This is a rush transcript of "Special Report With Bret Baier" from May 11, 2010. This copy may not be in its final form and may be updated.


GORDON BROWN, FORMER BRITISH PRIME MINISTER: In the face of many challenges in a very few short years, challenges up to and including the global financial meltdown, I have always strived to serve to do my best in the interest of Britain, its values, and its people.

DAVID CAMERON, BRITISH PRIME MINISTER: Her majesty, the queen, asked me to form a new government and I have accepted. The country has a hung parliament where no party has an overall majority and we have some deep and pressing problems — a huge deficit, deep social problems, and a political system in need of reform.

For those reasons, I aim to form a proper and full coalition between the Conservatives and the Liberal Democrats. I believe that is the right way to provide this country with the strong, the stable, the good and decent government that I think we need so badly.


BRET BAIER, "SPECIAL REPORT" HOST: Conservative Party leader David Cameron is the new British prime minister. He traveled to Buckingham Palace and met with the queen, and she asked him to establish coalition government. The Liberal Democrat Nick Clegg is actually the Deputy Prime Minister after this coalition was formed. And a call from President Obama today late this afternoon to the new prime minister from the Oval Office, president congratulating David Cameron, Prime Minister David Cameron, on his success. What about all of this and U.S.-British relations from here? Let's bring in our panel — Bill Kristol, editor of The Weekly Standard, Juan Williams, news analyst for National Public Radio, and syndicated columnist Charles Krauthammer. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: First, you have to admire the process, how clean and swift it is. Here it takes two and a half month to get transition going, and there it is in two-and-a-half hours.

Gordon Brown was fighting even earlier today to fight for the prime minister-ship. He gives up a few hours ago, he goes to see the queen, and when he returns they are moving out furniture. Three hours later he's gone in obscurity and the new guy is the prime minister. I guess that's why they are called the mother of parliaments. They have been at it for 600 years so it works rather well. On the substance, you heard Cameron announce a proper and full coalition. He might have tried a minority government in which where he governs alone but the opposition agrees passively that it won't bring the government down and allows it to actually govern. That is not going to happen. He is bringing in the Lib-Dems into the government. As you said, the deputy prime minister is going to be a Lib-Dem, and they are also going to be in a number of posts. The reason it is going to affect us is because the Lib-Dem are Europeans, the most pro-European of the British parties, the least pro-American. They are not heavily inclined to favor NATO, the "special relationship" with the United States. They are wary of the intervention in Afghanistan, and they are not — they are dismissive of the War on Terror. All these elements in which the Brits have been the closest allies in the 13 years of the Labour government is now going to be a problem to the extent which the Lib-Dems have influence on foreign affairs. The coalition main goal is to cut government spending and do economic stuff. But any extent that the Lib-Dems have influence on foreign affairs is to our detriment.

BAIER: How do you think, Juan, this affects the relationship, if it does at all, between U.S. and Great Britain?

JUAN WILLIAMS, NEWS ANALYST, NATIONAL PUBLIC RADIO: I don't think the Lib-Dems are in charge of the foreign policy. I think that is David Cameron. It's clear he is a conservative leader and someone who has met with President Obama previously. President Obama spoke with him today.

I think he has a sense that what is driving this conversation is the need for reform. And the reason that the talks broke down between what you would think of as the likely allies here, Labour and Liberal Dems, was that the Liberal Democrats felt that the Labour was not convinced of the need for reform, in other words, throwing out the bums. I think it's the same sentiment that exists here in the United States and in Great Britain, which is people are tired of incumbents. People want change and something new and different. In specific, with regard to domestic issues that Charles touched on — taxes, spending, immigration, these are the issues that are large in Britain much as they are large here. And I think the difference here and what strikes me we haven't seen any coalition government in Britain, I guess, since World War II. And now you have a coalition putting a strain ideologically when you think about Conservative and Liberal Democrats having to group together. But that is the only option at that point, and I think what binds them is the need to throw out incumbents, throw out the bums, start anew, in the sense that as David Cameron said in front of Downing Street — where, by the way he was booed. He hasn't even taken office and he's getting booed. He said the political system here has failed and we need to change it. And that is going to be our business.

BAIER: Bill?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: The political system hasn't failed. The Brown government has failed I think. That I think is interesting. If you asked the fashionable liberal editorial page editors and economists and professors who should be in charge three years ago, having a European crisis, the last establishment type, the man they would have picked is Gordon Brown just as Barack Obama is the man they have picked here.

And Gordon Brown and Obama have about the same policies, an unbelievable spending. This is pure Keynesianism on steroids. Now Britain looks like Greece, and now the U.S. is moving in that direction. And the voters have thrown Gordon Brown out. So we now have conservative governments in Britain, France, and Germany.

The welfare state is unsustainable and the voters lost confidence in the left to manage the future of the welfare state, to trim the welfare state and reduce in a way to make something sustainable.

The bad news is David Cameron does not look to be like a Margaret Thatcher or a Ronald Reagan conservative and seems more of a European conservative to not be very bold. But sometimes people surprise when they are in office. It's possible he will.

BAIER: There are some prognosticators out there, Charles, who say the British elections sometimes forecast the U.S., the next U.S. election, that conservatives did well but not well enough to overtake a sole majority. What do you think of that?

KRAUTHAMMER: I think the point that Bill is making is true. Social democracy is given 60 years in Britain, and now out's melting down. Here ironically we have a president who believes in that model moving America in that direction precisely at the time the model is collapsing in Europe, and I think there is a lot of pushback.

That is what you're seeing in the reaction against the policies last year and this year, in the elections that we had in Virginia and New Jersey, in Massachusetts, and the elections in November. So I think it's a general trend. It's not that it starts in Britain and ends here. I think it's a general trend throughout the industrialized west now in economic crisis as a result of out-of-control welfare entitlement.

BAIER: You can find out more about what is happening in Great Britain on the homepage at foxnews.com/specialreport.

Next up, Afghan President Hamid Karzai's trip to Washington and what it means for the war.



HILLARY CLINTON, U.S. SECRETARY OF STATE: We can't expect the United States and Afghanistan to agree on every issue. We will not. That is a given in a relationship between two sovereign nations.

HAMID KARZAI, AFGHAN PRESIDENT: We'll be having disagreements on the issues from time to time, but that is a sign of a mature relationship, a sign of a steady relationship.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We're going to laud them for the steps they take and work with them to do what is necessary to deal with the problems of governance, accountability, and corruption.


BAIER: What a difference a month makes. Afghan President Hamid Karzai had a dinner at the Blair House last night, a day at the State Department today, meets with the president tomorrow.

Here is how the "Associated Press" wrote up this a month ago, quote, "Afghan President Hamid Karzai threatened over the weekend to quit the political process and join the Taliban if he continued to come under outside pressure to reform, several members of parliament said."

What about this and what it means for the war? Bill?

KRISTOL: The question is what it means for the war. The Obama administration has come to its sense and decided it's not a good idea to insult an ally with whom we are fighting a war and who we are trying to train and turn over more responsibilities to.

I had to talk people who followed this closely in the last days. I'm a little worried about the war. I think we are paying a price for President Obama's reluctance to send enough troops and especially announcing a drawdown date in 2011.

At the time I thought we could live with that, but I think it's hurting our ability to convince people in the region including in Pakistan to throw in with us, and we're now — so I'm — the key question is winning the war, not having a nice press conference with Hamid Karzai.

BAIER: Juan?

WILLIAMS: Look, this guy is not someone you choose as a partner in a key effort where, as Bill says, the bottom line here is a winning effort, to not have repeat of what Russians and others have experienced as a result of the intervention in Afghanistan.

This guy is not only corrupt, I think he is corrupt in our eyes and the eyes of his own people, involved with drugs and his brother apparently was drug-dealing.

So he is not stable. But he's what we've got. And politically the American people do not want open-ended commitment to Afghanistan. They want to be able to say, here is our goal and here is when we are getting out, and that's what President Obama has promised.

In that scenario, you have to say at this moment Karzai may have an illegitimate government and may have been corrupt with his own election, but he is the one in charge there. So, you know what, we have to deal with him right now.

BAIER: So was it wrong to speak ill of Karzai and his government and turnaround now with the red carpet treatment in Washington?

WILLIAMS: This is politics. Our military needs to have confidence that the Afghan people, and I'm not sure they have confidence in Karzai. But at the moment, there is no choice, so let's just make the best of it.

KRAUTHAMMER: Look, it obviously was a mistake earlier dissing him. Look at the way the administration is behaving today in which they are giving him every honor short of the president bending a knee, which apparently he reserves for his visits overseas.

What they are doing with Karzai is undoing what happened in March when he was really insulted. He's wily, and he knows it. He's not a rookie like the president, and he knows in these relationships even the client has power because we're dependent on him as he is on us. When he talked about abandoning the fight or flirting with the enemy, it registered here.

So after treating him with the kind of contempt usually reserved for the Israeli prime minister, we are giving him every honor in the book, which is exactly the way to do it.

The success of the war hinges on the success of his government, which of course is a flawed government. But its legitimacy is the key to any insurgency, counterinsurgency strategy. And for the United States to undermine the legitimacy in a war where achieving it is the main aim makes no sense at all.

That's why we have reversed course and why he is here and being toasted and honor. We have no choice. There is no other ally or partner in the area, and the hour is late.

BAIER: And Bill, as you mentioned, on the ground there are reports of the Taliban filtering back in to some of the cities they were cleared out of previously. And they are getting ready for big operation in Kandahar, the U.S., coming up this summer.

KRISTOL: Marja was tougher than we expected and I'm not sure we're holding it entirely successfully. Kandahar, we'll take care of surrounding areas and not right into Kandahar. That's due to troops. We have to spend 5,000 troops up north because I think the president didn't act aggressively enough when we had the request from General McChrystal.

You can blame Karzai all you want, but if you talk to people there, our U.S. military government coordination is terrible. Richard Holbrooke, this wonderful man brought back in to manage Afghanistan and Pakistan, Karzai won't even speak to him. He wouldn't —

BAIER: This is one of the guys that dissed him early on.

KRISTOL: President Obama didn't bring him. He's the special enjoy for Af-Pak and one of our most senior diplomats. President Obama didn't bring him to Afghanistan when he visited there a month or two ago. So we have dysfunctional U.S. government to some degree as well.

WILLIAMS: Well, we have to fight terrorism on the ground there, and so somebody has to do it. And Pakistan wants to know we'll have a stable relationship in Afghanistan that they rely on as they continue to fight terrorism.

BAIER: That's it for the panel, but stay tuned for just how tough it might be for the new British prime minister.

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