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UPI's The Year Ahead: Parts 1-5

Dec. 30, 2001 at 7:42 PM   |   Comments

The Year Ahead: An overview from UPI (PART 1)

By MARTIN WALKER, NICHOLAS M. HORROCK AND IAN CAMPBEL

WASHINGTON, Dec. 30 (UPI) -- Editor's note: From the war on terrorism to the mid-term election battles, 2002 will build on the events that made 2001 a hinge of history. But where will the terror war go next? How will the president's popularity hold up if Osama bin Laden is not found or the economy slides deeper into recession? And what will be the domestic fallout of the continuing reverberations of Sept. 11? In this special report, top editors and reporters from United Press International consider these and other questions, offering expertise, analyses and a few educated guesses.


America enters 2002 as the oddest imperial power in recorded history. To the world we look invincible--a colossus with military technology of almost magical powers and military bases everywhere, including the central Asian nations that used to be part of our great broken adversary, the Soviet Union.

But we are a vulnerable colossus too, a free and open society that staggered briefly after a handful of men destroyed two skyscrapers in New York and breached the walls of our military headquarters in Washington. We are nervously aware that the terrorists have violated our homeland and might do so again, perhaps with one of our own awesome weapons, or perhaps with a "poor man's nuclear weapon" such as anthrax.

We have united around a president about whom we were evenly divided a year ago. With mid-term elections looming, we are beginning to debate and divide again over how to defeat our elusive enemy abroad, how to preserve our safety at home, and how large and intrusive a government we need for these tasks.

And as the New Year begins, we wonder if the U.S. economy--whose roaring innovation has fueled our power, confidence and technological superiority with hardly a pause in 20 years--is surging out of a brief recession or just beginning a long one.

But for the moment, America's primary emotion is pride and relief at the apparently easy and overwhelming victory of our forces in Afghanistan. And what forces! Equipped with what weapons! The campaign against the Taliban--Operation Enduring Freedom as the Pentagon eventually got round to calling it--was a high-tech war in the air, with unmanned drone aircraft spying out the battlefield and even firing missiles. Sensors could spot the heat of human bodies in caves that had hidden Afghan warriors for centuries, and satellites could pick up every cell phone call or radio transmission, forcing the Taliban to talk in the open or lose control of their forces.

But it was also a high-tech war on the ground, despite those cavalry charges the Northern Alliance forces staged outside Mazar-e-Sharif.

There were no massed American armies, no armored divisions or even armored cavalry regiments. Broadband communications systems allowed military staffs back in Central Command HQ in Florida to coordinate the ground troops and warplanes with real-time intelligence from the drones. The crucial phases of the ground war were led and fought by a handful of highly trained and futuristically equipped American and British Special Forces, using lasers to spot targets for the precision bombs.

The media seldom saw them. In the final battles in the Tora Bora mountains, the frustrated newsmen knew they were there because they could hear them. The Special Forces fired what the British SAS call 'taps,' short, controlled bursts of two and three rounds, unlike the enthusiastic magazine-emptying long bursts of fire favored by the Afghans.

They came by night in dark helicopters rigged for near-silent running, and seldom bothered to wear a uniform. They disappeared and did their work, identified only by the crash of a precisely targeted smart bomb, or by the short bursts from their guns. And then they left again.

This was not Normandy or Vietnam or even Kuwait City. It was a form of warfare that no TV crews or newsmen had ever learned how to cover, fought by troops who remained anonymous until they left the theater. Security meant no soldier, when one was found, could be quoted by anything other than rank and first name.

Notwithstanding that the Taliban was a rag-tag army, it had been hunted down and destroyed in a little over two months across one the most forbidding battlefields on earth, a terrain that a decade earlier had helped bin Laden and the Mujahadeen defeat the Soviet Army.

Operation Enduring Freedom was chilling not only to the other terrorist states on the U.S. hit list--Iraq, North Korea, Somalia and Sudan--but also to the military planners in Moscow and Beijing. The American Colossus was back.

The U.S. now has bases in Uzbekistan and Tajikistan, only 10 years ago part of the Soviet Union, and flyover rights granted by a half-dozen other former Soviet Republics.

The leaders of the People's Republic in Beijing, willing to joust with Washington over a strayed spy plane last spring, now find themselves cooperating with the U.S. against terrorism at the very moment when we are becoming the dominant power in Central Asia with military bases bracketing them from Afghanistan to South Korea.

Just as with Sept. 11, the next flashpoint may not erupt according to America's schedule. The terrorist attack on India's parliament house just two weeks before Christmas, which followed an earlier attack by Pakistan-based Islamic terrorists on the Kashmir state assembly, came as an unwelcome shock.

The Bush administration had been trying hard to ease the tensions between India and Pakistan, two nuclear-armed states. But their 50-year dispute over Kashmir is made far worse by the way the Pakistan military's Inter-Services Intelligence (ISI) has long sponsored the anti-Indian Islamic terrorists who operate in Kashmir--exactly as it used to sponsor the Taliban.

Administration and humanitarian aid sources have told United Press International that the U.S. is trying to shape a "Marshall Plan" for Central Asia that will help stabilize Afghanistan and its neighbors and bring Pakistan and India into a regional recovery venture, just as the Marshall Plan restored Western Europe after World War II.

There is a drawback even to the pacific aspects of this U.S. interventionism. The overlapping coalitions that Secretary of State Colin Powell has been earnestly forming -- 136 countries have offered support according to the White House--must remind old Moscow and Beijing hands of the NATOs and SEATOs that ringed them in the 1950s. [See accompanying sidebar on Russia.]

It must be clear to Beijing in particular that in 2002, the U.S. military war on terrorism will shift uncomfortably close to its shore. The U.S. is pouring money into the Philippines to assist in fighting al Qaida cells in the south islands and will soon help Malaysia gear up to go after al Qaida there.

Even if Russian and Chinese support for what they see as a war on Islamic terrorism persuades them to go along for the moment, they are bound eventually to treat this U.S. arrival in their neighborhood as a threat. Down the line Russia and China, both of them major powers with their own agendas for Central Asia and the Pacific region, will have to be either appeased or opposed.

If the worldwide attack on terror cells is on schedule and on budget, the war at home is not. Showing off his new rug in the Oval Office a few days before Christmas, President Bush acknowledged that the country is not totally safe. "The country is safer," he told reporters. "Is it still--totally safe? No. And that's, as I told you, my main job, my main worry for America is to prevent another attack."

Since Sept. 11, the Bush administration has been energetic in such prevention. It has called up 35,000 National Guard and reserve troops, increased the power and sweep of security agencies, introduced the most draconian security laws since the early Cold War, and by the end of 2002 will have increased federal law enforcement rolls by one third.

The administration has revamped the FBI and the Justice Department, reshaped the Immigration and Naturalization Service and virtually nationalized the security operations of airports, harbors, public utilities and emergency medical services. The Justice Department carried out the largest roundup of people since World War II, putting more than 1,200 persons, mostly men of Middle Eastern background, behind bars.

Moreover, Bush has done this with a degree of public support unrivaled since World War II. Congress has fallen over itself to give the president every tool he asked for--and forced him to accept some, like the federalization of airport security, that he tried to refuse. This re-assertion of government is so marked that it reminded New York's Democratic Senator, Chuck Schumer, of Franklin Delano Roosevelt's New Deal.

Yet, despite all this official activity, there are constant reminders of our continuing vulnerability. U.S. borders are porous, the anthrax scare unending, the millions of illegal aliens still unregistered and air travel as suspiciously problematic as it was two months ago--as dramatically revealed last week by the passenger with explosives concealed in his shoe.

So in 2002, the Bush administration will go further, asking Congress for billions more for home defense, including twice the funds for local police and fire departments, the "first responders" to calamity, and more money for emergency medical services and hospitals. Military research and development also is likely to get a boost. And this shift of priorities to the terror war will inevitably push other government expenditures off the drawing board. [See the accompanying sidebar on science and government.]

It also will revive "big government" as a controversial political issue--in both parties. Most Democrats, like Schumer, approve Bush's reassertion of federal power as favoring the role of government traditionally associated with liberalism; others like Vermont's Democratic senator, Pat Leahy, fear it will curb civil liberties. And some Republicans, especially such House conservatives as Georgia's Bob Barr, are nervous it will do both. Next year's battles in Congress over expanding federal power will unite old enemies and divide old friends.

How will it play in Peshawar? The stakes are high internationally as well as domestically for President Bush. In his moving address to Congress on Sept. 18, the president dedicated his presidency to the war on terrorism.

But the nature of this 21st Century war is so undefined that as a political objective it may prove hard to maintain. Round Two is likely to have even fewer classic war scenarios than Afghanistan. The action will take place behind the scenes, far from television cameras and the American public, and often carried out by non-Americans.

As Bush said before Christmas, the U.S. stands ready to help other countries take on the terrorists themselves. "We'll give you the intelligence necessary to show you who they are and where they are ... and if need be, we'll be glad to lend some troops."

For instance, in Yemen earlier this month, as a result of quiet urging from Washington, the government sent its American-trained special forces to rout out alleged al Qaida camps.

UPI's military consultant, retired Army Col. Dennis Lewis, thinks this will be the formula for Somalia and Sudan as well.

But how will America know it has won this new kind of shadow war? When the country is safe from terrorism, say the president and his top aides.

For Americans, who are impatient by nature, this objective may be too intangible. World War II was politically sustained for four bloody years because U.S. troops won clear battles from Guadalcanal to Midway to Sicily to Normandy to Okinawa to victory.

As the Bush administration moves into its second year with mid-term congressional elections ahead, the voters may want a similarly unmistakable set of military successes, including the capture of men like Osama bin Laden and Mullah Omar. A shadowy definition of victory might then become the equivalent of Vietnam's "light at the end of the tunnel"--a metaphor for frustration rather than triumph.

In which case, the already strong pressure for a straightforward military attack on a known enemy, obviously Iraq's Saddam Hussein, could become irresistible. But that would be Round Three.

Most Presidents see their parties lose seats in mid-term elections, even without a recession. High on the White House agenda this year will be the need to stop the Democrats winning majorities in the House as well as the Senate.

By November 2002, the war on terrorism may still be the political deciding factor. If so--and especially if the U.S. is actively engaged in taking down Saddam Hussein--it is unlikely that the public will deny the president's party the control of the House of Representatives that year.

If not, the question may be whether Bush can withstand a major new economic slide. After all, the U.S. already is in a recession; the Democrats plainly hope to make Bush 43 a single-term President just like Bush 41, and they may even intend to recycle Bill Clinton's old campaign theme, "It's the economy, stupid."

The president had a taste of this the week before Christmas when the Democrats blocked an economic stimulus bill, knowing that if the recession persists until the third quarter of 2002, the president and his party will get the greater share of the blame. [See sidebar on Bush.]

So the defining issue of the coming year could well be America's bid to clamber out of recession. With Japan facing a severe banking crisis and its third recession in eight years, and the European economies stalled despite the urgent political needs of the French and German governments which face elections next year, there will be little help from abroad. [See the accompanying sidebars on Japan and the Atlantic alliance.] The U.S. economy will have to pull itself up by its own bootstraps.

And there are reasons to suggest why rebound is possible for the U.S. economy and, by implication, for the world economy. The terrorist attacks of Sept. 11 were, we sincerely hope, a one-time horror. Al Qaida is now on the defensive. The Federal Reserve Chairman Alan Greenspan has cut interest rates 11 times in 2001, taking the Fed funds rate to 1.75 percent, its lowest level since 1961. President George W. Bush has cut taxes and is looking to do more to bolster growth. Surely the only way now for the U.S. economy is up?

Alas, the recession that the U.S. economy has entered is not of the "normal" kind. It was not started by higher inflation and by a rise in interest rates to tame that inflation. Instead the engine suddenly lost steam, the soaring plane suddenly dropped out of the sky. The stock market came down, and so did the economy.

The bust of the U.S. economy is the son of its boom. In 1995-99 soaring stock and property prices made the United States richer. What economists call household net worth rose by around $17 trillion in these years. In 1999 alone, the gain was equivalent to almost half of U.S. Gross Domestic Product in that year. These huge gains in asset values encouraged Americans to save less and spend more.

Investment, too, was high, fostered by high consumer spending and by new advances in technology. But the prices of stocks and of property cannot spiral up unceasingly. There must be some limit. And, for the stock market, that limit was reached in the first months of 2000. Since then, for the Dow and the Nasdaq, the route has been mostly down.

The housing boom, however, went on, encouraged by all those interest-rate cuts. It seems likely now that the peak for housing sales and house prices was in August this year. Yes, as recently as August.

So is the United States coming out of recession, or only just going into it?

Milton Friedman, the Nobel prize-winning economist, said in two interviews with UPI this year that the boom the United States enjoyed in the 1990s has only two precedents in the 20th Century: the 1920s in the United States and the 1980s in Japan. This is why Friedman believes Greenspan may be right to be cutting interest rates so rapidly. And Friedman is optimistic that disaster can be avoided and recovery started.

UPI's economics correspondent, Ian Campbell, is less optimistic: "The bubble has burst. The wealth effect has gone. But in the recession as experienced so far, consumers have not cut their spending, merely reduced the pace at which their spending rises. The trade deficit has fallen only a little. House prices are only just beginning to fall. The correction has scarcely begun. The U.S. economy will not be ready to leap forward again until the excesses of the past have been worked off. The U.S. recovery will be tepid at best this year."

It is hardly surprising that even like-minded economists differ on what will come after such an unusual boom. And otherwise prudent economic forecasts may be thrown off, like much else, by the progress of the war on terrorism. Not only because wars often stimulate economic recoveries but also in the sense that this particular war has visibly stimulated the non-economic factor of national morale.

America before Sept. 11 enjoyed enormous prosperity, but it was not a nation at ease with itself. A sense of anxiety about America's future pervaded the society. The 2000 election revealed a nation divided evenly between the Red and the Blue--a churchgoing rural and suburban Republican heartland and religiously relaxed urban Democratic coasts. Race and gender differences were increasingly emphasized and made the basis of such race-conscious policies as affirmative action preferences. Mass immigration, including illegal immigration, further increased the sense that America was dividing along ethnic and cultural lines. Finally, the Clintons' departure left a nasty taste in America's mouth--for some a feeling of shame, for others a defensive indignation, for all a sense that the nation had become dangerously polarized around their personalities.

All that vanished on Sept. 11. Suddenly Americans were united by a patriotism of the most traditional and unashamed sort. They flew the Stars and Stripes from their car antennae, they attended patriotic rallies, they cheered on the troops. They were pleased when foreigners sang "The Star-Spangled Banner" with tears in their eyes (among them the Queen of England), but they were determined to bring the terrorists to justice even if they had to do it alone. All the earlier divisions between them shrank in importance.

Only two groups were excluded from this national coming-together. The first was Muslims who excluded themselves--most because they briefly feared a pogrom and retreated from the public arena, some because they disapproved of U.S. policy toward the Islamic world and so issued only qualified condemnations of terrorism, and a tiny handful because they sympathized with the terrorists.

There were very few attacks on ordinary Muslims, and many Americans went out of their way to reassure their Muslim neighbors. And those suspected of supporting terrorism have been detained and may be charged. So, if the war continues, more Muslims are likely to step forward to identify America's cause as their own, accelerating the assimilation of Muslim immigrants into America--just as Japanese-Americans did so in the far more hostile climate after Pearl Harbor.

It may even happen, as the sidebar on Islam forecasts, that Moslem scholars in the U.S. will gradually develop some kind of synthesis between Islamic theology and American freedom and export it back to Islamic countries--again, just as U.S. Catholic scholars did a century ago.

The second excluded group was America's academic elite--also a case of self-exclusion. It is on Ivy League campuses, especially in the arts and humanities, that opposition to the war on terrorism has been most vehement and most strongly supported. But the most likely effect of this academic opposition will be to lower the regard for this elite held by a public now radicalized into patriotism--and to raise its opinion of the military and scientific elites fighting the terrorists.

The broader effects of this new patriotism, however, are hard to gauge. Pearl Harbor was the last event to ignite such a dramatic change in public sentiment, and that forged support for an interventionist anti-totalitarian foreign policy that lasted a quarter of a century. Sept. 11 may similarly foster the long-term public backing for an interventionist foreign policy by the U.S.--with or without allies. [See sidebar on U.S. allies.]

The shifts in domestic policy inspired by a sense of national unity could be even more dramatic--replacing multiculturalism with assimilation; or improving ghetto schools rather than defending racial preferences in Harvard admissions; or upgrading the teaching of American history in the public schools. [See sidebar on multiculturalism.]

For the moment, however, the patriotism evoked by Sept. 11 remains an inchoate public mood. Though it is compatible with both left and right, neither party has discovered how to harness it to particular policies. But it is inspiring, unifying and energizing the American people. And if the parties do not shape it, it will surely shape (or reshape) them.

(Martin Walker is Chief International Correspondent, Nicholas M. Horrock is Senior White House Correspondent and Ian Campbell is Chief Economics Correspondent for United Press International.)


The Year Ahead: Bush's next battle (PART 2)

By NICHOLAS M. HORROCK, UPI Senior White House Correspondent

WASHINGTON, Dec. 30 (UPI) -- As the president jogs across the Central Texas prairie at his ranch in Crawford, Texas, this holiday week, he cannot help but reflect on the astounding year that has passed, for America and for himself.

When he took office a year ago, he came with a hotly debated victory over Vice President Al Gore, shaky oratorical skills, and no track record in foreign policy, and facing a widely held perception in Washington that Vice President Dick Cheney would really run the government.

Sept. 11 changed all that.

In four short months, President Bush has rallied a shaken nation, comforted the families of the victims, mounted the largest investigation in the nation's history and built a worldwide coalition of nations against terrorism, gaining varying forms of support from 196 different countries.

Less than a month after the terrorist attacks, Bush ordered military operations in Afghanistan that by early December had destroyed the Taliban and put al Qaida on the run. He has pressed an international money-tracking program that is routing out and freezing the assets of not only al Qaida, but other Middle Eastern terrorist groups as well.

Now, of course, comes the really tricky part.

First there is the scope of the war he declared. For more than two decades the U.S. has been the victim of terrorism and attack arising from the Muslim world. Four presidents, including his father and his hero, Ronald Reagan, have stopped short of confronting it. Carter was defeated because he couldn't handle the Iran takeover, Reagan pulled back from dealing with the Beirut debacle, Bush 41 couldn't take his coalition to Baghdad, and Clinton's response to al Qaida was half-hearted at best.

Bush knows he will have to go all the way. Deposing Saddam Hussein is a given, pressed by leaders in both parties. If U.S. forces had snared Osama bin Laden and the top Taliban leadership, Iraq could have been chapter two of the campaign as early as the spring of 2002. But bin Laden's disappearance is a loose end, and the shakiness of civil order in Afghanistan means the U.S. will have a major commitment there for months to come.

The president is more likely to choose Yemen, Somalia and Sudan as the next theaters of his war, because victory can be achieved by pressing chastened Middle Eastern leaders to destroy the terrorist organs in their midst. If Bush can rid those three states of terrorist resources, it further isolates Iraq and softens Saddam Hussein's position.

The problem for Bush is money. At the same time government surpluses are disappearing in a shaky economy, Bush plans to continue development of a $60 billion satellite defense system and spend billions beefing up security and emergency preparedness across the U.S. With public approval ratings for Bush topping 90 percent and war fervor sweeping the country last fall, Congress largely gave him what he wanted.

But by December, Senate Democrats were putting on the brakes, claiming that Bush was pushing partisan Republican programs, like the energy bill, under the guise of anti-terrorism. Even his own party has balked at some of his plans, stalling airport safety for six weeks because House Republicans didn't want the baggage screeners to be government employees. This spring Bush's plans to reorganize the Immigration and Naturalization Service could provoke a major fight with House Republicans.

And then there is the economy, which in a year of midterm elections could rival the war on terrorism as an issue for the White House.

(Nicholas M. Horrock is United Press International's Senior White House Correspondent. He has covered every president since Richard Nixon.)


Year Ahead: Latin America after Argentina (PART 3)

By IAN CAMPBELL, UPI Chief Economics Correspondent

QUERÉTARO, Mexico, Dec. 30 (UPI) -- Argentina's fall, long predicted, slow to develop, and then sudden, is another setback for Latin America. Some will say that Argentina's failure is an isolated one. In the financial markets the risk of "contagion" from Argentina is being downplayed. Other countries are supposedly much stronger. But the strength analysts perceive is largely superficial.

The positive arguments for Latin America are these: Brazil came close to deep crisis in 1998 and early 1999 but pulled back from the brink; Mexico has recovered well from its crisis that began in December 1994. And it is true: neither Brazil nor Mexico is at imminent risk of crisis now. But neither Brazil nor Mexico, nor indeed Venezuela, Chile, Colombia, Peru nor Ecuador, is thriving. This reflects the downturn in the world economy, but not only that. The region is not overcoming its weaknesses. It remains vulnerable.

The perennial joke about Brazil, the region's biggest economy, is that it is the country of the future and always will be. Sadly the joke has some cruel truth in it. Brazil disappoints. Two terms of government by the reform-minded Fernando Henrique Cardoso will end in a year's time. What has he achieved?

He took over a high-inflation country and will leave one with an inflation rate of about 5 percent. He has whittled away much of Brazil's nationalism; under him foreign companies have invested in Brazil's telephones and electricity system and mines. Foreign investment has poured in. And yet it is not Brazil's economy or its exports that have grown rapidly during his presidency but its debt, internal and external.

Debt has grown because of one thing: the government's chronic budget deficit. "Fiscal reform" has been the center of Cardoso's efforts for seven years. Yet the government's deficit remains large and could easily explode again if the country is forced to raise interest rates further to defend its currency. Why is the deficit chronic? Because Brazil's politicians have stubbornly refused to cut benefits that go not to the miserably poor majority of the population but to the better off.

What about Mexico, the second biggest economy in the region? Has that not done better? Yes and no. Mexico has less debt than either Argentina or Brazil, and it has more merchandise exports than the two of them combined. Mexico has benefited enormously from having the colossus of the world economy next door--and, these days, a friendly colossus, one willing to use Mexico as a cheap-labor base for production and embrace it politically and economically in the NAFTA free-trade pact. That makes sense for both sides. But are Mexico's growth prospects good?

This year, Mexican growth has slid along with U.S. growth; that was impossible to avoid. Medium-term prospects ought to be bolstered by U.S. investment in Mexico as NAFTA continues to provide. But the benefit from NAFTA would be far greater if Mexico were advancing more in its economic policy.

Oil, central to the Mexican economy, illustrates the problems well. Pemex, the state-run oil company, warns that it will produce less oil in five years' time than now. That would do Mexico immense harm. Pemex's solution is to free up more money for investment by paying the government less in taxes. The government relies on Pemex's revenues and can ill afford to tax the company less.

The answer is to open up oil--and electricity, and telephones (more fully than now) and the tourism sector, and agriculture--to private, and indeed foreign, ownership, so that more capital will come into Mexico and there will be more investment, growth and jobs. But this is not happening. Despite NAFTA, Mexico remains a nationalist country and even one wary of the private sector and private ownership is general. Half of Mexico's agricultural land is owned in communal arrangements that stem from the Mexican revolution of the early part of the century. These blocks to development are simply not being challenged politically.

And what of Venezuela, the fourth biggest economy? While Brazil and Mexico are moving forward in first gear rather than fourth, Venezuela has reverse gear fully engaged. President Hugo Chávez has centuries of tradition behind him: the tradition of caudillos, or strongmen, who play havoc with the country's constitution, with its government, with its economy--and finally exit, often after an uprising against them, but always with the country in ruins.

Taken together, what are Latin America's prospects? At present, strong growth cannot be predicted with confidence in any of the major countries of the region. Why? Because the country's leaders are still clinging to old ways. It is not usually the presidents who are so much to blame as the congressional leaders. They are the ones who defend narrow interests and block the advancement of the majority. Those with privileges retain them. Those without do not get a look in.

Latin America needs a new generation of radical leaders, leaders who act on behalf of the national interest rather than narrow interests or simply their own. Unless the region advances politically, the region's poor will remain poor, and crisis will follow crisis.

(Ian Campbell is UPI's Chief Economics Correspondent. He is based in Mexico.)


The Year Ahead; The U.S. and Europe (PART 4)

By MARTIN WALKER, UPI Chief Diplomatic Correspondent

LONDON, Dec. 30 (UPI) -- The Bush administration, flush from its triumph in the brisk 9-week war against the Taliban and still outraged by the Sept. 11 attacks, is in no mood to pay much heed to European complaints about U.S. "unilateralism."

Still less will it listen to European fretting over the next phase of the war against terrorism, at least while rich European allies like Germany reject the kind of defense spending that might give the European Union a serious military voice. Germany spends 1.5 percent of its gross domestic product on defense, compared to America's 3.3 percent and Britain's 3 per cent. If the Germans paid more, they might get the kind of respect that Britain still enjoys in Washington.

The transatlantic alliance is important not just because of the NATO alliance, nor even because in values and democratic principles the Europeans remain the most reliable friends America has. The 15-nation EU, whose combined economic weight is equivalent to that of the U.S., may be a military dwarf and a political wimp, but it remains an economic superpower. Between them the U.S. and the EU account for half of global output, two-thirds of world trade and three-quarters of global investment.

With the U.S. and Japan and the EU all facing recession together, it will be critical for the two 900-pound gorillas of the global economy to cooperate closely. But the Europeans are nervous of offending the Arab world. They declared their continued support for Palestinian Authority (PA) leader Yasser Arafat at their EU summit in Belgium on Dec. 16, and promised to continue their funding for the PA.

The U.S. has seldom seen eye to eye with its European allies over the Middle East. None of the Europeans, not even the usually reliable Britain, allowed American military cargo planes to use their bases for the emergency arms airlift to Israel during the Yom Kippur war. And only Britain offered its bases for the 1985 air strikes against Libya.

So the deepening crisis between Israel and the Palestinians could cleave new divisions in the transatlantic relationship. The Europeans are refusing to deliver al Qaida suspects into American hands, so long as they might face the death penalty, long outlawed in Europe. European Green parties, members of the governing coalitions in both France and Germany, have not forgiven President Bush's rejection of the Kyoto protocol on global warming. Both France and Germany warned publicly against President Bush's decision to withdraw from the 1972 Anti-Ballistic Missiles treaty.

The bad news, beyond the unpromising look of their economies, is that three key countries are all facing elections next year, which often means that politicians tend to make--or at least promise to make--unwise but popular quick fixes. France faces a presidential election in April and parliamentary elections in May. Germany faces a general election in October, and the U.S, has its mid-term elections in November.

In all three countries--unless the war on terrorism goes badly wrong for the Americans--the big issue is likely to be the economy, stupid. And these days, when imports and exports account for 25 cents in every dollar that America produces, the economy increasingly means trade.

But in France and Germany, where the unemployment rate threatens to nudge back above 10 percent, and where farmers, Greens and the incumbent left-of-center parties are all suspicious of American demands on free trade, the campaign rhetoric could take on an anti-American flavor.

By the same token, the Bush administration's readiness to promise special protection to American steel and textile industries to push the Trade Promotion Authority bill through Congress by a single vote opens the U.S. to charges of hypocrisy on trade. But steel and textiles mean votes in Pennsylvania and the Midwest and the South.

From terrorism to trade, energy to economics, there are all sorts of reasons for the U.S. and its allies to grit their teeth, make some concessions, and stick together in the coming year. Politics on both sides of the Atlantic could make that into a tough challenge.

But remember the opening round of this new world that was launched on Sept. 11. The leading French newspaper Le Monde declared, "We are all New Yorkers." At NATO, the European allies formally invoked Article V of the NATO treaty--for the first time--to assert that an attack on the U.S. was an attack on them all. As the second round of America's war on terror gets under way in January, it will important to remember that--on both sides of the Atlantic.

(Martin Walker is UPI's Chief Diplomatic Correspondent and the author of several books including The Cold War--a History.)


The Year Ahead: The U.S. and Russia (PART 5)

By MARTIN SIEFF, UPI Senior News Analyst

WASHINGTON, Dec. 30 (UPI) -- At the start of 2002, Russia is the inscrutable sphinx of the great powers, facing both east and west, confronting the prospects of both prosperity and poverty, offering America the possibilities of cooperation and confrontation, supposed to be helpless, but in fact far from it.

In the months following Sept. 11, Russia proved America's most valuable partner in the struggle against the Taliban regime and the al Qaida terrorist organization in Afghanistan. Without Russia's wholehearted support, the United States could not have projected its power so effectively so fast into the heart of Central Asia.

Now, however, Russian President Vladimir Putin looks more likely to tacitly support Iraqi President Saddam Hussein against possible U.S. military attack, in part because he has been disappointed in the response from President George W. Bush to his support in the war on terror.

Bush cleared the way for Russia to become virtually the 20th member of NATO. But he also dashed Putin's hopes of forging a closer strategic partnership when the Russian leader visited him in Washington and Crawford, Texas. And the Russians are angry at his decision to pull the Untied States out of the 1972 Anti-Ballistic Missile treaty to clear the way for development of an eventual multi-tiered ABM shield against missiles fired from so-called "rogue nations."

Putin is still looking west. He continues to woo the leaders of Western Europe and stays on good personal terms with Bush. But he retains the option of looking east, too. On June 15, he signed a far-reaching security treaty with Chinese President Jiang Zemin and four Central Asian leaders to set up a Shanghai Pact security organization covering more than half of Eurasia. Its barely concealed purpose was to counter U.S. influence in the Eurasian heartland.

In energy policy, too, Putin appears to be swinging from a policy of cooperation with the United States to one of confrontation. He has authorized cuts in oil production to cooperate with the Organization of Petroleum Exporting Countries to raise global oil prices. Some analysts believe his decision to play ball with OPEC could boost global oil prices by as much as $5 to $7 a barrel.

Russia's economy stabilized and began to recover for the first time in a decade thanks to the revival in world oil prices over the past three years, but in the past three months, those same prices have dropped by almost a third. So far, that drop has not dented Russia's economic revival, but it has already created a shadow of uncertainty over whether that recovery will continue, and what will happen if it seriously falters.

In the last two weeks, however, economic indicators coming out of Russia have been good, and barring a catastrophic global economic downturn, they augur well for the coming year.

On Dec. 14, the State Duma, the main house of the Russian parliament, passed the 2002 budget, and Finance Minister Alexei Kudrin announced that gross domestic product in 2001 was expected to grow by 5.5 percent. This would prove to be a slowdown from the 8.3 percent GDP growth recorded in 2000 but would still be a healthy figure. Current Russian government economic projections for 2002 put expected GDP growth at a still robust 4.3 percent with a healthy budget surplus estimated at 1.63 percent of GDP, Kudrin said.

Responsible international analysts respect the Russian figures. The international rating agency Standard & Poor's announced Dec. 13 that it expected to boost Russia's ratings from its current B- as the investment climate there has markedly improved. S&P analysts gave credit to Putin for pushing through crucial and long overdue structural reforms. These were already cushioning the estimated $1 billion loss in revenues since September as global oil prices have fallen.

The International Monetary Fund too is more bullish on the Bear these days. The IMF announced Dec. 12 in a statement that "the large external current account and fiscal surpluses, together with the relatively comfortable level of foreign reserves, have placed Russia in a strong position to deal with the less favorable environment" caused by the falling oil prices.

Putin rides high politically, too. No Russian or Soviet leader since Leonid Brezhnev nearly 40 years ago has built such a firm foundation for retaining power. In only two years as president, Putin has reversed the apparently inexorable drift towards regional rule and the disintegration of the vast Russian Federation, and reestablished effectively the Kremlin's control over its far-flung regions.

He has also slowly but remorselessly cracked down on freedom of expression in the broadcast media from which nearly all Russians outside Moscow get their news and perceptions of the world. And he has put the once mighty billionaire oligarchs in their place, driving several to exile and forcing the rest to toe his political line.

Still, even if Russia's macroeconomic performance remains robust, Putin still faces the challenge of funneling the proceeds of that recovery down to the impoverished lowest third of Russian society. And he still has to turn around what he has repeatedly called Russia's most pressing and dangerous problem: its literal population implosion. Death rates continue to far exceed birth rates, and an estimated 8 million abortions are performed every year.

In the moral rubble and material squalor that remain a decade after the collapse of communism, the world's second best-armed thermonuclear power still confronts dire problems and an uncertain future as Putin swings between east and west, seeking the best strategy to deal with them.

(Martin Sieff is UPI's Senior News Analyst.)


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