Sarkozy grabs spotlight as domestic travails occupy US

POLITICAL DEBATE:THE BIG political debates at the World Economic Forum are being shaped by two events that are taking place well away from the ski-slopes of Davos: Barack Obama's efforts to relaunch his presidency in Washington, and the conference on Afghanistan that is under way in London.

Both events raise the same fundamental questions. Is the US now too weakened and introverted to exercise effective global leadership? And if the US cannot lead, what other combination of powers can sort out the most difficult global problems?

A year ago at Davos, Mr Obama’s election was hailed as a big ray of hope in a dark period in international affairs. Twelve months on, things look different.

The world has avoided a new Great Depression, and the mood among delegates from some of the big emerging economies – in particular China, India and Brazil – is confident, even ebullient.

But Mr Obama is a much-diminished figure. While he still gets high marks from the Davos crowd, the president has struggled to make progress on any of the international issues he identified as priorities – Iran, the Middle East, Afghanistan, the climate talks at Copenhagen, or economic relations with China.

The loss of the Democrats’ super-majority in the Senate and the fact that the president’s healthcare package is in deep trouble have further damaged Mr Obama’s image as an effective leader. Meanwhile, the fact that the president has responded to his political difficulties by proposing radical-sounding new banking reforms has put the question of banking regulation right at the centre of the WEF debates.

The sense that the US is too preoccupied by its domestic travails to dominate the world stage has been compounded in Davos by the absence of senior administration officials. Some top US officials are expected to make an appearance later in the week. But, in their absence, the political figures who excited most interest in the opening days of the forum were French president Nicolas Sarkozy, who gave the opening keynote address, and Li Keqiang, vice-premier of China, tipped to be his country’s next prime minister, or even president.

However, the Chinese delegates have stuck carefully to a familiar script in Davos. China is still a developing nation, they insist. It has made a big contribution to pulling the world out of recession. Currency disputes with the US can only be dealt with gradually and in a spirit of co-operation.

Discussions in Davos have also made it evident that the rise of China and other big emerging economies are redefining the idea of “security”. The Afghan war is a traditional issue of hard security, but new types of challenge are increasingly preoccupying experts on national security.

Cyber-security is being discussed with rising urgency, particularly after Google’s clash with the Chinese government over internet censorship and computer hacking. Davos delegates have been told that new types of weapon are being developed that do not kill people – but can completely disable the internet and wipe computer memories, so disrupting the functioning of a modern society.

The problems of food security and energy security are also being widely aired. However, advocates of tougher action on global warming are worried that the failure of the Copenhagen talks is leading to inertia rather than a renewed effort to achieve agreement. Oxfam chief executive Barbara Stocking is dismayed by the lack of urgency on climate change. “Everybody is just tired. It feels like last year’s issue,” she says.

Financial and banking reform are still very much at the top of the political agenda. Mr Sarkozy’s bravura speech to the forum concentrated on these areas. The economic ideas outlined by the French leader would have been dismissed as hopelessly crude and naive before the financial crisis but, in the current climate, they received a respectful, if hardly ecstatic, welcome.

Mr Sarkozy seized his chance to launch a full-frontal attack on financial capitalism, arguing that the proper role of banks is to lend to entrepreneurs, not to speculate on markets. Huge profits made by investment banks in previous years were, he said, often unrelated to job creation for ordinary people – or even to hard work.

The French president also emphasised the crucial role of the state in reviving the global economy, and mocked multinational companies and global banks for suddenly rediscovering their nationalities in their hour of need.

In the heyday of the investment banks, Davos delegates would have choked on this kind of talk. But this year they swallowed it with relatively few complaints.