Agenda: Fourth Quarter Forecast
Video Transcript:
Global unease and instability, particularly in Europe, are hurting financial markets, distracting governments and undermining confidence. Rodger Baker, reflecting STRATFOR’s latest forecasts, discusses what is ahead in the main theaters of concern.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
Colin: These are indeed troubled times. Unease and instability are perhaps a mild way of describing the world we live in. This is hurting financial markets, distracting governments, undermining confidence. So based on STRATFOR's very latest forecast, what's ahead in the main theaters of concern?
Welcome to Agenda with Rodger Baker. Rodger, let's start with Europe, which arguably is the main area of concern. The president of the European Commission has been talking of a new road map to deal with the eurozone's problems, but can they really paper over the cracks and patch things up?
Rodger: We see really in Europe this parallel series of crises: there's the financial and banking crisis that we see; there is a crisis of confidence between the population and the economic and political elite; and underneath all of this there really is a crisis of -- what is the European Union? Is it still beneficial? And how do you balance national self-interest with this concept of broad-based European interest?
I think one of the things that we're going to see in this quarter is the Europeans, in many ways, pulling tighter together ultimately in trying to hold this system together. If you think about the European Union, it was established, in many ways, as a political entity to hold German and French competition in check. It was established to, in some ways, prevent a resurgence of war in Europe. It ultimately took on a roll of balancing out Soviet influence, and it eventually evolved into this larger economic union. If you break this union apart, a lot of those underlying aspects of Europe that have been around for centuries and centuries suddenly are set free again. And the idea of Europe potentially moving back into a state where there's heavy state-to-state competition, where you could even start seeing intra-European war once again -- certainly not in the immediate, but down the road -- is scaring the European elite enough to really have them pull together.
If there's another small crisis -- if there's a crack in say the Italian government or a ripple effect in European banking -- that may be enough even for the Europeans to just change the rules and pull this tighter. But those other issues -- the issues of the trust of the elite, the issues of national self-interest, the divisions between the styles of economies in northern and southern Europe -- these are going to continue to simmer and as we move down the road, in quarters, in years, those I think are ultimately going to be what shape the European experiment.
Colin: There must be a chance that Russia, with Vladimir Putin due to regain the presidency next year, will seek to take advantage of the political fallout of all of this.
Rodger: We see the Russians already trying to take steps to both take advantage of this and, in some ways, maybe offer some support so that it doesn't fracture too fast and ultimately undermine what the Russians want. In some ways, this crisis in Europe is giving Moscow the opportunity to assert itself more firmly in its near abroad, in former Soviet states who are looking at Europe and seeing that it may not give them the strength that they need to balance against the Russians. In another way though, Russia was counting on Europe as a huge source of financing for its privatization program and we've seen that the Russians have had to now go to the Chinese to draw in Chinese money for privatization rather than the European money, which is something that they didn't necessarily want to do. But in general, the Russians are going to try to play the European crisis to gain strength and to make their position a little bit more firm along the European periphery.
Colin: Rodger, there's also the fallout on China. Growth there is slowing, may now slow more. I see a Peking University study has shown that more than 70 percent of small- and medium-sized enterprises expect either zero or slightly negative growth over the next six months.
Rodger: The Chinese, perhaps more than any other area of the world except Europe itself, have been hit the hardest by this slowdown in Europe. Despite what people may think, Europe is actually a bigger market for China than the United States and it's one that doesn't look like it's going to have a very strong recovery -- certainly not a very fast recovery, even if it's a low level re-stabilization of the European market.
For the Chinese, they had a short-term plan of massive government stimulus and spending to try to keep their economy going, always with the anticipation that this European market would pick back up, that they would rebuild consumption rates and kick-start the Chinese economy's basic engine of exports.
That doesn't look like it's going to happen. We're seeing this problem reflected not only in the Chinese businesses that are saying they're not going to be making profits; we're seeing an increase in the number of business managers who are simply closing down shop in the middle of the night and running off with whatever money is left and unpaid wages. These are exacerbating the Chinese economic problems.
All of this is coming at a time where China was already battling inflation. It's battling a housing bubble. And so for China right now they're in a very, very difficult position. And their biggest fear is that in the middle of all of this, all of this domestic problem and the economic problem, that some external power is going to come and start to exploit it. And from the Chinese perspective, that is this push by the United States to re-engage in Asia-Pacific and they're watching very carefully as Obama prepares to come to the East Asia theater in November for both APEC and the East Asia Summit.
Colin: Yes, and we have Secretary Clinton writing a seminal article in Foreign Policy Magazine, talking about America's Asia-Pacific century -- something you and I discussed just last week.
Rodger: Yeah, what we're seeing from the administration, or from the State Department, is this push on a full front effort in Asia that balances economics, it balances political relations, it balances social and soft-power relations and even expansion of military activity and cooperation in the region. As the U.S. phrases this, this is about engaging the most dynamic part of the world, a huge part of the global economy. From the Chinese perspective, of course, this is about constraining Chinese opportunities and Chinese capabilities.
Colin: Let's also look quickly at the Middle East. The Hamas-Israel prisoner swap is perhaps a good sign, but the Arab Spring -- so-called -- has really faded. And there's American withdrawal, not just from Iraq, but also from Afghanistan as negotiations with the Taliban continue and now, I see, the Indians striking a deal to train Afghan forces.
Rodger: As we look at the Middle East, certainly that's been the most dominant issue for the United States and in many ways for much of what's going on in the world for the past decade. The U.S. is finally reaching a point where, not only does it want to get out, it pretty much has committed itself to draw down forces there. The concern is a potential change in the strength of Iran's position in the region. We've seen this case that's just been brought up in the U.S. courts about a potential Iranian plot to assassinate Saudis on American soil. As it's laid out it sounds pretty odd to be truly a central Iranian government plot. Nonetheless, it doesn't hurt the U.S. to keep those tensions going between the Saudis and Iranians at this point.
The U.S. though is really looking to remove itself largely from the area, maybe to find other countries to be able to come in and counterbalance both that Iranian rise and some of the instability that may play. India -- as a case in point -- India has been working very quietly with the Afghans for a long time and trying to further its operations in there, in part as a counter or at least a way to keep an eye on Pakistan. It's done so fairly low key; now it's starting to step that up. So we're seeing some changes in the way in which that regions going, but over the next several months and the next year or two, maybe a lesser role for the crisis in the Middle East as compared to other things going on in the world.
Colin: Rodger, we'll have to stop there now. Much more to discuss of course, but our listeners can read in detail STRATFOR's full fourth quarter forecast online at our website: www.stratfor.com. From Rodger Baker and me, Colin Chapman, until the next time, goodbye.
