Foreign Policy Blogs

Year in Review

1. Summary of the Past Year

Year in Review

Image Credit: The Atlantic Wire

This year was a wildly eventful one, headlined by the Arab Spring and the debt crises in both the US and Europe. Other major events included the nuclear accident and natural disasters in Japan, the Occupy Wall Street movement, the independence of South Sudan, the increase in drug-related killings in Mexico, the killing of Osama Bin Laden, and the Palestinian unilateral declaration of statehood.

2. Most Unexpected Event

The Occupy Wall Street movement, which began in New York and has since spread to other major cities in the U.S.

The movement may have been inspired by the protests sweeping Middle Eastern countries, or it may have been a delayed reaction to the Tea Party’s call for more fiscal libertarianism. Whatever the source, the movement is still fairly inchoate in terms of its agenda. Some protestors have a specific platform of issues such as capital gains tax reform or mortgage modifications, some are deeply troubled by corporate influence on the political parties, and others just seem to be furious that there is such a socioeconomic divide in the country.

The movement’s lack of clarity is at least partially driven by its inability or refusal to organize itself into a centralized command structure. Only with such a framework can the Democratic Party harness the movement’s power and effect change in Washington. By not defining itself, the movement, perhaps unwittingly, is ‘doubling-down’-it’s essentially betting on a 60’s-style fundamental upheaval of the entire socioeconomic system, rather than incremental changes via the existing political processes.

3. Person (or group of people) of the Year

The protestors in the Arab countries that have resisted (and in some cases, toppled) their autocratic leaders. It remains to be seen how political developments unfold in the coming year, but these people have shown undeniable courage and increasing political sophistication in their struggle for democracy.

4. Forecast for 2012

The main focus in 2012 may not be the US presidential elections, which typically commands center stage. Regardless of whether the Republicans or Democrats prevail, the European debt crisis and the events unfolding in the Middle East are the most pressing issues of the day.

With respect to the eurozone crisis, the focus now seems to be squarely on the European Central Bank and Germany. The ECB must decide whether to buy sovereign bonds to lower the borrowing costs for massively overleveraged countries. Meanwhile, Germany, as the main fiscal power in the region, must determine whether to support some sort of joint liability scheme for debt issuances by EU countries. Thus far, both parties have resisted these ideas.

However, I believe the ECB will eventually acquiesce. First, unlike Germany, it does not have to win over popular support. Its decision-making body is presumably comprised of knowledgeable economists who can access and integrate worst-case scenarios into their decision making process. Second, the ECB’s intransigence is based mostly on the conviction that intervention in the bond markets encourages reckless government spending, and that its role is strictly confined to managing inflation. However, it has already engaged in limited bond purchases, and may be persuaded that a massive bond-buying program is necessary to prevent deflation. On the other hand, Angela Merkel, the Chancellor of Germany, would have to convince her constituency that they should bankroll the profligacy of their southern neighbors. Notwithstanding the fact that Ms. Merkel is herself dubious about the merits of joint liability, this request illuminates the deep cultural divide between northern and southern Europe. Germans may be simply unwilling to share their wealth with neighbors with whom they do not identify ethnically or culturally.

Meanwhile, the Arab Spring is still a work in progress. Elections in Tunisia and Egypt seem to confirm the conventional wisdom that Islamists will emerge as the biggest winners. The main issue in those countries that have managed to overthrow their rules is how the Islamist parties that have the biggest pluralities (Enhadda in Tunisia and the Muslim Brotherhood in Egypt) will integrate the secular parties into the political process. The early indication that Salafist elements surprisingly garnered around 20% of the recent vote in Egypt does not bode well for these secular factions. The warnings of Islamist takeovers by the Republican Party in the US and by the Israeli government, dismissed as alarmist by more liberal elements, are materializing in the early stage. The precise nature of this “Islamicism” is still nebulous-while the Muslim Brotherhood has insisted that it will seek a coalition with the liberal factions, and that it would not impose its religious platform through legislation, the rise of the Salafist party will inevitably complicate these goals.

 

Author

Zev Wexler

Zev Wexler is an associate at the law firm of Vinson & Elkins LLP, where he represents investment managers. In 2009, he took a sabbatical year and volunteered as a strategic consultant in Malawi for Millennium Promise, a non-profit organization dedicated to reducing extreme poverty in sub-Saharan Africa. Zev is a board member of American Jewish Committee's ACCESS young leadership program, and serves on the Committee's International Relations Commission. Zev is also a board member of the Microfinance Club of New York. Prior to working at Vinson & Elkins LLP, Zev worked at the law firm of Skadden, Arps, and at the asset manager BlackRock Financial Management. He received a BA in Public Policy from Princeton University and a JD from New York University School of Law, and is a Chartered Financial Analyst (CFA). Zev currently lives in New York.

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