Top Stories from the Editorial/Opinion pages of the International Herald Tribune,
Tuesday, January 27, 1998

Next, a Western Era With Europe Sharing the Leadership

By Gerald Segal International Herald Tribune
TOKYO - After the fall of the Berlin Wall and the collapse of the Soviet Union, we spoke of a post-Cold War world. What we can now foresee, amid Asia's financial crisis, is a period dominated by the West.

 A key feature of these early days of the new Western era, and one of the great surprises to come out of Asia's crisis, is just how limited the trend toward globalization really is. The European and American economies will each lose less than half a percentage point of GDP because of the crisis.

 Sales in Asia, minus Japan, are less than 8 percent of European and American total sales in foreign countries. As the U.S. investment bank Morgan Stanley has pointed out, American firms sell more in Italy than in Indonesia, Thailand, Malaysia, the Philippines and China combined.

 Asian investment in Europe remains tiny. Even in Britain, which attracts half of Asian investment in Europe, total Asian investment amounts to a mere 7.5 percent of foreign investment and Japan accounts for nearly all of it.

 The new Western era is not tripolar. Japan was unable to take a lead during Asia's crisis. Its failed effort to organize an Asian financial solution to the crisis in the second part of 1997 was vivid evidence of the absence of an indigenous global power in Asia.

 The power brokers came from the United States and Europe. The result was a decision to use the IMF, a Western-designed institution, to organize the rescue.

 China, although much touted as a ''peer competitor'' of the United States, was barely to be seen. Beijing's leaders have looked on in horror as Asia crumbled before the power of the Western-designed and -dominated global capitalist system.

 After the exercise of overwhelming U.S. military power in the Taiwan Strait in 1996, China can be in no doubt about Western strength.

 An obvious problem will be dealing with the resentment that will fester in Asia as the West imposes tough economic conditions. Western demands for political reform will also grow stronger, and harder to answer, as it becomes clear how much economic fundamentals depend on changing political fundamentals. 

Europeans and Americans also have reason to worry that they will become economically flabby without the fear of Asian competition. Current European efforts to reform welfare systems owe a great deal to concerns about Asian competition, even if in reality Europe's economies compete more with other developed countries than with Asia.

 Trans-Atlantic relations that were glued by the Soviet threat and then the Asian challenge are also at risk. Europe and the United States have had some success in shaping the new rules for international trade in information technology, and non-Western powers play no significant part in shaping the norms and institutions of the economy of the future. But with reduced worry about Asia, the European Union and the United States are falling out over how to manage information services, encryption and modernized accounting standards - all vital features of the economic systems of the future.

 Expect trans-Atlantic ties to become harder to manage just as they are becoming more important. It is worrying just how little thought has been given to the strategic implications of the major change that will take place in the global financial system at the start of 1999 when Europe's single currency is established.

 With the euro, Europeans expect to minimize their vulnerability to currency fluctuations and intend to be an equal of America in managing the global financial system. 

Asian countries will learn that playing off Europeans against Americans is one way to manage the new Western era.

 The writer is director of studies at the International Institute for Strategic Studies, in London. He contributed this comment to the International Herald Tribune.