U.S. Presidential Debate – A Foreign Policy Primer

U.S. Presidential Debate – A Foreign Policy Primer

With two weeks left before election day candidates Obama and Romney tackle foreign policy issues tonight. If last week’s battle royale over the economy is any indication this promises to be a no-holds-barred verbal slug fest. Tremendous changes have occurred over the last four years in the Middle East, Europe and Asia. Osama Bin Laden is dead, the wars in Afghanistan and Iraq are over. Dictators have fallen from decades in power. China continues to rise.

Still, the global economy has yet to fully recover with Europe teetering on the edge of recession and Japan mired in stagnant economic waters. Middle East political movements struggle to sustain new democracies and China’s economic and military advances raise questions about Asia’s future balance of power.

Here’s a primer on some of the big issues likely to be addressed and a few questions that need to be asked. The debate begins at 9:00pm EST.

Middle East

Since Obama took office four years ago a surprise Arab Spring swept across the region. Libya, Egypt, and Yemen saw leadership changes brought about by popular uprisings. Syria is still mired in its own civil war with little hope of quick resolution. While nascent democracies sprung up after the overthrow of decades of dictatorships serious questions remain about their stability and policies going forward.

For now the Muslim Brotherhood in Egypt holds a tentative control with the military watching from behind the scenes for any signs of the nominally secular government turning into an Islamist stronghold. Libya meanwhile struggles with establishing a strong central government as events in Benghazi, where the U.S. Consulate was destroyed and diplomats killed by a terrorist attack, demonstrate.

In Iran a nuclear standoff continues with enrichment activities racing ahead and Israel threatening attack (though as sanctions take a deeper bit out of the Iranian economy Israeli President Netanyahu has eased off the war rhetoric).

The U.S. military withdrawal from Afghanistan marks the end of major U.S. operations in the region, closing a decade-long period of intervention initiated by the former Bush administration. The Afghanistan government still struggles with providing basic services to its people and countering threats of Taliban violence.

What will Obama or Romney do to further promote democracy in the Middle East without inflaming anti-U.S. sentiment? How can Iran’s nuclear ambitions be eliminated? Is Afghanistan going to slip into chaos once U.S. troops leave?

Asia

China’s inexorable rise gathered speed since January 2009. It completed construction on its first aircraft carrier, became the world’s second largest economy, and has survived the worst of the global economic meltdown with one of the world’s best growth rates. U.S. economic ties with China remains strong which has helped keep domestic inflation low.

Potential flare-ups, however in the South China Sea (with neighbors Vietnam and the Philippines) and East China Sea (with Japan) linger behind the facade of China’s “peaceful rise”. A once in a decade political transition is also underway with China’s new leaders expected to be officially acknowledged on November 8th and installed in March, 2013. Trade frictions are on the rise with increased WTO cases on goods ranging from tires to solar panels. The economy has slowed considerably from the unsustainable double-digit sprint of years past. Some economist predict much tougher times ahead as China’s new leadership faces a country in transition unlike any other time in recent history.

North Korea too has changed since Obama first took office. A young and relatively untested new leader, Kim Jong-Eun rose to power seizing every major military, political and governmental role in quick succession since his father’s passing. In one of the world’s most isolated regimes the family political dynasty remains intact. Hopes for significant economic liberalization have so far failed to materialize and tensions persistent on the world’s last Cold War front.

What does China’s rise mean for U.S. security and economic growth? Is China’s strategic intent to replace the U.S. as main regional influence and what will the U.S. do about it? What will you do as President to reduce tensions on the Korean peninsula and end the decades-long hostilities between North and South Korea?

Europe

Germany, the powerhouse of the continent, has lowered growth forecasts to a barely treading above water 1% for 2012. Most were hoping that the manufacturing giant could sustain strong growth against the headwinds of Spanish, Greek, and Portuguese recession along with a lackluster UK and newly integrated eastern European economies.  As the world’s engines of growth stall one-by-one, the threats of a larger global recession increase, as the IMF has warned with increasing regularity.

How will the European slowdown affect the U.S. economy and can the U.S. avert even more economic troubles if Europe stalls?

Terrorism

Attacks on the U.S. Consulate in Benghazi and a recently thwarted attempt in Jordan in addition to continued fronts in Yemen and now Mali show that the treats of terrorism have not abated. As long as arms continue to flow into the hands of radical groups and weak or failed states remain the threat of violence will continue. Concerted and sustained action can, however minimize the depths of the threat and seriously disrupt organizations bent on destruction.

What can and should the U.S. do to further combat terrorist organizations? Is the Al-Qaeda threat still a focal point of U.S. foreign policy?

For updates from Klein’s Commentary connect via email, Facebook or Twitter (links above).

World Politics Review Article on the Global Middle Class – Part II

World Politics Review Article on the Global Middle Class – Part II

The damage done to the global middle class, while significant, is not irreparable. The solutions are as varied as the countries themselves, but they all share several key features that influence whether a consumer-driven economy will flourish or not.

First and foremost is access to capital for small and medium-sized enterprises. In developed and developing economies alike, funding all but dried up during the economic crisis that began in U.S. and quickly spread around the world. Especially during recessionary periods, start-ups are critical job creators compared to existing firms, which tend to shed employees. During the 1991 and 2002 U.S. recessions, start-ups added nearly 3 million new jobs, while established firms laid off 4 million to 5 million people, according to a Kaufmann Foundation report.

Misguided government regulations have also been thwarting the return of the middle class. Breaking up the excessive influence of conglomerates in emerging economies is another way to create room for the middle class, but doing so often proves to be difficult and controversial. Policymakers, no matter where they are, need to shift their fixation from top-line statistics like GDP growth, which can obscure wealth-gap and purchasing-power problems, and focus more on the health and size of their middle class. Until the world’s middle class recovers, there will be no global recovery.

Full article is available on the World Politics Review website.

Photo: President Barack Obama signs the Middle Class Tax Relief and Job Creation Act of 2012 in the Oval Office, Feb. 22, 2012 (White House photo by Pete Souza).

The Week That Was (and Wasn’t)

Walking Backwards into the Future – In a 5-4 Supreme Court ruling upholding President Obama’s healthcare bill the U.S. finally joined the rest of the developed world of 60 years ago with universal coverage. China joined the space world of 50 years ago with a successful orbital docking mission, including a safe return to earth of three astronauts and China’s first woman in space. Read more »

Blinded by the Euro Light – Hopes for a breakthrough on several fronts in the global economy came to naught this week. EU leaders met, and discussed, and discussed some more. Solutions to the spread of financial distress affecting France, Italy, Greece, Spain, and Cyprus appeared at hand. Markets rallied after the European Stabilization Fund was announced which would buy sovereign debt and lend to banks across the EU. The compromise solution avoided the more prickly bailout mechanism of direct loans to financially unstable countries. Have any of the foundational problems changed? Sadly, no. Read more »

Financial Deception, Not Just for Wall Street Anymore – Were the financial mess in Europe not enough to make people wonder about the global economy more banking scandals erupted, this time in the UK. Collusion on bank-to-bank lending rates first discovered at Barclay’s are now suspected across a number of other banks. Not only do these rates directly impact financial performance, they are supposed to be a bell-weather of economic activity. If the instruments of market temperature-taking are faulty then a host of undiscovered ills will erupt yet again in crisis. Read more »

A Tentative Peace, and More War – China and the Philippines withdrew their ships from the Scarborough Shoal after a tense standoff in contested fishing waters. Wars have started over lesser disagreements. There’s no end sight to the cycle of provocation and pushback. ASEAN has failed to act – non-claimant states are loathe to risk their economic relations with China by siding with their southeast Asian counterparts. And China is quick to react to perceived slights using import bans including Norweigan fish after a Dalai Lama visit (no more smoked salmon from you, literally). Philippine fruit was the latest during the recent stand-off. The Chinese government also banned tourist travel (yes, travel agencies still need government approval to organize trips from China to other countries). Read more »

If you’d like to receive email updates from Klein’s Commentary connect with email, Twitter or Facebook.
 

 

 

Blinded by the Euro Light

Hopes for a breakthrough on several fronts in the global economy came to naught this week. EU leaders met, and discussed, and discussed some more. Solutions to the spread of financial distress affecting France, Italy, Greece, Spain, and Cyprus appeared at hand. Markets rallied after the European Stabilization Fund was announced which would buy sovereign debt and lend to banks across the EU. The compromise solution avoided the more prickly bailout mechanism of direct loans to financially unstable countries. Have any of the foundational problems changed? Sadly, no.

Even though the immediate money squeeze has been solved broader concerns remain. How do European countries orient themselves back to growth? Unless they succeed in upping their competitiveness both banks and governments will be in the pauper’s line , hands outstretched for another bailout. Spanish banks avoiding default is welcome, but that’s little solace for the 25% unemployment rate except, for the moment, to keep it from rising further. Will banks start lending to small and medium sized enterprises and stop making bad loans on real estate? Let’s hope so.

Back to “The Week That Was“.

Mid-Day Note: Global Economic Data Disappoints

Mid-Day Note: Global Economic Data Disappoints

U.S. economy still lags.

Today’s U.S. housing and consumer confidence figures failed to signal a real economic rebound. This after Moody’s downgrades of fifteen banks last week, including Goldman Sachs, and earlier Federal Reserve data* showing U.S. household net wealth plunging over 40 percent between 2007-2010. That’s an entire generation of wealth creation gone in three years. On a slightly positive note net wealth has been growing slowly since then, but for whom? Mainly shareholders and executives. Corporations continue to sit on cash ($1.7 trillion give or take) while the middle class, hit hardest by the downturn remains worst positioned to recover.

The temperature continues rising on a host of ills begging for resolution (jobs, insurance, income gaps), but as election season shifts into full gear expect more political paralysis in Washington, not less. Still, some growth, any growth, is better than contraction even at a paltry 1.8%. Lower gas prices may pump a few extra dollars into pockets over the next few months. Major concerns of course remain. Where will growth emerge if consumers continue to face pressure from all sides – stubbornly high unemployment, marginal home price increases, expiring tax breaks and soaring healthcare costs. Expect a long, hot summer.

Europe – Cyprus and Spain join the bailout line.

Moody’s downgraded Spanish banks in a widely recognized crisis of financial confidence. Now one of Europe’s larger economies officially joins the bailout que. Add Cyprus’s estimated 5-10 billion euros, a pittance compared to Greece, and Europe’s southern rim continues unravelling. Brussels won’t yield money without constraints. The only question left, at what cost in the short term versus broader integration later. The focus needs to remain firmly on the moment as the European Union will need plenty of time to hash out new monetary rules among its 17 member countries and 23 official languages.

Japan – Nuclear power returns but jobs may not.

Nuclear plants are coming back online absent energy alternatives (including a fragmented electrical grid and untapped geothermal resources). That will at least avoid production shutdowns that hobbled 2011 electronics and automotive manufacturing. Tepid recovery following last year’s disaster remains on track, but a track to where? Longer trends still point downward. Major manufacturers are off-shoring in droves, responding to light domestic demand, a troublesome exchange rate (making exports exceptionally expensive for overseas buyers), and greater growth prospects elsewhere. With all three of the world’s traditional growth engines stalled or sputtering, sources of new growth remain a mystery.

China – Slower growth than expected.

Serious headwinds continue to mount in China’s struggle to maintain history-defying growth. HSBC’s June flash purchasing manufacturer’s index fell to 48.1, it’s eighth consecutive month of contraction staying below the critical 50 mark. Accurate statistics continue to be problem, but if electricity consumption and coal inventories are any gauge, especially in China’s southern production heartland, then a slowdown has been building for some time. Power generation is barely growing as it approaches early 2010 lows, and this time absent a major global economic shock like the U.S. financial crisis. Strains in Europe alone don’t account for this slowdown. Chinese stimulus efforts are expected to fall far below their previous $550+ billion injection during the leanest years (2008-2009). Officials know that only so much demand exists for infrastructure and construction projects, their preferred stimulus sectors of the past.

Bottom Line:

Tepid U.S. recovery continues but rising risks suggest more slowing ahead. Europe’s ills are the near term weight, but China has a long way to go towards structural change and real consumer-driven demand. With their own power transition incomplete until the end of the year don’t expect dramatic upside surprises any time soon. If/when politicians on any continent finally resolve to get more money into the pockets of the middle class, then recovery prospects will finally brighten.

* For Federal Reserve household wealth data see:
htp://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

Photo: Brian P. Klein
Euro In or Euro Out?

Euro In or Euro Out?

A wave of relief greeted overseas markets last night after Greece’s second round election results came in. New Democracy (a pro-bailout party) won approximately 30% of the vote, narrowly defeating Syriza (anti-bailout) with 27%. Initial sentiment favored the stability of the European Union and the Euro as its currency.

Optimism quickly faded as more practical concerns returned, and rightly so.

This election was never really a referendum on the Euro. In reality most of Greece’s major parties don’t favor a break with Europe’s currency union except for the Communist (KKE) which won a mere 12 out of 300 seats (4%), down from their previous 26 seats in the May elections. Had the anti-bailout crowd won the day Greece may have drifted into a de facto exit (no funds from Europe, government goes bust, hello Drachma). But that risk still remains if real reform doesn’t breath life into the rapidly deteriorating economy – no easy task with the raft of obstacles to be negotiated in such a short period of time.

First there needs to be some semblance of political stability. New Democracy still needs to form a coalition government to get anything done. They will likely turn to the Socialist (PASOK) party which wants to alter the terms, but not reject outright, the bailout plan. Significant government budget cuts and lowering debt (aka austerity) are the preconditions for loans to stabilize government finances.

Once the new Greek government forms they must still agree on a unified negotiating stance regarding the bailout. Europe must concur, then at least some of the reforms have to be implemented before the money will start to flow. Of course there must be some short-term benefits or any coalition will falter, but the temptation to follow well worn paths of stagnation will be difficult to avoid – pouring new found funds into leaky political buckets for example. Even still, new job creation doesn’t happen overnight and economies are more like ocean liners than speed boats trying to change direction (though to stretch the analogy it may be easier once the engines have slowed, but not stalled completely).

Unfortunately none of the current political wrangling addresses Greece’s core problems – high unemployment, corruption, inefficiency and year’s of rising labor costs without gains in productivity that have crippled the country’s competitiveness.

Too much indiscriminate budget cutting could very easily send Greece into depression, political paralysis, and continued social unrest (clearly not the path that increases middle class job growth, investment, and business creation). More stimulus won’t do the trick either if it follows the tried and failed policies of the past – wasteful government spending and bloated bureaucracies that don’t add real and lasting value.

Greece’s mess remains largely self imposed and the solutions, though daunting, are well within reach. Political unity however may be harder to sustain than agreement on lofty job creating plans and policies.  Markets remain wary because Greece’s election hasn’t solved the country’s key problems. Greece isn’t even the worst of Europe’s difficulties. The much larger economies of Spain and Italy continue flirting with disaster and France remains on unstable ground. More volatility in the weeks and months to come reflect the current economic reality that is Europe far more than debates over whether the Euro or the Drachma will keep the lights on.

 

Photo: Parthenon, public domain.