11 Aug, 2012

China Calls for Political Reform in U.S., Economic Reform in Europe

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In yet another sign of a new emerging world order and a rebalancing of the global poles of power, two commentaries published recently in the official Chinese media have told 1) the U.S. to start a serious process of political reform, and 2) the European Union to undertake some serious financial & economic reform. They are being reproduced below.

Washington Stuck In Political Paralysis

Source: People’s Daily, Author: Zhong Sheng

August 06, 2012 – The United States needs political reform, which will be a long and difficult process for sure. It is not easier to deal with a disunited U.S. government than with a government where Republicans and Democrats work as a team.

It would be naive to expect that a presidential election can break the bipartisan deadlock and establish a united and effective government. Is Wall Street Journal’s comment of “no anticipation of breaking Washington deadlock” a warning to us that a less strong Washington will exist for a long time?

The U.S. presidential election has been heating up lately. Never in U.S. history had a president win re-election when the country’s unemployment rate is above 8 percent and economic growth rate is below 2 percent. Can Barack Obama make history again?

At present, apart from 10 swing states, the rest 40 U.S. states are either “red” or “blue”. Thus some scholars warn that the United States is facing the risk of being split apart again.

As to the relations between Democratic and Republican parties, reduction of complementary and antagonism on major issues lead to that a series of government policies are difficult to pass.

In terms of the relations between federal and state governments, state governments often refuse to implement major policies of the federal government. The severe antagonism between two parties gives rise to that U.S. government is unable to make decisions.

The serious social and economic problems in the United States are fundamentally caused by the national political system.

The United States has long been proud of its political system featuring two-party system, separation of powers and the federal system. However, the most serious trouble at present is that the so-called political polarization has gone to extremes, which is quite disruptive especially in economic downturn.

Fundamentally speaking, the United States is facing the institutional problems of capitalism, which results from its grabbing benefits from Cold War, active engagement in strategic expansion and lack of institutional reform. It is impossible to bridge political differences, unite the two parties and revive the economy simply through an election or a strong president.

Another possibility is that Washington will remain polarized and less strong for a long time. The period of late 20th century dominated by the United States has ended and it may take the world some time to get used to a new Washington.

We need to ponder over not only whether Washington can regain its strength but also why it is not as strong as it used to be. What do these changes mean to the United States and even the world?

Mission For Eurozone Leaders

(China Daily), August 06, 2012 – The odds of a safe landing for eurozone seem to be decreasing unless European leaders act decisively on reform measures.

Despite the European Central Bank’s vow to draw up a mechanism to make outright purchases and stabilize the eurozone borrowing costs, the lack of more in-depth systematic reforms will see such measures achieve only temporary results. Bank President Mario Draghi said on Thursday the body may undertake “outright open market operations of a size adequate to reach its objective”.

The latest economic survey has cast a gloom over Europe. Financial information provider Markit’s purchasing manager’s index (PMI) for eurozone manufacturing, unchanged at 45.1 in June, is at its lowest since June 2009. Some forward-looking indicators, such as business expectations index, also show that the eurozone economy is de facto in recession.

The corporate sector, meanwhile, cut its work force at the fastest pace since 2010, anticipating austerity measures as a result of upcoming steps to tackle the crisis. All indicators point to a worsening situation, while leaders of the eurozone economies continue to bargain over compromises in the rescue plans.

International Monetary Fund Managing Director Christine Lagarde has warned that there are also “serious questions” about the US economic future. The United States will see declining government spending and surging tax burdens in what is called a fiscal cliff early next year.

The world economy is steadily spiraling down, and China’s revived expansion, expected in the second half of this year, alone will not be enough to bolster the whole world economy.

Lagarde and European leaders have known what the right cure for the European malaise is: Eurozone member states need to further integrate their banks and budget policies to provide systematic support for the euro.

But what has happened in the past months shows that it has become a Herculean task for leaders from countries of different sovereignty to find the “golden-mean” option that satisfies their voters, political opponents and the collective interest of the eurozone.

The ECB has made it clear that it will do whatever it takes to combat the crisis. However, they can only loosen its monetary policy further and provide more cheap loans for its banks. Effective as it would be in temporarily reducing market concerns, it cannot be said with certainty that it would resolve the eurozone crisis fully.

To prevent the euro from crashing, European leaders have to show greater political resolve and wisdom. Only then can they make systematic breakthroughs to ultimately bail out the suffering currency.