Euro's Sudden Fall from Grace Served the US National Interest

Sunday, November 20, 2011

Noda Provided Crucial Help to Obama's TPP Coup

Tokyo- (PanOrient News)

By Anthony Rowley

What a comeback! Earlier this a year, America appeared to be in real trouble, the dollar was seen to be on the skids as Congress tore itself apart over the budget deficit while US power projection in Asia and elsewhere looked to be crumbling along with the greenback. China was seen as the coming power whose time had come.

Then, things changed. Almost overnight, the euro went from being seen as an alternative to the dollar to being a currency whose very future was in doubt. The dollar staged a comeback and president Obama charged into Asia promoting a US-led Asia-Pacific free trade initiative, promising to station Marines in Australia and making strategic advances to Myanmar.

Has all this been good luck, or good strategy? The euro's distress, which replaced the image of America going broke with that of the eurozone going bankrupt, has "the footprint of Washington" all over it," says one former US Treasury official and development bank vice president, speaking on condition of anonymity.

Not everyone agrees. Charles Dallara, managing director of the Washington-based Institute of International Finance and the man negotiating Greece 'haircut' on behalf of private creditors says that investors there and in other eurozone countries finally saw the light on how over-indebted these countries had become and dumped their bonds.

Whatever the truth behind the euro's sudden fall from grace it has certainly served the US national interest well. The dollar's role as the world's leading reserve currency is no longer being questioned (at least for now), because with the eurozone in danger of breaking up there is no place else to go other than the dollar.

The eurozone crisis also neatly squashed French president Nicolas Sarkozy's plan to have the G20 group of leading advanced and emerging economies come up in Cannes at their summit there this month with a blueprint for reform of the international monetary system which would have included an alternative global reserve currency to the dollar.

While the dollar looked sick and the euro healthy, president Barrack Obama was not in a good position to throw US weight around in Asia, or anywhere else for that matter. A devalued dollar makes it difficult to make credible commitments, whether economic or military, to any other country and yet that was the position the US had begun to find itself in.

But within a few months of the eurozone crisis erupting Obama was able to visit Australia promising Prime Minister Julia Gillard that the US would station 2,500 Marines in Darwin, and to tell the APEC summit in Hawaii and the ASEAN summit in Bali that Washington was re-launching its role as a primary power in Asia.

Little effort was made to disguise the fact that all this was part of a strategy of 'containing' China - the challenger to American supremacy on the economic and increasingly on the military front, in the same way that the euro had become the main challenger to dollar supremacy.

Obama used diplomatic phrases to obscure the intent but geo-political and economic super-strategist and former US secretary of state Henry Kissinger was reported as saying in a speech in Okayama Prefecture last week that ''the centre of gravity of the world has switched from the Atlantic to the Pacific,' stressing that the US and Japan needed to work together to contain China's growing assertiveness.

The strategy is working well so far. Obama was all over the annual summit of the ten ASEAN Southeast Asian states and the so-called East Asian Summit (EAS) held there earlier this month quite over-shadowing other national leaders in terms of the publicity he received, even though the EAS is a notionally powerful group embracing the ASEAN ten plus Japan, China, South Korea, Australia, New Zealand and India. The US and Russia are in process of joining too.

Obama even announced in Bali that he would be sending secretary of State Hilary Clinton to Myanmar (formerly Burma) next month to sound out the government in Yangon on how serious it is in promising democratic reforms. Since Myanmar is to be the chair country of ASEAN in the coming year, it seems likely that it will be anxious to humour Washington for the time being and show at least some concessions.

The US (and Obama) appear to be well and truly "back" in Asia, with the president promising all kinds of largesse, including military aid, promises it appears better able to keep with the dollar back in favour, although if a Congressional deficit-reduction panel which is supposed to agree a $1.2 trillion spending cut package this week fails to reach agreement the dollar might find itself back in the firing line.

The president's real coup came in Honolulu a week before the ASEAN summits where he chaired the annual summit meeting of the Asia Pacific Economic Cooperation forum (APEC) which embraces 21 Asia-Pacific nations. He succeeded in getting Japanese Prime Minister Yoshihiko Noda to sign up as a potential partner in the Trans-Pacific Partnership (or Trans-Pacific Strategic Economic Partnership Agreement to use its unwieldy but interesting full name).

Anyone can be excused for not knowing exactly what the TPP is. Virtually no-one had heard of it before former Japanese prime minister Naoto Kan declared at the APEC summit in Yokohama last year that this obscure group was the best vehicle to achieve the still rather nebulous goal of a Free Trade Agreement of the Asia Pacific or FTAAP
It came as a surprise to many to learn that the TPP's claim to being "trans-Pacific" stemmed from the fact that former prime ministers Goh Chok Tong of Singapore and Helen Clark of New Zealand joined then Chilean president Ricardo Lagos at the APEC summit in Mexico in 2002 to launch negotiations on what was known then as the Pacific Three Closer Economic Partnership (P3-CEP).

Brunei joined in 2005 and the four partners announced the successful conclusion of negotiations on a Trans-Pacific Strategic Economic Partnership Agreement (Trans-Pacific SEP) at the APEC Trade Ministers meeting in Jeju, South Korea. But it was still an obscure grouping by global or Asia-Pacific standards

It would probably have stayed that way had not the US hit upon the idea (with a little help from certain Asian friends) that the TPP was a handy vehicle for an effective takeover, so that the US could present a viable existing alternative to other Asian trade blocks - provided that the TPP was beefed up.

Washington declared that it would sign no more bilateral free trade deals with Asian nations of the kind it had earlier agreed with South Korea, so anyone wanting to an FTA with the US in effect had to go through the TPP door. Australia, Vietnam and Malaysia wanted in, and Canada and Mexico are interested.

But of course the TPP could hardly claim to be Pan Asia-Pacific in nature if none of the big three Asian powers - China, Japan and South Korea were in. China is not interested, for strategic as much as other reasons while South Korea having negotiated FTA with the US and the EU does not really need the TPP.

That left Japan and Tokyo administration - those of Kan and Noda - have as usual responded to US pressure and are opting to come on board, or at least to enter TPP negotiations, which is much the same thing. Whether any Asian nations is wise to join a club that does not include China, their biggest trade partner, in its membership is questionable, however intimidating China's behavior may sometime appear. Obama has achieved a coup but it could be a Pyrrhic victory for Asia.

Anthony Rowley is a long-standing expert on East Asian economic and financial affairs, resident in Tokyo

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