Friday, November 19, 2004



How to encourage widespread security is the subject of a report that the S-G of the UN has requested.

On December 1st, he will receive a report by a high-level panel on collective security in the face of the new global threats. It is a report that may help in deciding the organisation's fate.

The principle at stake is whether the world accepts that its armed actions should be governed by commonly agreed rules of international law. Strobe Talbott, a deputy secretary of state under Bill Clinton [and panel nominee], cynically notes the alternative: "The sheer pre-eminence of American power could, in itself, be the ordering and taming principle of a disorderly and dangerous world."

Delegates at this summer's Republican convention erupted in deafening applause when Dick Cheney, the vice-president, said that Mr Bush would "never seek a permission slip to defend the American people".

This last attitude may well be common in all five of the permanent members of the UN Security Council. Nevertheless only one such official attitude would collapse the UN system, and globalisation; the world might then fracture into security zones, each with its own military and central banking system. There would of course be a knock-on effect for the G8.



Should China be offered membership of the G7/G8? It's surely capable of sharing the responsibilities of leadership in global security and economic matters.

China's involvement in Asia. The growing influence and power play is shown here.

Beijing is pushing for regional political and economic groupings it can dominate, like a proposed East Asia Community that would cut out the United States and create a global bloc to rival the European Union. It is dispersing aid and, in ways not seen before, pressing countries to fall in line on its top foreign policy priority: its claim over Taiwan. . . American military supremacy remains unquestioned, regional officials say. But the United States appears to be on the losing side of trade patterns.

China's involvement in South America.

The United States, preoccupied with the worsening situation in Iraq, seems to have attached little importance to China's rising profile in the region. If anything, increased trade between Latin America and China has been welcomed as a means to reduce pressure on the United States to underwrite economic reforms, with geopolitical considerations pushed to the background.

Driven by one the largest and most sustained economic expansions in history, and facing bottlenecks and shortages in Asia, China is increasingly turning to South America as a supplier. It is busy buying huge quantities of iron ore, bauxite, soybeans, timber, zinc and manganese in Brazil. It is vying for tin in Bolivia, oil in Venezuela and copper here in Chile, where last month it displaced the United States as the leading market for Chilean exports.

Wednesday, November 17, 2004


G8 and NATO (more)

Globalisation involves security.

A paper in July gave an idea of how desperately security is needed.

Extracts are:
"If a large majority earns much less than the average income, it may be easy to obtain a majority in a universal (or wide) suffrage democracy in favour of seizing the
wealth or incomes of the rich minority. Democracy then becomes populist, as it
has long been in much of Latin America."
[A striking example of the self-defeating nature of populism is Argentina. In 1950, Argentina’s real gross domestic product per head in 1990 international dollars was $4,987. By 1998, after decades of populism, it was $9,219. By way of contrast, Italy, from which many Argentineans had come, had a GDP per head of $3,502 in 1950 and $17,759 in 1998.]

"Over the past two decades, the accelerated growth of a number of very large, poor countries, above all, China and India appears to have reduced global inter-personal inequality, somewhat. But a huge number of countries containing some 1.5bn people lag ever further behind"
"gaps in living standards will continue to grow between the richest and the poorest countries in the world. Today, that ratio is some 75 to one. . . In half a century, it could easily be 150 to one."

The United States and the European Union have different strategies for addressing this vital problem. Could they ever agree on only one strategy?

Tuesday, November 16, 2004


G8 and NATO

The members of the G8 are the UK, Germany, France, Italy, Japan, Canada, the US and the Russian Federation; the European Union participates and is represented by the president of the European Council and the President of the European Commission.

The overall framework of the G8 may change soon, because the United Nations S-G set up a special committee some time ago to recommend reform of the UN. Moreover, in addition to this framework of the G8 changing, the framework for NATO will also change. At present the responsibilities of the two public organisations overlap - time for consolidation?

NATO is obliged to operate in accordance with the principles of the UN Charter. Article 2 of the 1949 Treaty reads:

"The Parties will contribute toward the further development of peaceful and friendly international relations by strengthening their free institutions, by bringing about a better understanding of the principles upon which these institutions are founded, and by promoting conditions of stability and well-being. They will seek to eliminate conflict in their international economic policies and will encourage economic collaboration between any or all of them."

The head of NATO argues, in today's FT, "that a more political role for his 26-member organisation would improve the relationship between the US and Europe. . . "

A political amalgamation of the G8 and NATO? There is a logic if depoliticisation has to be limited at present.

Monday, November 15, 2004


Politics and Economics

Can national politics be removed from global economics, as the above suggests? For example the US administration is being asked to stop further liberalisation of trade in textiles.

"The American government is under pressure from its own manufacturers to stem a potential flood of Chinese imports. . . A big trade row seems inevitable. American manufacturers want their government to maintain 15 of the 91 quotas that expire at the end of the year-including those for trousers, shirts, sheets and underwear. They also want to keep limits on imports of three products-bras, dressing gowns and knitted fabrics-for which quotas were lifted in 2002 and the "safeguards" subsequently invoked."

In fairness though, America and Europe are already suffering big job losses because of foreign exchange shenanigans, which are designed to make the currencies of their trade competitors very competitive. In the absence of an effective refereeing system, we're getting all-out economic war!

Incidentally, the UK chairs the G8 in 2005.

Sunday, November 14, 2004


New International Financial Architecture

Per Barry Eichengreen, 1999?

The UK government proposes merging the IMF, the World Bank, and the Bank for International Settlements (BIS) to create a single superregulator of financial markets. The French propose vesting additional decision-making power in the Interim Committee of finance ministers, which oversees the operation of the IMF, with the goal of enhancing accountability, allowing the institution to respond more quickly to crises, and not incidentally giving Europe a counterweight to the disproportionate influence enjoyed by the US Treasury as a result of its physical and intellectual proximity to the Fund. The German government has mooted the idea of target zones for exchange rates to prevent currencies from misbehaving. The Canadian government proposes an international credit-rating agency, Jeffrey Garten an international central bank, Jeffrey Sachs an international bankruptcy court. The one thing that all these proposals have in common is their impracticality. They have not a snowball's chance in hell of being implemented. They all assume a degree of intellectual consensus and political will that simply does not exist.
My conclusions and recommendations fall under three headings: crisis management, crisis prevention, and crisis management.
Better information on the economic and financial affairs of governments, banks, and corporations will strengthen market discipline (encourage lenders to ration credit to borrowers who fail to take the steps needed to maintain their financial stability) and help policymakers to identify the need for corrective action. Upgrading the supervision and regulation of financial markets and especially banks will strengthen the weak link in the financial chain. Exchange rate stability will encourage banks and corporations to hedge their foreign exposure, enhancing their ability to withstand unexpectedly large exchange rate changes.
Although some progress has been made in these areas, much remains to be done. A first area requiring a major international initiative is international financial standards. In a world of integrated financial markets, international financial stability is impossible without domestic financial stability. Stabilizing the financial system consequently requires institutional reforms extending well beyond policies toward external trade and payments. . . It extends to the use of internationally recognised auditing and accounting practices so that lenders can accurately assess the financial condition of the banks and corporations to which they lend. It extends etc, etc. . . While these are problems for individual countries to address as they see fit, whether they arrive at an adequate solution is also of pressing concern to the international policy community, given the scope for financial problems to spill contagiously across borders.

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