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Economic risk and geopolitical risk share agenda at World Economic Forum

By Gideon Rachman
Financial Times
Saturday, January 29, 2011; 12:41 AM

For the past two years, the World Economic Forum in Davos, Switzerland, has been dominated by fears for the global economy. This year, cautious optimism about the economy has returned. But as economic risk declines, geopolitical risk seems to be on the increase.

The forum's deliberations took place against the background of turmoil in Egypt and elsewhere in the Arab world. Terrorism is also back on the agenda, after Monday's bombing of Moscow's biggest airport. In addition, the increasingly tense relationship between China and the United States has served as a backdrop to many of the discussions at the WEF.

Davos delegates do not seem to know how to react to events in Egypt. The young people demonstrating on the streets of Cairo do not speak with the kind of voices that are represented at the forum. The most prominent voice from the Arab world in Davos has been Amr Moussa, the head of the Arab League and a former foreign minister of Egypt. But in his public appearances, Moussa has restricted himself to bland and generalized calls for "reform" in his country and elsewhere in the Arab world.

He has also suggested that unrest on the streets of Egypt and elsewhere partly reflects frustration at a lack of progress in the Middle East peace process. Other participants from the region have suggested that the Middle East is now subject to a "political contagion," similar to the financial contagion that caused sovereign-debt crises to cross borders in Europe.

Delegates have struggled to place the upheavals in the Arab world in the context of the kind of issues they are used to dealing with at the annual Davos gathering. There is growing concern about the political impact of rising food prices. Even emerging powers with strongly growing economies, such as India, China and Brazil, are felt to be vulnerable to popular unrest driven by food-price inflation.

Rising levels of income inequality across the world have also been a recurrent theme - and many delegates have pointed to their political consequences. George Papandreou, the prime minister of Greece, argued that in Europe, the middle and working classes were being squeezed while the rich continued to prosper. Papandreou said he feared that populist, nationalist and racist political movements would gain ground under such circumstances.

The bombing in Moscow put the threat of terrorism firmly back on the Davos agenda. Despite the bloodshed, Russian President Dmitry Medvedev kept his appointment to deliver the opening address to the forum. His speech was preceded by a minute's silence in memory of the victims of the bombing. In his address, Medvedev used his determination to honor his pledge to speak in Davos as a symbol of his broader determination not to yield to terrorism.

The future of globalization is a central concern of Davos delegates, so there has been considerable focus on trade. The threat of anti-Chinese protectionist legislation being passed by the U.S. Congress is thought to have receded a little, following the midterm elections. David Cameron, Britain's prime minister, made an urgent call for completion of the Doha round of trade talks by the end of this year, arguing: "It's frankly ridiculous that it has taken 10 years to do this deal. We simply cannot spend another 10 years going round in circles."

Speaking to the Financial Times, however, Mexican President Felipe Calderon was skeptical that a deal could be done. "I am not optimistic about the Doha round," he said.

Still, amid the political anxieties expressed at Davos, there have also been many pockets of optimism. Although there has been much head-shaking about the "paralysis" in the U.S. political system, particularly when it comes to addressing the United States' budget deficit, President Obama's stock seems to have risen. Last year, it was fashionable to debate whether Obama was turning into a "new Jimmy Carter." This year, there seems to be more confidence in his ability to lead, the midterm results notwithstanding.

The economic optimism of delegates from Asia, Latin America and parts of Africa has also spilled over into their approach to politics. Political leaders from the emerging world seem generally more cheerful than their harried Western counterparts.

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