The American election is over, and things remain pretty much as they were. For Americans, the quadrennial election is a time of self-absorption, as insults hurled by each side are obsessed over while the rest of the world is treated with a degree of indifference. Thus, it is time to consider the state of the rest of the world, beginning with the two other pillars of the international system, Europe and China.
What is a Geopolitical Diary? George Friedman explains.
The European situation continues to deteriorate. According to a short-term economic outlook released today by the European Commission, the European Union is expected to end 2012 with a negative growth rate of 0.3 percent, while the eurozone will likely end the year with 0.4 percent negative growth rate. The commission also lowered its growth forecast for the eurozone in 2013 from one percent to 0.1 percent, and for the wider European Union from 1.3 percent to 0.4 percent. The news exposed growing economic gaps within the eurozone as well as between eurozone and non-eurozone members. Perhaps more significant has been a confrontation between Britain and Germany over the EU budget. British Prime Minister David Cameron declared the budget extravagant in the extreme and said that the United Kingdom would veto it. The Germans urgently wish to preserve the European Union and spread its costs among all members, both those in the eurozone and those outside it.
Britain has been playing its age-old game of retaining its options with both Europe and the United States. In 1992, London resisted the urge to adopt the euro, thereby retaining its own currency as well as EU membership. However, as the price of EU membership rises, Britain has options unavailable to eurozone members. By threatening to veto the EU budget, London has asserted its power and its independence. A falling out between Britain and Germany would not be a trivial matter, as we might recall from history. And it would leave France in an interesting position between the two. While there may be short-term mechanisms available to navigate this latest complication in the EU budget debate, Europe's ability to paper over deeper, irreconcilable differences exposed by the crisis is prodigious.
A similar situation exists in China, where the Communist Party Congress will convene Thursday to rotate its leadership. The country does this every 10 years, but unlike recent rotations, this one is taking place amid an aura of crisis. China's growth rate has declined dramatically, inflation has made many of its products non-competitive, and concerns about internal security and potential foreign threats have created a very different atmosphere than before.
China's new leaders must address the country's economic problems, but as in Europe, there is no consensus about what to do. There is a neo-Maoist movement that wants to recentralize and control the economy. But the wife of one of its leaders, Bo Xilai, was convicted of murder, and Bo himself was expelled from the party. The movement is still there, just headless, so to speak. A different faction wants to further liberalize the economy, but that would likely entail forcing inefficient businesses into bankruptcy and creating unemployment, something that terrifies the Chinese.
The main thrust of the Party seems to consist of people who want the crisis to go away and hope that some tweaking of economic measures will make drastic action unnecessary and avoid social unrest. This faction is divided deeply about specific policy issues and by personalities. Since there is no agreement on the pace and extent of reforms or the degree to which unemployment can be endured, it is not clear what policy, if any, will emerge.
It is interesting to note that the major global powers are all currently in gridlock. The American election has produced a divided Congress; the European need for consensus on all policy matters means that anyone can — and someone will — veto any significant move. The post-Mao Chinese Communist Party has survived by creating consensus and avoiding significant shifts. The internal systems of all three governments are finding it difficult to make decisions.
Of the three, the United States is in the best shape. Its economy is growing, it is internally united (the extremes do not define the American public), and its military continues to dominate the world. The United States is doing relatively well (with emphasis on "relatively"). In contrast, Europe is in recession and its institutions are in danger. China is shifting its economic behavior without being quite certain how to manage it. The country — where getting laid off is more about malnutrition than the portability of retirement funds — risks massive slowdowns in finance and in employment.
Americans are also psychologically better off since state paralysis to them is more comforting to them than frightening. Europeans are more attached to the state as a center of society. China, of course, with all of its reforms, takes paralysis much more seriously. This is the crisis of societies constructed around strong states. The risks of gridlock are much higher than in a nation that treats its government as merely one institution among many.
That is small comfort to a world where things are going wrong.