The end of the 9/11 era

Today, we begin a series of posts that detail Eurasia Group’s Top Risks for 2012 and answers the most common questions we’ve gotten about each one.  

Here’s a summary of risk #1:

The End of the 9/11 Era – It was a truism of globalization: economics drives markets, and national security drives geopolitics. No longer. In 2012, politics and economics will overlap almost entirely. Political officials around the world will worry mainly over economic risks. Market players, in turn, are anxious mainly about political decisions, especially those that will be made in Europe, America, and China this year, as shortsighted leadership from virtually all the major geopolitical players generates policy stalemate and uncertainty.

Q- You’re calling this risk "the end of the 9/11 era." Surely you’re not arguing that al Qaeda is no longer a threat to the United States?

A- Not at all. Bin Laden is dead, and many other al Qaeda leaders have been killed or captured. About 33,000 US troops are scheduled to leave Afghanistan in 2012, and the turmoil we’ve seen in North Africa and the Middle East over the past year has demonstrated al Qaeda’s irrelevance for the Arab world’s politics.

But the organization ceased to function as a centrally controlled network years ago. Its enduring power lies in its ability to inspire a few young people at the margins of society to become fundamentalist militants. This will continue to matter wherever political turmoil creates a vacuum of power. That’s true for parts of North Africa, including Iraq and Libya, but especially in East Africa — with Somalia (and perhaps Yemen) as an operational center of gravity.

By the "end of the 9/11 era" we mean that U.S. policymakers are now closing the book on the wars in Iraq and Afghanistan and refocusing foreign-policy priorities away from the "global war on terror" toward economic opportunities, particularly in East Asia. That’s why, for example, we’ve seen Secretary of State Hillary Clinton spend so much energy on Asia policy and so much less time in the Middle East than her predecessors, despite the continuing turmoil there. This also reflects a trend within other governments to prioritize economic needs when making foreign and security policy decisions on a scale we’ve not seen in decades.

Q- You say that economic worries are driving political decision-making around the world and that politics are driving market outcomes. Why are these things dangerous? 

A- Policymakers around the world are deeply concerned with the fate of the eurozone, the resilience of the U.S. economy, and the ability of Chinese policymakers to implement a managed slowdown of China’s economy. Three years ago, the financial crisis shifted the world’s attention to global markets. In 2012, we’ll see how far this process has evolved-from a drive for urgently needed international cooperation to a new "every nation for itself" approach to policy. The risk here is that neglected hotspots — Pakistan, North Korea, Iran or something else — will catch the world by surprise and move markets more than they should.

The second half of the risk has to do with differences between developed states and emerging markets. In 2012, the global economy will depend for much of its dynamism on potentially more volatile emerging market economies. Over the past decade, policymaking in many of these countries has become more transparent, predictable and foreign investor-friendly than ever. But unexpected shocks can still alter the business and investment environment more quickly and with greater force in China, India, Brazil and Indonesia than in the United States, Germany, Canada or Japan. At the same time, the U.S. and Europe, traditional anchors of global financial stability, will be almost entirely preoccupied with the need to repair balance sheets and restore long-term investor and consumer confidence.

Q- Back to the U.S., with official Washington focused on this year’s elections, will U.S. lawmakers make any decisions of consequence this year? 

A- Absolutely. Right after the elections, Congress will have less than two months to haggle over the fate of the Bush tax cuts and the automatic cuts that come with last year’s failure by the so-called super-committee to agree on a long-term fiscal deal. Those two items alone amount to more than $5 trillion in fiscal policy decisions. If Congress does nothing — insert wisecrack here — the cuts automatically go into effect.

In other words, Congress has decisions to make that will have profound and lasting implications for the U.S. economy.