From the Arab Winter to the euro crisis, a look at what will cause
war, strife and economic turmoil this year
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| German Chancellor Angela Merkel (Credit: AP Photo/Michel Euler) |
This article originally appeared on GlobalPost.
LONDON
— Another year, another slide away from the cozy world of American hegemony.
US
economic and political dominance continues to recede. That means what would
have been merely an eventful new year in times past is now a fretful one.
2013
will see emerging global players adjust to the vacuum America’s decline has
created. Some may be tempted to exploit these new realities.
Whatever
you may think about America’s ability to reinvent itself, or Europe’s
determination to save the euro, one fact is clear: neither of these erstwhile
power centers have any chance of reclaiming the economic heft they wielded a
decade ago.
Back
then, the US represented about 25 percent of global economy GDP; by 2010 that
figure was 19.4 percent. Further decline is inevitable.
From
this decline flow many of the economic and geopolitical shifts that beset the
world as 2013 unfolds.
Specifically:
- America’s pull in the Middle East and
Pacific Rim is diminishing.
- The dual debt crises of the euro zone and United
States are undermining their governments’ global leadership.
- And the collapse of demand in major import
markets — especially the US, Europe and Japan — are slowing the growth of
emerging countries.
Lists
of global risks invariably fail to satisfy everyone. In addition to the five
global challenges I’ve sketched out below, I could have easily added the
Israel-Iran nuclear standoff; North Korea’s perennial threat to go critical;
the simmering violence in the Democratic Republic of Congo; or the long-running
Israeli-Palestinian or India-Pakistan conflicts.
But
those persistent plagues have mostly local origins; even if they have global
implications, they are contained to some extent. On another level altogether
are the shock waves emanating from the continuing revolutions in the Arab
World, the heightened nationalist and territorial tensions between Japan and
China, the radicalization of Islam in North Africa, and the debt crises in
Europe and the US. Ranked from 1 to 5, here’s a look at what’s at stake in
each, and the likely impact these issues could have on the world in 2013.
1)
The Arab Spring enters a new winter
Two
years after a Tunisian man’s self-immolation set the Arab world alight,
uprisings and outright civil wars have changed geopolitical realities. With US
forces having withdrawn from Iraq and due out of Afghanistan in 2014, outside
players have diminishing influence — though resurgent Turkey has filled the gap
to some extent.
In
2013, the US will wield less influence in the region, as it concentrates on its
2014 pullout from Afghanistan and its pivot toward East Asia. Turkey’s
alliances with the Gulf kingdoms will strengthen, in order to counter Iran’s
influence, especially in Syria. That bolstered alliance will ensure that the
Assad regime ultimately falls. This will represent a severe setback to Iran’s
(and Russia’s) regional clout. One risk, however, is that the final weeks of
the civil war could draw Turkey (buffer zone) and Lebanon (via anarchy in the
Alawite-friendly border region) into the fighting. If Assad’s collapse were to
threaten Hezbollah’s position in Lebanon, the threat of civil strife there
would be high.
The
new order in the Middle East means that Israel is more isolated and vulnerable
— especially after the overthrow of Mubarak, the exasperation of US and EU
allies over settlement expansion, and ongoing frosty relations with Turkey,
once a close military partner of Israel. The two fell out furiously after
Israeli commandos killed Turkish citizens in 2010 on a Gaza-bound humanitarian
aid flotilla bent on breaking the Israeli embargo of the enclave.
Middle
Eastern instability could also cause a major oil price spike in 2013 —
especially given the continuing risk of an Israeli strike on Iran’s nuclear
facilities, as well as the deteriorating ability of Saudi and other Gulf states
to back global markets with spare oil capacity. The risk will particularly
climb after the Jan. 22 Knesset vote, which is expected to return an even
stronger majority for the hawkish Likud-led government of Benjamin Netanyahu.
Israel,
for all its rhetoric, will likely refrain from a strike against Iran’s nuclear
facilities as long as sanctions are playing havoc with the Iranian regime (as
they are). Hopeful note: Israel could also move to mend ties to Turkey and, if
Egypt settles, to draw Cairo into a three-way initiative to finally settle the
Palestinian issue.
Finally,
Libya’s revolution remains incomplete. The militias that did the bulk of the
fighting remain at odds over the writing of a new constitution. More seriously,
looted weaponry and mercenaries from Gaddafi’s regime has flooded the Sahel,
fueling unrest from Mali to Nigeria. Algeria, along with the US, France and the
regional group ECOWAS, are talking seriously about military intervention in
Mali, where an Islamic group with links to Al Qaeda is now in tacit control of
the country’s northern desert. (See “Sahel in a Handbasket,” below).
2
) China’s “near abroad” — not so pacific
Many
had hoped that the China’s new leadership, installed last autumn, would lead
Beijing to halt provocative naval actions in the South and East China seas,
where Chinese vessels have come close to open conflict with Japanese,
Vietnamese, Korean and Filipino warships as they vie for control of several
island chains. On the contrary, China’s new Communist Party General Secretary,
Xi Jinping, in mid-December told his armed forces to “intensify combat
readiness,” hardly the words of a man seeking to calm tensions.
The
tension has been building for several years. In 2010, China publicly declared a
vast area of the seas along its coastline as its “indisputable sovereign
territory,” in spite of dozens of conflicting claims to the Spratly, Paracel
and other islets. The region is thought to sit atop significant gas and/or oil
reserves.
In
2012, Chinese vessels harried ships around disputed islets, leading to
similarly nationalistic actions by these nations. It also prompted a new US vow
to build up forces and regional alliances along the Pacific Rim. China objected
to the visit of an Indian navy helicopter carrier to Vietnam recently, and to
Indian-Vietnamese talks about joint offshore oil exploration — an apparent
effort by smaller claimants to enlist their own powerful regional allies.
But
the real flashpoint of the moment appears to be between China and Japan, which
have a history of antagonism dating back centuries, including the long, brutal
Japanese occupation of 1931 – 1945.
In
2010, after Japan arrested a Chinese fishing boat captain for allegedly ramming
a Japanese coast guard cutter, China cut off exports of dysprosium, neodymium
and other rare earths Japan needs in electronics manufacturing, causing huge
losses as Japanese companies scrambled to find alternative sources (in some
cases, there were none). Bilateral trade and FDI between the two countries has
fallen sharply.
Meanwhile,
the US, which has a mutual defense treaty with both Japan and Taiwan, has
reasserted its right to transit the South and East China seas, so far
unmolested. But with so many crucial decisions into the hands of relatively
junior naval officers, the scope for miscalculation is large, as is the economic
and financial fallout.
The
US has sought to benefit diplomatically from the consternation that China’s
actions are causing in the region. Rather than marshal diplomatic pressure,
Washington has pressed regional powers for new basing rights, redeploying troops
and naval units to Australia and the Philippines, where they had been absent
since the Cold War ended. It has also pressed both India and Japan to take more
aggressive posture in the region. India has resisted this — China just last
year became its leading trade partner. But Japan’s new government is led by a
nationalist, Shinzo Abe, the grandson of a man who was Japan’s imperial
governor of occupied Manchuria during the 1930s. Last month, he said he would
pursue a more formal alliance with India and “expand the country’s strategic
horizons” as his top priority.
In
the short-term, with so much riding on the decisions of low-level naval and
coast guard officers, the risk of one of these maritime duels spiraling out of
control is significant. And because the US and Japan have a formal treaty of
mutual defense, America’s Seventh Fleet would be obliged to come to the aid of
Japanese forces if conflict expanded. Given the shrillness of nationalist
sentiment and historical grievances in both China and Japan, that scenario
cannot be dismissed lightly.
3.
Euro crisis: Manning up is hard to do
The
philosophical and policy differences that have prevented aggressive euro zone
action to deal with the sovereign debt crisis have delayed, but not prevented,
a disaster. Greece, which is failing outright to meet the terms of its several
bailouts, could well exit the euro sometime in 2013.
If
so, this will put enormous pressure on other highly indebted countries,
particularly those that have been acting as though there is no urgent need to
reform the public sector, pensions, labor markets or other aspects of the
social welfare state.
At
the front of the line is Spain. The rescue of its banking sector has not
brought political relief for Spain’s conservative government, which has
repeatedly requested looser terms and tried to avoid a larger, more stringent
bailout of the state’s coffers.
But
in Spain, Italy and even France, governments that lose the ability to refinance
debt at palatable rates may find themselves pushed to the wall earlier than we
expect, if the fallout from a Greek exit is not properly managed. Germany,
meanwhile, has so far managed to keep a lid on anger among its voters about
transfers to bail out euro zone partners; with elections scheduled there in the
third quarter, this firewall, too, may be fraying.
So
be wary of a Greek exit in 2013, an upsurge in bond spreads and then a calming
of markets after German and European Central Bank half-measures: all leading to
a showdown over Spain in 2014.
4.
America’s deficit disorder
The
re-election of Barack Obama and a gentle watering down of the GoP House raised
prospects for a compromise deal on US current account deficits. In the end, the
deal proved just another round of can-kicking, though this time the can only
traveled two months down the road. Another showdown — this one over the
so-called “debt ceiling” — will play out before spring.
The
downgrade of America’s AAA credit rating by S&P in 2011 suggested that
Washington cannot continue its charmed relationship with bond markets
indefinitely. But enough Republicans harbor an ideological allergy to tax hikes
and believe that bond markets have no conceivable alternative to Treasuries
that they would be willing to force America into default.
If
so, America’s day of reckoning on fiscal matters will move forward rapidly as
interest rates soar and foreign creditors demand action.
Would
this be enough of a shock to untangle American policymaking? In the longer term
none of the chess moves on deficits matters much. Structural reform of social
entitlements, military spending and tax policy are needed to change the
trajectory that now has American national debt topping 100 percent of GDP by
2020.
Some
of the constituencies involved will dig in fiercely: the elderly regarding
Medicare and Social Security pensions, homeowners and banks regarded the
deductibility of mortgage interest, the rich and the non-profit sector
regarding tax breaks for charitable deductions. But these issues will determine
much about the recovery of the US post-2008 as a dynamic, job creating economy
— and as the holder of the global reserve currency. If Obama chooses to kick
these cans into the yard of the next administration, global markets may punish
the United States before the cans stop rolling.
5.
Sahel in a handbasket?
The
popular rising that chased Libyan dictator Muammar Gaddafi from power freed
Libyans to sort out their own affairs but had unintended consequences
reverberating throughout neighboring countries. In early 2012, Tuareg rebels
took control of northern Mali after a coup dislodged its government.
Ultimately, the Tuareg movement was chased away by hardened fighters armed with
weapons taken from Libya’s vast stockpiles, who claim allegiance (if not actual
links) with Al Qaeda.
Subsequent
intelligence reports suggest a mixture of groups — including Al Qaeda in the
Islamic Maghreb (AQIM) and Nigeria‘s Boko Haram — have congregated in northern
Mali and forayed into Niger, Burkina Faso, Benin and northern Ghana.
Particularly worrisome is the Boko Haram activity, since that group has already
stepped up attacks inside Nigeria, making some parts of the country no-go zones
for Nigerian Christians. The country suffered its worst ever year of violence
in 2012.
Nigeria’s
President Jonathan Goodluck in December requested US government aid in battling
the group the government once downplayed. While direct US intervention is
neither wanted nor likely, America’s AFRICOM has been increasingly active,
along with French and Algerian intelligence agencies. Both are playing a
leading role helping ECOWAS prepare for an intervention to reclaim northern
Mali. A second coup in Mali in early December muddies waters for ECOWAS there
as intervention plans await final approval from United Nations Security
Council.
In
Nigeria and several other countries in the region, the insurgencies fueled by
ethnic and religious groups and armed by traffickers tapping Libyan and many
other sources of weaponry, could pose a threat to governments across the Sahel.
Niger, Chad, and of course Mali, all have felt the sting of these uprisings,
but the regional response has been too weak to counter the trend.
