMARY

ELIZABETH FARNSWORTH: President Clinton said today he welcomed the Japanese government's new tax cut proposal. Prime Minister Hashimoto announced the planned $15 billion income tax cut last night. It is part of a larger stimulus package designed to boost Japan's economy. Japanese stock markets immediately rose after the announcement, as did the value of the yen against the dollar. White House spokesman Mike McCurry said the President spoke to Hashimoto on the phone last night.

MIKE McCURRY, White House Spokesman: We are encouraged by efforts to create demand-led economic growth in Japan. It took some courage for the prime minister to come forward with that package, and the President acknowledged that. We also think there are other aspects of the package, financial package, that have been announced by the government of Japan that are very important. And we hope that they will be fully implemented.

ELIZABETH FARNSWORTH: We'll have more on this story right after the News Summary. In South Korea today voters are choosing a new president. The three main candidates have pledged to follow the International Monetary Fund's prescriptions for the faltering economy. They have blamed Korea's slide on incumbent President Kim Jung Sam. He is barred by the Constitution from seeking another term. The three- way race is expected to be one of the closest in the nation's history. Jurors in the Terry Nichols trial resumed deliberations today. The 12-member panel traveled by van to the federal courthouse in Denver. Windows were covered to assure anonymity. Yesterday, jurors discussed the case for three hours before going home for the night. Nichols is charged with 11 counts of murder and conspiracy in the 1995 Oklahoma City bombing that killed 168 people. We'll have more on the trial later in the program. The Agriculture Department today offered a plan to assist minority and small farmers with almost 600 million dollars in loans and grants. It was announced before President Clinton met late today at the White House with dozens of black farmers. They represent a group suing the Agriculture Department for $2 billion. They claim their federal loan applications were rejected in the past because of race. President Clinton signed a law today to punish copyright violators even if they do not profit from their actions. Previously, only those who benefitted financially from such infringements could be prosecuted. Software and entertainment groups said the change was essential to protect products from Internet pirating. The new law imposes a sliding scale of penalties, including jail time and fines up to $250,000. In Baghdad today Iraq replied to President Clinton's warning yesterday that other options would be considered if Iraq continued to block United Nations weapons inspections. Deputy Prime Minister Tariq Aziz said the monitors have no right to search presidential palaces. They have said the buildings may house information on banned weapons or even the weapons, themselves. Aziz blamed the United States for insisting on access to the sites.

TARIQ AZIZ: They know very well that we don't have weapons of mass destruction. Those weapons have been destroyed since 1991, and what the elements in the special commission have been doing for six years is prolonging deliberately their verification of this matter in order to keep the sanctions because simply politically they are not ready to endorse lifting the sanctions.

ELIZABETH FARNSWORTH: UN Chief inspector Richard Butler is scheduled to brief the Security Council tomorrow about his talks with Aziz. In South Africa today the African National Congress chose Thabo Mbeki to succeed Nelson Mandela as the party's president. The election assures Mbeki's position as the ANC candidate for president of the nation in 1999. Mandela's ex-wife, Winnie Madikizela-Mandela, was nominated to succeed Mbeki as the party's deputy president, but she withdrew her candidacy. And in Miami today a federal judge ruled Cuba should pay $187 million in damages to the families of three Americans. They were flying planes shot down by Cuban fighter pilots over international waters last year. Their families claimed they were on a humanitarian mission, but Cuba said they had buzzed Havana and dropped anti-Castro leaflets in the months before the incident. And Cuba has ignored the lawsuit. And that's it for the News Summary tonight. Now, it's on to jump-starting Japan, a miracle in Detroit, the Nichols trial, and a David Gergen dialogue. FOCUS - CREATING CONFIDENCE

ELIZABETH FARNSWORTH: Our lead tonight: Japan acts to rev up its economy. We start with some background from economics correspondent Paul Solman of WGBH-Boston.

PAUL SOLMAN: It wasn't so long ago that we, among others, were enthusiastically reporting it--Japan's modern factories made an industrial juggernaut, a manufacturing world beater. Japan's work force could happily out-perform anyone else's at almost any task imaginable. And there was no end in sight, since Japan's kids were better disciplined and better educated than any on earth. The secret of success was that Japan had an arguably better way of doing business, captured in the title of the best-selling comic book, "Japan Inc.," shorthand for Japan, Incorporated, shorthand for an economic system based on a long-term vision of hand-in- glove relationships between workers, businesses, and the government. And, indeed, Japan, Inc. had created the world's biggest banks, the world's hottest stock market, the world's highest land values.

KENICHI OHMAE, Economist and Author: [1987] Right here where we are standing is the most expensive residential area in Tokyo. That means in Japan.

PAUL SOLMAN: How expensive?

KENICHI OHMAE: Well, the price, according to the latest government statistics, is a square foot of this property over here, that is the size of my--a little smaller than the size of my handkerchief--is $22,000.

PAUL SOLMAN: $22,000 for that much land?

KENICHI OHMAE: That's it, yes.

PAUL SOLMAN: The Japanese had become wealthy and, like most wealthy people, they invested even more, further fueling their miracle economy. And then came the 1990's, at which point the Japanese economy, the world's second largest, began to buckle, or to use the cliche of choice, the bubble burst. Japan's stock market, near 40,000 at its height, plummeted below 15,000. The value of real estate collapsed as well. The great big banks turned out to have loaned money on the basis of those high stock and real estate values. They'd also made their loans to those with whom they had those long-term hand-in-glove relationships. Some of the relationships turned out to be corrupt. Some of the banks began to go under. The yen, which had been strengthening for years, declined in value; Japanese consumers stopped spending their money; and then after other Asian stock markets fell this autumn, the Japanese stock market crashed yet again, leading to the once unthinkable--the shutting down of the nation's fourth largest brokerage firm, Yamaichi Securities, which closed its doors last month as its top executive sobbed a public apology. After several years of resisting pressure from the United States and others to stimulate the Japanese economy, yesterday, Prime Minister Ryutaro Hashimoto called for a $15 billion income tax cut.

RYUTARO HASHIMOTO: [speaking through interpreter] Based on the current economic situation, we decided that a bold policy needed to be considered, and we decided to implement an emergency special tax cut.

PAUL SOLMAN: This came on top of another plan described yesterday as a $77 billion aid package for ailing financial institutions. There was an immediate reaction in Tokyo to all this as the stock market rebounded there, and the yen rose in value against the dollar.

ELIZABETH FARNSWORTH: Joining us now are economist Hugh Patrick, who directs the Center on Japanese Economy & Business at the Columbia University Business School, and Mike Mochizuki, a senior fellow at the Brookings Institution, specializing in Japanese domestic politics and foreign policy. Thank you both for being with us.

HUGH PATRICK, Columbia University: Hello, Elizabeth.

ELIZABETH FARNSWORTH: Hello. Mr. Patrick, you heard the list of problems Japan has that Paul's just gave us. How might tax cuts help solve some of these problems?

HUGH PATRICK: Well, the economy has faltered this year as a result of an exceptionally restrictive fiscal policy that was undertaken at the beginning of the year. And this new injection of demand, first of all, should increase spending and get the economy going and in terms of restoring demand, and more importantly, hopefully, it will overcome the deep pessimism that exists among Japanese businessmen and others, and restore a sense of confidence. And it's confidence that is needed most of all right now.

ELIZABETH FARNSWORTH: Mr. Patrick, lots of countries have tax cuts and they don't become front page news in the United States. Why is this one so important?

HUGH PATRICK: Well, first of all, the Japanese economy is so important. It's the second largest economy in the world. Secondly, it's performed so poorly over the course of the 90's, as has been suggested, and thirdly, the government in this year's fiscal program, starting April 1, shifted from stimulus in the budget to one of strength. Prime Minister Hashimoto made the judgment that reducing the budget deficit was of high priority, and he thought the recovery of the economy was doing well enough that that would work out all right. As it turns out, the economy stalled, and it hasn't crashed, but it certainly isn't going anywhere at all. And it's to get the economy restored, and the recovery on track again, that this stimulus becomes so important.

ELIZABETH FARNSWORTH: The economy really stalled, and yet it took a long time to come to this stimulus package. Why? What politically was happening? MIKE MOCHIZUKI, Brookings Institution: Well, politically it was a very embarrassing moment for Prime Minister Hashimoto because he had calculated that the Japanese economy was quite strong and so he could withstand a tax hike. And he was proven wrong, but as recently as last month, the Japanese Diet passed legislation committing Japan to reducing its growing budget deficit, so they were really political committed to fiscal austerity. And so to view this U-turn would have been political embarrassing, but the economic situation in East Asia had really worsened beyond anybody's predictions; therefore, he finally acted.

ELIZABETH FARNSWORTH: And they had to have what you referred to as austerity because the deficit poses dangers too, right?

MIKE MOCHIZUKI: Right. But that's a long-term concern. The deficit has ballooned up to about 5.4 percent of Gross Domestic Product, and that's one of the highest of the advanced industrial countries. And the Japanese population is aging rapidly, so given that, I can see government's interest in the long-term to restore some sort of fiscal balance. But in the short-term the Japanese economy was still in a period of stagnation. Then to move towards a tax hike was really a miscalculation.

HUGH PATRICK: I think that that's entirely correct, and I would stress that the decision was really one of timing. When should they try to pursue this austere budget policy? And they did it one year too soon. And that has turned out to be a terrible miscalculation, but a mis-calculation which many people endorsed at the time, which was about a year ago, when these policies were being worked out.

ELIZABETH FARNSWORTH: Mr. Patrick, does this mean that Japanese leadership has accepted what the President--President Clinton has asked Japan to do, which is to be--I think the term was the locomotive to pull the rest of Asia out of its problem?

HUGH PATRICK: Well, that's very nice rhetoric, but--and, of course, he is able to say to President Clinton and to others, yes, we are trying to help the world, as well as helping ourselves, but the political reality and economic reality is the Japanese economy desperately needs stimulus and it needs to revive itself, and it shows domestically that it's being driven. Of course, it's very nice to be able to say we're doing this for the sake of the United States and the sake of the world, and that's also true, but in the calculus of this, I think it's very domestic in the considerations that are dominant.

ELIZABETH FARNSWORTH: And, Mr. Patrick, as an economist you think this will stimulate the economy?

HUGH PATRICK: Well, I think that it certainly will be an important step and a forward start. It's still not clear what he has in mind exactly. As I understand it, he wants to have this fiscal stimulus of about $15 billion happen immediately, during this fiscal year, between now and next April 1.

ELIZABETH FARNSWORTH: Excuse me for interrupting you, but this would actually put money into the pockets of consumers because they would get a tax credit against taxes due next year, right?

HUGH PATRICK: That's right.

ELIZABETH FARNSWORTH: About $300?

HUGH PATRICK: That's right. And the important thing is they would get it right away. The dilemma is that if he only does it as a one shot deal between now and April 1st, and then goes back to the old tax system, people may just simply put the money in the bank and not go out and spend it because they don't see it as an effective ongoing stimulus. So I would urge that if it's going to be done, it should be done both this year and next year, which would mean two trillion yen or $15 billion a year this fiscal year, and for the next fiscal year starting April 1.

ELIZABETH FARNSWORTH: And Mr. Mochizuki, what's your view on whether this might jumpstart the economy?

MIKE MOCHIZUKI: I think it will have some effect. It will definitely stop any danger of a downward spiral, deflationary spiral in Japan. But I'm somewhat skeptical about whether this will really do the trick. I mean, there really are some structural problems in the Japanese economy. Japan has allowed its banking--bad loan problem to fester, and that's really dampened growth. And that really has to be dealt with very quickly. The other is they move much slower on deregulation, and you really need deregulation to jumpstart some of the entrepreneurial spirit that's necessary in this time of dramatic economic transformation.

ELIZABETH FARNSWORTH: And these problems that you call structural, how serious are they? What's really at stake here?

MIKE MOCHIZUKI: Well, what's really at stake is that Japan has a duel economy. The manufacturing sector is still very, very strong. Profits are very high, and they're most competitive in the world. But it's the service sector that's very competitive, and it's really kind of like a cancer in the Japanese economy. And they really have to deregulate and revitalize that if they really want to have long-term growth.

ELIZABETH FARNSWORTH: Mr. Patrick, I want to know what you think is at stake here. I want to read this quote from the prime minister. He said when he announced this proposal, "I have said both domestically and abroad that we can't trigger a worldwide depression beginning in Japan." Is that what's at stake here? We're talking about problems that could lead to a worldwide depression?

HUGH PATRICK: Potentially, it could be that serious, though I think that that's a rather melodramatic statement, frankly. Nonetheless, if Japan were to slide into a serious recession and depression, on top of what's happening in the rest of Asia, I think the worldwide implications would be severe. I don't think we'd have a great depression of sort of the 1930's variety, but it would certainly not be good for the world economy. I wanted to come back to what Mike Mochizuki just said. Deregulation is certainly a very important part of the story. It's a long run fix. It doesn't give you a quick solution to these problems. And in addition to that, they've got to do a quick fix, as Mike mentioned, on the financial system, itself, particularly the bad loan problem, and there are really two policies going hand in hand here, the 2 trillion yen tax cut and 10 trillion yen financial bailout of the weak banks, and that--or the depositors--and that is not yet fully developed, that program. But both have to be implemented and implemented quickly, as Mike suggested.

ELIZABETH FARNSWORTH: And, Mr. Patrick, tie this all into the wider Asia crisis which we've been discussing, but the bank loans are a problem not only because of domestic bad loans, but because Korea, for example, may default on some of its loans, right?

HUGH PATRICK: Well, the bad loan problem is exacerbated by the loans to Korea and other Asian countries, though I suspect that there's not going to be a great series of defaults like we had in Latin America in the late 1970's. But the bad loan problem is primarily domestic in origin and in size and in nature in Japan,and it's been festering from the early 1990's. Basically all the collateral against those loans was real estate, and the real estate prices have dropped so much that the loans can't be covered by the real estate, and the loans that were being made were to companies that can't generate the income to pay them off.

ELIZABETH FARNSWORTH: And, Mr. Mochizuki, is it the bad loans problem that makes people worry even slightly about a very deep recession in Japan and perhaps even causing a depression?

MIKE MOCHIZUKI: Right, because a bad loan problem has caused or contributed to this economic stagnation. I think I had some real concerns that if the Japanese citizen gets $300 from this tax break whether they're really going to go out and spend. I think many of the citizens will be risk averse and probably save that money, and so it really is not going to have the stimulus kind of effect that probably Prime Minister Hashimoto wants.

ELIZABETH FARNSWORTH: And how does this affect the average American consumer, all that's happening in Japan and especially the tax cut and the stimulus?

MIKE MOCHIZUKI: Well, I think one of the dangers if that we've put a lot at stake in emerging markets in East Asia, and that was a way of really revitalizing our economy, and it's worked so far in the early part of the Clinton administration. But the other concern is that one way that Japan could try to get out of this economic problem is to export its way out, and it might be good for the American consumer that cheap goods are coming from Japan, but it might not be so good for the American producer, who will be affected by these products.

ELIZABETH FARNSWORTH: Well, thank you both very much for being with us.

HUGH PATRICK: Thank you. FOCUS - MIRACLE IN DETROIT

ELIZABETH FARNSWORTH: Next, an update on a Detroit program that's become a model for reviving inner city neighborhoods. Fred De Sam Lazaro of KCTS-St. Paul-Minneapolis report.

FRED DE SAM LAZARO: From the security system that recognizes hand prints to the Star Trek motif, complete with Bridge and Enterprise Cafe, this is one of the most modern factories in the world. It is managed, among others, by Lloyd Reuss, who retired five years ago as president of General Motors.

LLOYD REUSS: These manifolds are actually going into the Ford Windstar--

FRED DE SAM LAZARO: What's unique about this Center for Advanced Technologies is that its workers are actually students working on advanced degrees in engineering on equipment that Reuss says is up to 10 years ahead of industry standards.

LLOYD REUSS: That's the thing that's so different. They are acquiring knowledge and applying it, and they're applying the knowledge on the next generation of machine tools. So it is truly, I look at it as a miracle that's taking place right here on Oakman Boulevard, right in, downtown in the city of Detroit.

FRED DE SAM LAZARO: The real miracle could well be that address. The center is located in one of Detroit's most blighted neighborhoods, one further devastated last summer by a tornado. And the center's owner is not a big automaker but rather a non-profit civil rights group founded in 1967 by a local Catholic parish priest, the late Father William Cunningham.

SPOKESMAN: I want to show how the power comes in.

FRED DE SAM LAZARO: The NewsHour reported on Cunningham five years ago when construction of his Center for Advanced Technologies was getting underway with funding that came from a Defense Department program intended to preserve basic industries in the U.S.

FATHER WILLIAM CUNNINGHAM, Founder, Focus Hope: It's good of you, Senator. Thank you. God bless you. A check for $20 million.

FATHER WILLIAM CUNNINGHAM: In the center of Detroit, where the little kids can walk down the street, look in the windows, and see their older brothers and sisters in the highest ranks of technology, what a marvelous thing that is to see.

FRED DE SAM LAZARO: Eleanor Josaitis founded the organization Focus Hope with Father Cunningham.

ELEANOR JOSAITIS, Director, Focus Hope: He never liked the term he was a visionary, but he definitely was a visionary but more than that, he was a risk taker. He was not afraid to do something that we had never done before.

FRED DE SAM LAZARO: Josaitis was a suburban housewife and a civil rights activist. In 1967, soon after riots tore apart Detroit, she moved into the city with her husband and five children to join Cunningham. Their goals were modest early on according to Neil Shine, retired publisher of the Detroit Free Press.

NEIL SHINE: The wedge that was driven between black Detroit and white Detroit--when I say Detroit, I'm talking about the metro area--was huge and there was concern that the following summer, the summer of '68, was going to be worse. So Bill started an organization with Eleanor and some other priests called Focus Summer Hope. Let's involve everybody talking about this, so we can calm things before we have another explosion. And we didn't have the explosion, but the more he involved himself, the more need he saw.

FRED DE SAM LAZARO: Focus Hope quickly became active in civil rights campaigns. It published a study that showed city residents paid more for groceries than people in suburbs. The group sued a major Michigan insurer for discrimination. Later, Focus Hope took over from city all a program to distribute food to the poor and expanded several-fold. At its peak a few years ago, the program fed almost 90,000 people each month.

ELEANOR JOSAITIS: We've never lost sight of what that mission statement is: It was intelligent and practical action to overcome racism, poverty, and injustice Well, intelligent and practical action when we started was to see that people had food and that babies didn't lose their brain power because they didn't have enough food or senior citizens became senile. Then when industry started moving out, we said, well, how do you get people off of food program and how do you get them into the financial mainstream?

FRED DE SAM LAZARO: For about two decades the road to that financial mainstream has begun in Focus Hope's food distribution center. Closed-circuit TV sets throughout the center carry messages urging people to enroll in a machinist training program. Denesia Harvey was coaxed into applying. She was 24, single, and a mother of three when we visited her in 1992.

DENESIA HARVEY SHAKHAN, Information Systems, Focus Hope: I was always saying what I couldn't do. Oh, I can't do this because of my children, or, I don't have this for my children, I can't do this. I don't have a baby sitter. I made an excuse for everything.

FRED DE SAM LAZARO: Focus Hope had a "no excuses" answer for Harvey. Its center for children provides child care for younger kids, and Montessori and latchkey programs for those older. Harvey had other hurdles. Most dropouts and many graduates of Detroit's public schools lack basic skills. They are put through a computer-based fast track program that in two months can boost a student's math score by two years.

[TUTORING SESSION]

FRED DE SAM LAZARO: Once their skills are upgraded students are offered training to become machinists, an increasingly sophisticated and lucrative field in Detroit's manufacturing sector. Kevin Robinson is an associate director of Focus Hope.

KEVIN ROBINSON: We want them to learn how to read blueprints, to do the high order math so that they can make things like make a hammer, V block, sign bar, parallel bar; these are all tools that every machinist has to have. So it gives them a sense of accomplishment, it gives them a tool, and it lets them know they have the potential to do this type of work.

FRED DE SAM LAZARO: Focus Hope's machinist training program is supported by for-profit enterprises in machining, also by a host of volunteer retirees, who learned a lot about their students according to publisher Shine.

NEIL SHINE: What they've managed to overcome is the feeling that poor people, black people aren't capable of doing anything complicated. When Bill Cunningham started the machinist training institute, he recruited retired machinists, lathe operators, milling machine operators, board operators, a lot of nice old white guys, a lot of them Germans, Scotts, British, who--and asked them to come and train these kids. And so many of them told him--look, I had these people working for me when I had my own place, they don't want to learn, they are not interested. And he would say to these guys, give me six months, and many of them later came to Bill Cunningham and said, you know, we were wrong about this.

FRED DE SAM LAZARO: Denesia Harvey did become eligible to enter machinist training. But she opted, instead, for full-time office work at Focus Hope. Since our last visit, she has obtained her high school equivalent diploma and has gotten married. In an organization whose annual budget is now close to $100 million, Denesia Harvey Shakhan foresees lots of career growth in its information systems department.

DENESIA HARVEY SHAKHAN: Possibly into different areas of computer hardware, different types of programs that they have out, Novell 4.1, NETG, NT servers, routers, hubs. I'm learning a bit of everything. I feel a lot more successful and much better about myself coming from a ADC Mom to now a working person, being able to take care of family, household expenses, help pay car notes now, you know, I was never able to do that, but rent, and things like that. And it's hard--it gets hard sometimes, but all in all. I would prefer from being an ADC Mom to working.

FRED DE SAM LAZARO: For many recruits it proves too hard. One out of three people entering Focus Hope drops out.

SPOKESMAN: Now what happens and you're supposed to be here at 8 o'clock, and you're coming up the steps, it's two minutes to 8, and you stumble and fall down the steps. By the time you get back up the steps to the computer, now it's two minutes after 8.

FRED DE SAM LAZARO: A tough love drill stresses strict discipline. Not only can a hint of drug use disqualify an infant, so can tardiness. One strike and you're likely to be expelled.

SPOKESPERSON: We're not in the rehabilitation business. We have a saying around here. "no missionaries," and people laugh at us and say what do you mean by no missionaries? Well, a missionary is going to pat you on the head and say that's okay honey, I understand that the bus didn't come or whatever the excuse is. But then when they get out into industry, industry does care.

FRED DE SAM LAZARO: But for every one dropout two thriving careers are launched in young people who otherwise barely pass high school. When we met Andre Reynolds five years ago, he'd been through machinist training and was applying to go to the Center for Advanced Technologies. He had dreams of major companies looking to him for solutions.

ANDRE REYNOLDS: So if they have a problem, let's just say in Germany, or in Japan, they will say, well, who can we get to solve the problem; they say, well, call Andre Reynolds; where is he? Welt, last I heard he was in Washington So they call me up and I fly down to Japan, and I won't need a translator because I already know the language myself, see.

FRED DE SAM LAZARO: Today, Andre Reynolds has fulfilled part of that dream. He's six months away from an associates degree in engineering. The rigorous routine includes an eight-hour day on the shop floor, then three hours in more academic settings. His technical skills even now could command an annual salary of $50,000 in the market. But he plans to pursue a bachelor's degree, one whose curriculum includes Japanese.

ANDRE REYNOLDS: Sometimes when I'm sitting on my back porch and watching the kids run around and playing and I look at airplanes pass me by overhead and see helicopters and cars and engines and that's when I go wow, I know exactly how we produced this. I have some idea on how to do it.

FRED DE SAM LAZARO: Aside from gaining marketable skills, Reynolds and the many others who wear Focus Hope uniforms gain self-esteem for the first time, according to Josaitas.

ELEANOR JOSAITAS: Let me tell you one story about a young man that was in one of our programs and I saw him on the street with his uniform on and I stopped to give him a ride, and I said, you've got your uniform on, you are ready to get on the bus, why do you wear it all the time? And he said, Eleanor. when I used to go into the bank, I was nothing but a black hood, and he said, now when I go into the bank and they see me with this uniform, they say, oh, you're over at Focus Hope, you're studying to be an engineer? He said, Then I am somebody.

FRED DE SAM LAZARO: So far, Focus Hope has placed more than 1300 machinists in regional factories. The first minority workers with these skills at many of their employers. This year, Focus Hope will graduate more African-American engineers than all six of Michigan's other engineering universities combined.

ELIZABETH FARNSWORTH: Still to come on the NewsHour tonight, the Terry Nichols trial and a David Gergen dialogue. UPDATE - BOMBING TRIAL II

ELIZABETH FARNSWORTH: Now, the Nichols bombing trial and to Phil Ponce.

PHIL PONCE: The Denver jury held its first full day of deliberations today. Closing arguments were wrapped up yesterday in the federal trial against Terry Nichols, Timothy McVeigh's alleged co-conspirator in the 1995 bombing of the Oklahoma City federal building. For more on the trial we're joined by Tim Sullivan, senior Court TV correspondent; Jim Fleissner, professor at the Mercer University School of Law and a former federal prosecutor; and Dan Recht, immediate past president of the Colorado Criminal Defense Bar and a practicing attorney in Denver. Gentlemen, welcome all. Tim Sullivan, we heard earlier that the jury had requested a list of all the witnesses who had testified. Any more communications out of the jury room?

TIM SULLIVAN, Court TV: No, Phil. We haven't heard from the jury since that note came out this morning, and the judge did order that they receive a list of the 192 witnesses who testified in this trial. Those witnesses will be listed for the jury in chronological order of their appearance here. They've been deliberating now for about 10 hours between late yesterday and today, and we expect they should break in about a half hour.

PHIL PONCE: And when they break, they go home. This jury is not sequestered, correct?

TIM SULLIVAN: That's right, Phil. This jury is not sequestered, even though the jury in the Timothy McVeigh trial was. Judge Richard Matsch has not explained why he made a different decision here. What he told the jury yesterday was, "I trust you to follow my instructions, avoid the media, to avoid talking about this with anybody else, and I have no plans to sequester you. But if I see a need to do so at any point, I'll do it."

PHIL PONCE: Tim, give us a quick description of the closing arguments yesterday, emotional points on both the side of the prosecution and the side of the defense.

TIM SULLIVAN: Well, that's right, Phil. Yesterday the most emotional period came during the summation of Michael Tigar, the lead defense attorney for Terry Nichols. He was talking toward the end of his summation about Terry Nichols as a family man, Terry Nichols struggling to keep his family together, even though his wife several times left him to go back home to the Philippines. He talked about Nichols going to the Philippines to plead with her to come back. That kind of discussion brought Terry Nichols to tears. And then Michael Tigar, himself, talked about when he was a young lawyer going into the supreme court building and seeing the words "Equal Justice Under the Law" etched into the rotunda there, and he got choked up as he talked about how that principal sets the justice system in this nation apart. Michael Tigar was crying when he stood behind his client, Terry Nichols, at the defense table. He put one hand on each of Nichols' shoulders, and he said to the jury, "This is my brother, and he's in your hands." But Larry Mackey, the lead prosecutor, came back with a rebuttal argument that began just as strongly as Mr. Tigar finished. There was no break between the two. Larry Mackey got right up at the podium, and even as Michael Tigar and his client were trying to compose themselves at the defense table, Larry Mackey said to the jurors, "The people who were killed in the Murrah Building in Oklahoma City were your brothers and your sisters also. And the justice that they demand is no less in your hands."

PHIL PONCE: Dan Recht, is that unusual for a defense attorney to make such a personal kind of a connection with the defendant, the person that he or she is representing?

DAN RECHT, Defense Attorney: Not unusual. It's unusual to do it as effectively as Michael Tigar. And I think, having been sitting in the courtroom also, that it was done very effectively. The idea is this: I think Michael Tigar had the sense that through the course of the trial there were many of the jurors that have learned to trust him, to turn to him for the answers, and he was saying by that gesture to those jurors, look, you've learned to trust me, I trusted my client, hopefully--and the formula goes--you, you know--you trust in me, I trust in my client, therefore, hopefully, you'll trust in my client.

PHIL PONCE: And, Jim Fleissner, how would you assess what the key points were that the prosecution made throughout the trial and in closing arguments? JIM FLEISSNER, Former Federal Prosecutor: Well, in closing argument, the prosecution was trying to show how all the pieces of their circumstantial case fit together on a time line so that it's compelling not just because each piece of evidence points at Terry Nichols but because it's almost incredible, impossible that all of those clues could align and point at Terry Nichols by coincidence. The centerpiece, which was emphasized in the closing arguments, of course, was the lengthy statement that Terry Nichols made to the FBI in which he told a number of lies and a number of implausible explanations. And I think that that centerpiece will be something that will weigh heavily on the jury.

PHIL PONCE: Overall, as a former prosecutor, yourself, what kind of--what kind of an assessment--what kind of a grade would you give the prosecutors in this trial?

JIM FLEISSNER: I think the prosecutors in this trial did a fine job, as they did in the trial of McVeigh. They had to put on some evidence, though, concerning the Arkansas robbery and the building of the bomb that sprung a few leaks frankly during the case. None of those leaks, I think, are going to sink the prosecution case, but they did have some rough spots in their presentation because of effective loitering by the defense.

PHIL PONCE: And the Arkansas robbery you're referring to--that's the allegation on the part of the prosecutors that a robbery was committed to help fund the activities of the defendants?

JIM FLEISSNER: That's right.

PHIL PONCE: Mr. Recht, how good was the defense at throwing dust on the prosecution's case?

DAN RECHT: You know, again, I think that Michael Tigar was very effective, and in his closing argument to the jury, he basically said, look, there's all of this circumstantial evidence. And if you look at it from a sinister view, yeah, you'll probably find my client guilty, but if you look at it with an innocent spin, then that's what, you know, our constitutional scheme tells you to do, presume this client, there is an innocent explanation for each thing. And so, in effect, he was telling this jury treat him like you would your brother or my brother and presume him innocent. And when you look at each little piece of evidence, look at it with that kind of spin, is there an innocent explanation? Now, I don't know, but Michael Tigar did a real nice job of portraying it in that fashion.

PHIL PONCE: Mr. Recht, just to follow up with you, is there a piece of--was there some testimony that the prosecution put on that you found particularly damaging to the defense?

DAN RECHT: Well, I'll tell you what I thought I found damaging to the defense, and it wasn't any particular piece of evidence. It's much like Jim was saying. They took all of these hundreds and hundreds of pieces of evidence that they had, sort of like a jigsaw puzzle laying on the table, and in their closing argument put them together piece by piece, painting a picture that made it look real--much like this Nichols was guilty of this crime and made a difficult job for Michael Tigar to get up and rebut it, so their closing argument was very good, and put the pieces together very well.

PHIL PONCE: Jim Fleissner, in this case the defense chose not to put the defendant on the stand. Is that-- from the prosecution's standpoint, is that a helpful thing to the government's case?

JIM FLEISSNER: Oh, I think the prosecution would have loved to have Terry Nichols take the stand. That he didn't is not a remarkable development at all, as Dan will probably say. Defense lawyers frequently make the decision not to put the defendant on the stand for fear of what might happen. They can't control what's going to happen. And it tends to shift the emphasis of the trial and the credibility of the defendant, rather than the government's proof. And, besides, in his nine and a half hour interview with the FBI he basically denied his guilt, so although there were a lot of implausible explanations and lies that were in that statement, they essentially had his defense put before the jury through the vehicle of that statement.

PHIL PONCE: Tim Sullivan, you sat through all the testimony. Was there a difference--a significant difference in tone between this case and the case against the trial of Timothy McVeigh?

TIM SULLIVAN: Yes, Phil, it was very different in tone, and it was different on both sides. In the trial of Timothy McVeigh the tone of the prosecution's case was very much the impact of the crime on the victims, on the lives of the victims. They were extremely skillful in calling victim after victim and survivors from the bombing, spacing them out throughout their case. So you never went through it more than a day without a very emotional, compelling story from a survivor or somebody who lost a family member in the bombing. Those-- those stories brought the entire courtroom to tears over and over again in the McVeigh trial. That didn't happen this time around. Michael Tigar and his team were successful in convincing the judge to limit the prosecutors to force them not to take these survivors into these long accounts of how this affected their lives, of the blood and gore and just terrible chaos that was seen at the Murrah Building. On the defense side the difference in tone was that the defense here was more aggressive than the defense in the Timothy McVeigh case. Of course, they had a lot more to work with. There was less evidence against Terry Nichols. It's entirely circumstantial evidence against Nichols, and the judge gave Michael Tigar and his team more room to maneuver than he gave Stephen Jones and the lawyers representing Timothy McVeigh. So it was a much broader defense and I think a more effective defense.

PHIL PONCE: Jim Fleissner, how about the issue of emotion, does it hurt the prosecution that the witnesses that they put on this time around were not quite as emotional regarding the--just the horror of what happened?

JIM FLEISSNER: Well, as a prosecutor, you're not really playing by the rules to play the emotion card too much. I mean, obviously, there is inherent in victim testimony a lot of emotion. But I think that the way it came out in the first trial, maybe it was the witnesses testifying for the first time, maybe it was the first time the story was being told but was much more emotional, it was hard for me even to read the transcripts some of the time. This trial, I think it was much more appropriate and fairer to the defendant in that that emotion was ratcheted down a bit.

PHIL PONCE: Dan Recht, as far as the issue of the defense counsel's demeanor in the court, Mr. Tigar, that he was more aggressive, is a more aggressive defense necessarily a better defense, or a good defense?

DAN RECHT: It's better if you do as Michael Tigar seemed to do, and that is first develop the trust of many of the jurors, so that they look to you as the voice of truth, of justice, for answering questions. Now I think Michael Tigar, as I said before, did that, and once you've done that, then, yes, you can be more aggressive, and it's effective.

PHIL PONCE: The judge, Dan Recht, allowed lesser charges in this case, but they weren't allowed in the Timothy McVeigh trial. This was a move by the defense, I take it, to give the jurors more options.

DAN RECHT: Absolutely. And it was a great victory for the defense because, of course, if he is convicted of second degree murder, second degree murder is not an offense punishable by the death penalty. So if the jury doesn't find him guilty of first degree murder and, instead, second degree murder or the other manslaughter, which they're also given as an alternative, it's really going to confuse the whole issue of whether he is subject to the death penalty. And that sort of begs the question of what's going on with the conspiracy charges. But to get those options in to the jury was a great defense victory, and we'll just have to see what happens.

PHIL PONCE: Jim Fleissner, why do you think it is that the judge went along with it in this case, where he didn't go along with it in the case against Timothy McVeigh?

JIM FLEISSNER: Well, you know, I don't know the answer to that question. And the reason I don't know is somewhat interesting in itself. And that is that the judge in this case has essentially held two trials; a public trial and a secret trial. And the secret trial has been all of the motions; the jury instruction conference, which is at issue here; and those things have been kept secret in part because the jury is not sequestered. And we won't really know until those transcripts are released exactly what's going on, but the point Dan made is very important, and that is the second degree murder and lesser included offense instructions only apply to eight of the eleven counts. They do not apply to the first three counts, and as Dan said, it's an open question what would happen even if the jury returned some second degree murder convictions.

PHIL PONCE: Dan Recht, in the very little time that we have left, do you see any advantage, strategic advance for the defense that the deliberations are happening during the holiday season?

DAN RECHT: Absolutely. I do. And let me address it quickly. I think jurors are much more careful-- historically, they've been more careful in their sort of role in sitting in judgment over somebody else's life during the Christmas time, and I think that's for obvious reasons that have to do with sort of the Judeo Christian ethic. So, yes, I think that's a significant factor.

PHIL PONCE: Well, gentlemen, thank you all very much. DIALOGUE

ELIZABETH FARNSWORTH: Finally tonight, a Gergen dialogue. David Gergen, editor-at-large of "U.S. News & World Report," engages John Newhouse, former writer for the New Yorker. He's now a guest scholar at the Brookings Institution and author of "Europe Adrift."

DAVID GERGEN: John, you open the final chapter of your book with a bold assertion, and let me just quote it: Europe today has broke with the past more completely than at any time since the end of the 30 years' war and the peace of Westphalia in 1648, 350 years, the biggest change since then. Tell us about it.

JOHN NEWHOUSE, Author, "Europe Adrift:" Well, I think that's probably right. The peace of Westphalia introduced the system of nation states with the recurrent threat that one of them--Spain, France, Germany-- might upset a balance and threaten its neighbors. I think the balance of power system is now behind us, at least so long as the United States remains a presence in Europe's affairs and the European Union continues to exist. But it's mainly, I think, the problem of the end of the Cold War. Europe really wasn't ready for the end of the Cold War. It conferred authority on national governments that they no longer have. At least, they don't have as much. That authority has been diminishing since the end of the Cold War. And political parties have also been weakened, so countries are not being governed as strongly from the center as they used to, and Europe is becoming kind of a hodgepodge of national governments and institutions in Brussels, super-national institutions, but also regional and urban entities. I think more power is drifting down from national capitals and is drifting upward to Brussels.

DAVID GERGEN: I was very struck by that because it was a major emphasis in your book, and we read in this country about news from London, news from Paris, the national capitals, or we read about news from Brussels, but you really focus on the super regions that are emerging that are becoming the focus of both economic and cultural life.

JOHN NEWHOUSE: I think a big part of Europe's industrial and financial heartland consists of provinces that are getting together. They ignore national boundaries, and they are cooperating. They're plugging into the global economy without going through their capitals. They're using the information highway, access to capital on a very large scale, high speed transport, and they think they can control their own affairs better than bureaucrats in some capital, whether it's the national capital or Brussels. But what they're saying to themselves is that national governments are too small to run international affairs and too big for everyday lives, so we're going to manage things ourselves.

DAVID GERGEN: You have two super regions that you sketch out shaped like bananas.

JOHN NEWHOUSE: Yes. A lot of bankers and businessmen refer to these configurations consisting of various departments and provinces as bananas. They're crescent-shaped configurations, and one of them and perhaps the most important for now starts in Southeastern Britain, runs up through Northern France, the Benelux countries and down the Rhine Valley into Switzerland. Another one goes from the Beneto in Eastern Italy through--

DAVID GERGEN: Around Venice.

JOHN NEWHOUSE: Around Venice--through the Piedmont and Lombardy into France--the alp area around Lyon--then across the Mediterranean coast of France and the Hinterland into Catalonia--and its capital city, Barcelona. That people are beginning to think of as Europe's sun belt, and the analogy with the American sun belt that took off commercially and economically so many years ago.

DAVID GERGEN: And so people then say that Barcelona, instead of looking to Madrid, the capital of the country, for their affinity actually look more to people in Southern France and over across, into Northern Italy; that they feel more connected to them in some ways.

JOHN NEWHOUSE: Yes, they do, and indeed, in a sense they always have. But now they're able to do it because of these advances in technology and the fact that the fashion now is to ignore borders and the constraints of national government to do your own thing. Barcelona thinks of itself or Catalonia as the South of the North.

DAVID GERGEN: Now you go on to say--there was an interesting quote about what does unify Europe anymore, and you say that the only unifying force in Europe is unemployment.

JOHN NEWHOUSE: I think that's right. Europe is certainly unaccustomed to unemployment on the scale we have it now. Germany has more unemployment now than it had--it has had since the early days of the Third Reich. France has got even higher unemployment than Germany, and it's got white collar unemployment. There used to be a certain amount of blue collar unemployment, but white collar unemployment is something new. And it's very disturbing, and I think this is one of the things that's weakened national governments, because European societies after World War II began to modernize and develop some growth, and with that growth came the highest living standards in the world. And then the economic growth tailed off and governments, in order to protect themselves, began expanding the social safety net, even though demographics were driving up the cost of pensions and medical insurance and all of that. So that's--so the inability to keep up with the social compact to provide jobs and security is also a real challenge to governments, a challenge that they're having progressively greater difficulty in meeting, and as another source of their increasing weakness, I think.

DAVID GERGEN: You write about Helmut Kohl as the strong man of your--the man who is trying to build the European Union, as well as unite Germany. You call him I think Bismarck in a baggy sweater.

JOHN NEWHOUSE: A lot of people have referred to him--

DAVID GERGEN: What happens to Germany after Kohl? He's in his fourth term.

JOHN NEWHOUSE: It's a big question. People have tended before elections usually to write off Helmut Kohl or minimize him and they don't like his chances. Well, I think he'll probably win the next election. There isn't much in the way of serious opposition to him. It does seem to be that his main political opposition, the Social Democratic Party, has a kind of loser syndrome that it has difficulty getting away from, but I do think we are in the twilight of the Kohl era, or maybe even the post-Kohl era, even if he wins, because the European consensus in Germany, as Thomas Mann, who once asked the question, "a Germanized Europe, or a Europeanized Germany," well, I think Kohl's vision of a Europeanized Germany, which is Adenauer's vision as well, I think that that's not going to come about. I think Germans are going to begin to pursue national interests not in a bad way--I don't think we're going to have any whiff of the past, a recurrence of any past problems, but Germany, like other countries, will pursue national interests. I think their larger interest now, as they see it, is by competing in the global economy. They like the European Union. It's done a lot for them. The single market is good stuff. On the other hand, they feel as if they've done as much to build a European Union as anybody, and some of their partners haven't done nearly as much as they, so why make sacrifices in the name of Europe?

DAVID GERGEN: All right. Does the strength of Tony Blair change the European prospect at all?

JOHN NEWHOUSE: I think it does. I think it's the best news because finally now we have a major European nation with a strong government that has an exceptionally strong mandate, and is also, I think, moderate, well-intentioned, sensible, realizes that a large part of its interest and its future lies in Europe, unlike its predecessors, which in a sense rejected Europe and became what everyone called Euro skeptic, but Blair knows that that's nonsense, and Britain is part of Europe, and must exercise leadership in Europe. So I think a natural partnership between Britain and Germany should develop and very well may develop so that the strongest government in Europe, which is the Blair government, will be in the--with the strongest and richest country in Europe and biggest--Germany.

DAVID GERGEN: A final question. Where would you expect Europe to be five to ten years from now, still adrift?

JOHN NEWHOUSE: I think probably within five years from now Europe will continue to be adrift because I think the resources, the political base that will enable governments to regain strength and be willing to take some initiatives, which most European governments have been unwilling to take in recent years, I think it's going to take a while for them to recapture that. I think for a while Europe is going to remain adrift.

DAVID GERGEN: John Newhouse, thank you very much.

JOHN NEWHOUSE: Thank you. RECAP

ELIZABETH FARNSWORTH: Again, the major stories of this Wednesday, Japan's prime minister proposed a $15 billion income tax cut; President Clinton praised it as a bold move to help economic recovery. The President also signed a law to punish copyright violators, even if they do not make money from their deeds. Before we go tonight, a follow-up to our recent report that some 135,000 children would lose disability benefits as a result of welfare reform. The Social Security Administration announced today that an estimated 35,000 children will have their benefits restored, following a review of cuts in their Supplemental Security Income, or SSI. We'll be with you on-line and again here tomorrow evening. I'm Elizabeth Farnsworth. Thank you and good night.