Globalisation, which fed rapid growth during times of plenty, has shown it can turn against states in times of bust, writes Patrick Smyth, Foreign Editor
2008 WILL go down as the Year of the Correction, to borrow the euphemism beloved of economists but which scarcely does justice to our collision at breakneck speed with an economic brick wall. Reality check time.
Economically and politically we have seen extraordinary reversals of fortune and direction that have led Le Mondeto describe 2008 as the first year of the new century.
The widespread confidence that global capitalism had found a way to defy its cyclical nature has been blown away by the bursting of the speculative bubble of subprime lending, shaking political certainties and in no small measure contributing to the election of Barack Obama - and indeed to the remarkable political revivals of both Gordon Brown and, from the grave, John Maynard Keynes.
When Obama enters the Oval Office on January 20th he will contemplate global challenges unlike anything faced by any of his predecessors - two simultaneous landwars, in Iraq and Afghanistan; the worst recession since the 30s; a Chinese economic superpower that holds 10 per cent of a desperately weak US currency; a $10 trillion public debt; a resurgent oil-rich Russia; not to mention fraught relationships with Iran, Russia and Pakistan, and a continuing impasse on the Palestinian-Israeli front.
His first challenge, as he has acknowledged, will be to manage expectations.
The economic context is desperately constraining. Tight credit and falling global demand are setting off the first decline since 1982 in world trade - 2.1 per cent in 2009, says the World Bank - touching off a wave of job losses and consequent political turmoil in rich and poor countries alike.
Globalisation, which fed rapid growth during times of plenty, has shown that it can quickly turn against states in times of bust. Depressed car sales in the US, for example, are spreading through the global supply chain, eliminating jobs for car workers in the US and Japan and labourers in South Africa who mine the metals used in car parts.
The impact on China, like India one of the rare lights in an otherwise gloomy global economy, is particularly troubling. Beijing announced two weeks ago that its November exports dropped 2.2 per cent after a 19.2 per cent surge in October. Imports took an even steeper drop, falling 17.9 per cent. Growth there is slowing to its lowest level since 1990, curbing Chinese demand and sucking oxygen from the global economy.
Critically, Obama must face up to a reality, acknowledged by both conservative and liberal US commentators, of American relative decline in the face of the emergence of a multipolar world in which China, India, and Russia increasingly erode US hegemony and in which, as US intelligence reports predict, it will by 2025 maintain a decisive edge only in military hardware.
His European friends, of which there are already many - and indeed not a few would-be imitators - will expect a cautious foreign policy from his pragmatic, centrist secretary of state, Hillary Clinton. But they will also hope to see a distinct shift away from US unilateralism and engagement with others through the UN. Not least, they hope that the US will be willing to throw its weight behind a successor to Kyoto.
Reforms of such multilateral institutions as the UN security council, to bring in emerging powers like India and Brazil, and the possibility of replacing the post-war Bretton Woods regime may move up the agenda. Obama, despite his election rhetoric against the war, is unlikely to extract US troops any faster from Iraq, but has already made clear he will close Guantánamo and has backed a new troop surge for Afghanistan.
The same imperative for increased co-ordinated international action to cope with the world financial crisis has also put increased pressure on Ireland from fellow EU member states over our rejection in June of the Lisbon Treaty. An emerging consensus, with Germany's notable exception, on a strong union-wide fiscal stimulus, the political and military interventions in Georgia and Chad respectively, and an exceptionally active French presidency in the latter half of the year also reflected that EU ambition to play a more effective role on the world stage. It is one which most believe cannot be achieved without institutional reform.
The concessions to Ireland at this month's summit of a permanent right to a commissioner and of legally binding declarations on taxation, defence, and social policy have paved the way for a second referendum next autumn.
The Government hopes that the legal reassurances, public concern over the economy, and a more vigorous campaign can swing sufficient voters. But there is considerable concern among policymakers about the implications for Ireland's relationship with the EU should they not succeed. Some fear that the country would be pressed by partners to accept a reduced, peripheral role in the Union's decisionmaking structure., a prospect that fills them with dread.
Can we make another correction? Yes we can. Probably.