Walker's World: Money and the Arab Spring

PARIS, May 31 (UPI) -- The Group of Eight summit exposed not only the financial weakness of the old industrial powers when faced with the challenge of the Arab Spring but also the crisis in its Middle Eastern alliances that is forcing the United States to choose between its immediate interests and its values.

On the face of it, all seemed generosity as the G8 leaders announced that some $20 billion would be available over the next three years to support new democratic governments of North Africa. However, the money won't come directly from the indebted G8 members but from international institutions like the World Bank and the European Investment Bank. And the small print of who was to pay for what and how was left vague.

This sounds like serious money but the International Monetary Fund estimates that eight times as much -- some $160 billion -- is needed as the fledgling new governments in Egypt and Tunisia grapple with a collapse of their tourist trade, strikes and soaring food and import prices. Egypt's bread subsidies, which the government cannot afford but dare not remove, could alone swallow the money that G8 mentioned.

Understandably, top officials sought to put the best possible face on the shortage of money.

"More important than any numerical figure, I think, is the vision that it lays out," said Michael Froman, the U.S. deputy national security adviser for international economic affairs. "This is largely a case of trade not aid, investment not assistance over time. It's really about establishing the conditions under which the private sectors in these economies can flourish and the benefits of growth are broadly shared."

The hope is that others, particularly Saudi Arabia and the Persian Gulf states, will use some of their windfall profits from higher oil prices to fund an Arab Development Bank.

There is so far no real G8 consensus on the kind of role China's massive reserves of some $3 trillion might play. China has the skills and technology and the investment capability to deliver the new road and rail and communications sand electricity transmission systems that North Africa needs.

On the one hand, China could fund an investment program for the Arab world and barely notice the cost but on the other there is some nervousness at the prospect of that economic weight being translated into political influence in the Middle East.

And again, nobody is really sure whether a massive investment program would work. The Germans have been reminding their G8 partners that they spent more than $2 trillion trying to haul the former East Germany up to West German levels of prosperity and productivity and after 20 years the job is still not complete.

"The goal (for the Arab states) must be to bring markets into the economic process quickly, otherwise the public financial assistance will not be enough," German Chancellor Angela Merkel, herself from the former East Germany with personal knowledge of the difficulties of transition, told a media briefing at the close of the G8 summit.

There is a kind of collective guilt hanging over the G8, the knowledge that two decades ago their predecessors did a wretched job of helping Mikhail Gorbachev's perestroika to modernize the old Soviet Union and an even worse one of helping steer Boris Yeltsin's Russia to prosperity and democratic stability.

That sense of historic guilt is compounded by the worrying suspicion that democracy may not the best route to prosperity for countries emerging from dictatorships. Few say it out loud, but the Chinese example of economic success and political autocracy is a potent one.

And most of the Asian tigers like Taiwan and South Korea went through a phase of dictatorship while building the economic base from which they later introduced democratic reforms. In the case of Egypt and Tunisia, there is the further concern that democracy may well empower Islamic parties.

This is the argument that Saudi officials have been making for years, long before the revolution in Tunisia. They tried to warn U.S. President Barack Obama's predecessor, George W Bush, that the neo-con "democratization" project for the Middle East after the invasion of Iraq would either fail, empower Iran or breed the wrong kind of Islamic governments.

Any one of those outcomes would be bad news for the Saudi monarchy, which is why they ignored U.S. pressure and sent troops into Bahrain two months ago to shore up the troubled ruling family. This wasn't just solidarity among sheiks: the Saudi nightmare would be for the Shiite majority of Bahrain to invite in their fellow Shiites of Iran.

The Saudi alliance has been one cornerstone of U.S. policy in the Middle East since World War II and it is running into real trouble. American interests require a stable and pro-Western Saudi Arabia that can act as reliable anchor for the world's oil needs. American values, however, have always had difficulty with the autocratic Saudi monarchy and its Wahhabi from of Islam.

And American presidents who make a point of stressing U.S. values can put U.S. interests at risk, as Jimmy Carter did in backing away from the shah of Iran and as the Saudis grumble that Obama did by abandoning Egypt's President Hosni Mubarak.

The other cornerstone of U.S. policy has been the Israeli alliance and here too Obama has run into trouble. It isn't entirely his fault. Israeli intransigence and Palestinian divisions have kept his hopes of reviving the peace process stillborn.

But the ground is shifting. Hamas and Fatah have reconciled. The Assad regime in Syria may be collapsing. Egypt is lifting the siege and opening the border with the Gaza Strip.

And the U.S. strategic dominance of the region which has endured since the Soviet collapse 20 years ago is being undermined by the way that China is increasingly the big market for the oil exporters.

If and when China also becomes the region's big investor, as it already has in several key Africa countries, then the geopolitics between the two superpowers who are each dependent on imported oil will become very complicated indeed.