ILLUSTRATION: YU SHA
Posted on 03/31/2003 10:18:50 AM PST by Enemy Of The State
Will the war kill globalization?If multilateral cooperation is to survive, the rift between the pro- and anti-US camps must be healed
By Brigitte Granville
Monday, Mar 31, 2003,Page 9
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ILLUSTRATION: YU SHA |
International economic agreements have never been easy to make. Reaching consensus among the WTO's 145 members, where one dissent can cause utter disarray, was difficult even before the world's governments divided into pro- and anti-American camps. Indeed, multilateral trade agreements were being eclipsed by bilateral deals, such as between the EU and various developing countries, long before the divisions over Iraq appeared.
Of course, the problem goes deeper and not everything that touches globalization has turned dark. Immigration controls, for example, have been relaxed in several European countries (notably Germany) due to declining populations and educational shortcomings. But bad economic times are rarely moments when governments push bold international economic proposals.
Economic fragility among the world's leading economies is the biggest stumbling block. The US and the EU have few fiscal and monetary levers left to combat weak performance. Short-term interest rates in the US, at 1.25 percent, are at a 40-year low. The US Congress has pared US$100 billion from the Bush administration's 10-year US$726 billion tax cut plan and the US's projected 10-year US$2 trillion budget deficit will grow as the Iraq war's costs mount, with President George W. Bush submitting a supplemental request for US$80 billion (0.8 percent of GDP) in extra military spending this year.
Such spending risks absorb productive resources that could be employed more efficiently elsewhere. This was demonstrated by the rapid growth of output and incomes that followed the arrival of the so-called "peace dividend" which came with the Cold War's end. Moreover, others (Arab countries, Germany, and Japan) will not cover the US' military costs, as in the 1991 Gulf War. We are now back to the more usual situation where war is financed by government debt, which burdens future generations unless it is eroded by inflation.
In the Eurozone the scope for fiscal stimulus (lower taxes and/or higher public spending) was constrained until war blew a hole in the Stability Pact, which caps member budget deficits at 3 percent of GDP. The limit will now be relaxed due to the "exceptional" circumstances implied by the Iraq war-providing relief, ironically, to the war's main European opponents, France and Germany. But the European Central Bank remains reluctant to ease monetary policy.
In Japan, there seems little hope that the world's second-largest economy can extricate itself from its homemade deflation trap to generate the demand needed to offset economic weakness elsewhere in the world. Four years of deflation and a drawn-out banking crisis offer little prospect of economic stimulus. Higher oil prices and lower trade turnover aggravate the problem.
But high oil prices threaten the health of the entire US$45 trillion world economy. Oil prices have flirted with their highest level since the Gulf War and will go higher if Iraq's oil infrastructure (or that of neighboring countries) is damaged.
The adverse effects on growth will be felt everywhere, but nowhere more, perhaps, than in the energy-dependent South Korea and China. Although China's official growth rate reached 8 percent last year, its high budget deficit and large stock of non-performing loans (about 40 percent of GDP) mean that it cannot afford any slowdown if it is to keep people employed, especially in rural areas.
Some poor economies will be directly damaged by the loss of the Iraq market, which accounts for roughly 40 percent of Vietnam's tea exports and 20 percent of its rice exports. For others, weakness in the world's big economies may be compounded by political risks.
Turkey has suffered from rising oil prices, falling tourism income (its second-largest source of foreign exchange), and declining foreign investment. Now the Erdogan government's lukewarm support for US policy on Iraq exposes Turkey to doubts about America's commitment to its economic well being, and global markets may question its ability to service its US$100 billion public-sector debt this year and next.
The test of whether multilateral cooperation can be put back on track, and reconciled with America's war against terrorism and the spread of weapons of mass destruction, may come with Iraq's reconstruction. With the costs of ousting Iraqi President Saddam Hussein and occupying Iraq likely to run at anywhere from US$100 to US$600 billion over the next decade, the US will want to "internationalize" Iraq's reconstruction.
Iraq's US$20 billion annual oil revenues cannot meet such costs. Indeed, those revenues will scarcely cover the costs of rebuilding basic infrastructure, feeding and housing displaced populations, and paying for the country's civil administration.
After the ouster of the Taliban last year, the US$4.5 billion of reconstruction aid pledged to Afghanistan's new government demonstrated that a multilateral approach to reconstruction is possible. But the poisoned atmosphere that followed the UN debates on Iraq may prevent the US from getting its way here. Already, French President Jacques Chirac has promised to veto any UN Security Council resolution on reconstruction that seeks to justify the war. If the world economy is to recover, the diplomatic failures and name-calling must end.
Brigitte Granville is the head of the International Economics Program at the Royal Institute for International Affairs, London.
The great wheel of Globalization will continue to turn with or without the united states. The antics of this president work to feed its power this beast cannot be stopped.
God bless our troops and our Commander-in-Chief.
If globalization is defined as One-Way Industry Destroying Trade Deals, Open Borders, and Unlimited Immigration I most certainly hope so. "Globalization" is one of the most over-used words ever conjured up by the know-nothing Ivory Tower elite. The way it is used conveys the (false) impression that somehow international trade never existed before the Ivy League Money Changers dreamed up their "Free Trade" theories that are now treated as a "Religion" among the faithful Wall Street/Beltway Crowd. It's always been a sham.
Please, tell me what you are referring to.
LVM
Hmmm. So far Bush has renounced Kyoto, renounce the War Crimes Tribunal and taken on two engagements without UN approval - and his actions before the UN, rather than being a submission to that body, instead revealed to many, many Americans just how idiotic and impotent that body is.
So what, then, has Bush done that has made globalism stronger?
Regardless of the outcome of this war, the world will in the end extract a great price from America for our aggression on a sovereign nation. I know many out there will dismiss my claims, but it will take decades to undo the mistrust that we as a nation have sewn in the world. The days when one nation could war with another and prosper has been gone for nearly a century. Most nations today realize that war is a luxury that few can afford.
We through our selfish ideology and classifying other nations as an axis of evil have invited the world to unite against us.
You said it and nailed it on the head! Reality BUMP!
Oh kumba-frikin-ya - another moral relativist tries to make gray what is black and white.
Luxury? A friggin' LUXURY? Yeah, and I guess the twin towers are a luxury this country can no longer afford, either, because folks you are too scared to label as evil attack them and brought them down. And the parts of the world who oppose us either have illegal business interests with Iraq or are tin-pot dictators who don't like the precedent of having a tyrant brought down.
Such an eloquent defense of your position! Reviewing your posts, all I see is negativity about EVERYTHING. And even your tag line is devoid of facts - the HSA is hardly a sponsor of the doom-and-gloom you state in your tagline.
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