The InternationaList: China, Italy, Iraq, more

Palaces Over People In Italy
By Barbie Nadeau
It's been more than a month since an earthquake devastated the Italian city of L'Aquila. But nearly 1,500 residents are still living in tents, as the government rebuilds churches and ancient palaces ahead of residential buildings. L'Aquila will host the G8 summit in less than two months; since church restorations are being funded by foreign donations, there's speculation that Prime Minister Silvio Berlusconi wants to show G8 leaders that their investments are producing results. (Click to view a photo gallery of the Italy Earthquake)

But L'Aquila's residents and opposition leaders are criticizing the focus on antiquities ahead of housing. While the city's hospital is still functioning below full capacity and tent camps lack hot water, reconstruction funds are being funneled to the city's Duomo, its 15th-century San Bernardino church and even to five-star hotels and the local airport (which was not even damaged in the quake). Tent-camp residents have been told their first permanent housing—prefabricated huts—will be in place by Sept. 10. The G8 leaders, meanwhile, have been promised a place to sleep by July 8. "Our philosophy has always been clear," said Berlusconi on a recent visit to the area. "The people come first." Many in L'Aquila wonder which people he meant.

Righting the Scales
By Rana Foroohar
you've heard the bad economic news—the most recent U.S. GDP numbers are the worst since the 1970s. And you've heard the good news—that markets and factory orders are up. But the economic indicator that really matters is one you probably haven't heard about: the "current-account imbalance" between America and China is finally shrinking. That means the gap between what we're exporting and what we're importing is declining. That's important because during the boom, the Chinese plowed all the dollars we spent buying their stuff, plus the money they saved, into U.S. government securities, fueling a big debt bubble.

Now suddenly thrifty Americans are buying far less from the Chinese. Goldman Sachs expects the U.S. current-account deficit to narrow to about 3 percent of GDP this year, down from a peak of 6 percent, and for China's current-account surplus to narrow to 8 or 9 percent, down from 11 percent. The upshot is that the global economy is starting to rebalance, and that eventually will lead to much-needed financial stability.

Even better, Americans can take most of the credit for the progress so far. The correction is largely due to greater U.S. savings and increased domestic investment. The U.S. personal-savings rate has risen from zilch last year to 3 percent of disposable income, and Goldman expects it to rise to 8 percent by the end of next year. Who says all Americans do is shop?

Iraq, Mon Amour
By William Underhill
America may yet win the war in Iraq, but France, which bitterly opposed the war, looks set to win the contracts. Iraq needs at least $400 billion to restore its battered infrastructure, and a slump in oil prices means Baghdad is eager to attract private money. Foreign investment rose 1,500 percent as stability returned last year, but U.S. firms are "negligible players," says a report from Dunia Frontier Consultants of Dubai. That's in part because "U.S. firms with the highest tolerance for risk don't have the history or the experience" to work in Iraq, says Kyle Stelma of Dunia. But the French do, thanks to political and business links that date to the Saddam Hussein era, when France built much of the infrastructure that now needs replacing, including the Osirak nuclear reactor later destroyed by Israeli warplanes.

French President Nicolas Sarkozy has not hesitated to push this advantage. In February he went to Baghdad to drum up business, telling French companies at a press conference that "the time has come to return to Iraq." Prime Minister Nuri al-Maliki repaid the visit this month, further strengthening ties. France also plans to build a new embassy in Baghdad and two new consulates in Erbil and Basra. French construction giant Lafarge already accounts for one in four tons of the concrete poured in Iraq. Total has been invited to develop (with Chevron) two major oilfields, and the government wants French aid in reconstructing the nuclear-power plant it first built in the 1970s. To the surrender monkeys go the spoils.

The Political Gets Personal In Egypt
By Steven A. Cook
In late May, Egyptian President Hosni Mubarak will visit Washington for the first time in five years, in large part to make sure U.S. aid keeps flowing. In recent years, as part of the Bush administration's Middle East democracy drive, Washington has threatened to cut Egypt's aid package—still the world's second largest—unless Mubarak liberalized his politics and increased the share of aid it devotes to democracy and governance by 133 percent.

Yet this hasn't improved Egypt's politics much: the state continues to arrest journalists and intimidate voters. In fact, the pro-democracy push may be having the opposite of its intended effect. To fund toothless liberalization initiatives, Washington has cut programs devoted to agriculture, the environment, health care and infrastructure development by 44 to 100 percent. But the United States would receive the best return on its investment if it shifted its Egypt aid back to these areas. A healthier, wealthier Egyptian population is more likely to push for democratic freedoms than a poor one being preached to by the West.

Today more than ever, Beijing seems unstoppable. While the United States is trying to fight a massive economic contraction and to restore its image, China is growing and extending its influence. Last month at the Boao Forum (Beijing's answer to Davos), Chinese speakers derided Washington for its financial mismanagement, called for the establishment of a new reserve currency and demanded more influence in the global economy. A few days later, Beijing showed off two nuclear subs and vowed that its blue-water force would soon project power into the Pacific and beyond. Journalist Martin Jacques recently wrote in The Guardian that "China has reached a point where it is now clearly prepared ... to assume a more active global role."

But it's worth asking whether China is really ready to call the shots, even regionally. Modern-day Asia is a messy, multipolar place that doesn't lend itself to hierarchies. China is much bigger than its neighbors in terms of the size of its economy, but by other measures—technology, per capita GDP or the strength of its institutions—it's far from dominant. China's own prime minister, Wen Jiabao, said recently that structural problems are causing "unsteady, unbalanced, uncoordinated and unsustainable development." Japan is far less corrupt and better managed, and holds a vast technological lead—Japan's total investment in state-of-the-art batteries was 10 times greater than America's over the last decade, while China is just entering the game. Even South Korea—a country that considers itself a "shrimp between whales"—has emerged as a dynamic, high-tech economy. In the recent International Innovation Index, South Korea scored second in the world, while China landed in 27th place.
In many ways, the whole idea of a No. 1 is becoming passé. Some experts argue that Asians remain wedded to the idea because Confucian tradition emphasizes respect for hierarchy and order. But look at how Singapore is exploiting the importance of information technology to command a disproportionately large global role. Or at how international trade and the Internet make it tough for Beijing to maintain order at home. The global era does not respect age-old hierarchies.

Some political scientists compare modern Asia to Europe in the 19th century, with great powers still jockeying for control. Yet this point too underlines just how far China is from regional supremacy. No single nation was able to dominate 19th-century Europe. Similarly, it's not clear China would win even a small military conflict with Japan, much less a larger one that drew in Japan's main ally: the United States. That doesn't mean there's no reason for neighbors to prepare for a more aggressive China, but they'd be better served promoting an Asia of many powers. At least the Obama administration seems to get this: when Hillary Clinton visited the region in February, her first stops were Japan, Korea and Indonesia. Only then did she stop in Beijing, where she called on the Chinese and Japanese to work together on climate change. That's just the kind of transnational issue that demands cooperation, not great-power jockeying—and the kind of problem that pays no attention to who's on top.

Slow-and-steady may win the race in fables, but that's not always how it works in the economy. Since 1992, the United States has grown at a speedy 3 percent; France and Germany have plodded forward at about 1.7 percent a year. But as the world's economies slog toward recovery, Europe's tortoises look as if they just might hit the finish line first.

Pricey social safeguards—universal health care, unemployment benefits—help explain the difference, but attitudes toward government spending are also key. While Americans view state spending as waste, Europeans understand that governments spend money to acquire assets. That includes bridges and nuclear reactors, but also hard-to-price, intangible assets like a well-educated and healthy population. French President Nicolas Sarkozy has gone so far as to ask economist Joseph Stiglitz to look at ways to include intangible assets in measures of prosperity such as GDP.

Welfare programs have helped European consumers continue spending—U.S. retail sales fell nearly 10 percent in the year ending March 2009, but just 3.9 percent in France. As the economist Anton Brender wrote, "the income of a jobless French person is very much higher than most of the workers in the world!" Hares, on the other hand, don't collect generous unemployment benefits.

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