by Tomas Valasek

What the future holds for Iran's theocratic regime is hard to read. True, the government has ensured its own survival by suppressing last month's protests there with brutal force. President Mahmoud Ahmadinejad will remain in power despite a contested election. But the authority of the regime has suffered. The president has lost legitimacy in the eyes of millions of Iranians. The country's supreme leader, Ayatollah Ali Khamenei, who urged force against the protestors, has lost much of his popularity. The events of June 2009 could turn out to be the beginning of a deeper challenge to the Islamic republic: Iran observers point out that the country's 1979 revolution was preceded by a long build up of low-level agitation.

What is clear is that the violence around the presidential election bodes ill for western diplomacy to end Iran's nuclear ambitions, in at least two ways. First, Barack Obama will be under pressure to rethink the offer of 'engagement grounded in mutual respect', which he extended to the government in Iran in April 2009. On the other hand, the US will now find it easier to convince the Europeans to toughen the sanctions regime on Iran, thanks to Tehran's heavy-handiness.

Iran's nuclear programme is run directly by the country's supreme leader, not the president. The recent political turmoil will have had little effect on it. Even if the challenger, Mir Hossein Mousavi had won the presidency, Iran would have almost certainly continued to enrich uranium. Mousavi said during the campaign that he would not abandon "Iran's right to nuclear technology". Some Iran watchers have speculated that Mousavi would build enrichment facilities but not nuclear weapons, lest he put Iran in even deeper isolation. In reality, the president's views have little bearing on the nature of the nuclear project.

The West has long been worried that Iran is building a nuclear bomb, or at least acquiring all the necessary ingredients. However the more immediate concern now is the prospect of an Israeli military strike on Iran. US officials say they fear that Israel may try to destroy Iran's nuclear facilities this autumn, before Russia delivers a batch of modern anti-aircraft missiles recently purchased by the Iranian regime.

To prevent Iran from acquiring nuclear weapons – and to keep Israel from attacking – Barack Obama launched a new diplomatic push in April 2009. He has promised to join the European-led talks with the government in Tehran. US negotiators are rumoured to be considering dropping a key western condition for the talks, namely that Iran shut down its enrichment programme before the negotiations start. Obama also recorded a video statement to the Iranian people, in which he has offered a partnership between the US and Iran. The idea was to win the Iranian regime's goodwill by showing it the respect it craves, and to spur the Iranians into pressuring the leadership to pursue a less confrontational line with the US.

The second pillar of the US strategy has worked very well. While most Iranians support the nuclear programme, many of the young ones are increasingly frustrated with the country's pariah status. Mir Hossein Mousavi, surged ahead in the polls after he accused president Ahmadinejad of leading Iran into the 'indignity' of international isolation.

But Mousavi failed to win – or was prevented from winning – and the post-election protests have undermined the overall strategy. Iran cannot negotiate because the government is 'too busy locking people up', said one EU official working on the Iran dossier. If Ahmadinejad and Khamenei do fully consolidate power, this will create another headache for the West: how can Barack Obama speak to a regime which has likely rigged elections and brutally suppressed democratic protests? Obama is already under fire for being "soft" and "naive" regarding Iran. Admiral Michael Mullen, the chairman of the US Joint Chiefs of Staff, recently urged him to take a harsher line, noting that Iran's nuclear programme was progressing whatever the domestic situation there. Even if Obama starts talks with Tehran, he may feel compelled to satisfy Mullen, and others, by employing tougher rethoric. This would likely cause the talks to collapse prematurely.

If, as is likely, engagement does not generate a generous response from Tehran, the US will want to tighten existing sanctions on Iran. Some governments like the German and Italian ones, have been known to be sceptical about the need for further sanctions; the Italian foreign minister published an article in early June calling for the West to be nice to Iran. But the violence in Tehran has made the doubters more inclined to penalise the Iranian government, EU officials say.

However, fresh UN sanctions may be blocked by Russia, and possibly China. Both are members of the UN Security Council and oppose a harsher line on Iran. If the US and the EU apply unilateral sanctions, these will be less effective. Meanwhile, Israel may decide to attack, or Iran may race to acquire a full nuclear weapon. So the furore over Iran's presidential election – by throwing up new obstacles to diplomacy – has made the job of resolving tensions over its nuclear programme harder. That may prove the deadliest legacy of the events of the last few weeks.


Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.

by Tomas Valasek

The final result of the Afghan election may not be known until the end of September, but it looks as if President Hamid Karzai will have done well enough to avoid a second round of voting. This is causing dismay in some western capitals, where some senior figures now view Karzai as a key obstacle to Afghanistan’s reconstruction. If he stays in power, people in many European countries are likely to become increasingly disenchanted with the ‘mission impossible’ that their soldiers are undertaking, and that would increase the probability of European forces being withdrawn.

A senior UK diplomat recently described the problems posed by Karzai’s government for western attempts to reconstruct Afghanistan. “Our game plan is to use foreign troops to create enough breathing room for the Afghan government to assert its authority throughout the country,” he said. “But if the government whose authority we help to assert is widely viewed as corrupt and incompetent, we have no chance of succeeding.”

Karzai’s government has earned its inglorious reputation for several reasons. Washington suspects that some of its top officials are involved in the drug trade, including the president’s brother, Ahmed Wali Karzai, as well as the defence minister, Karzai’s running mate and the potential future vice-president, Mohammad Fahim. Corruption extends downwards through the bureaucracy. Western troops say that many Afghan policemen steal valuables during searches of houses. Local leaders complain they have very little effort from the Kabul government to rebuild roads or resuscitate the economy; it is the western governments and NGOs that deliver the little progress that there is.

In his early years as president, Karzai offered hope for a new future and was genuinely popular. In 2005, 83 per cent of Afghans approved of president Karzai and 80 per cent approved of the national government overall. Today those figures have dropped to 52 and 49 per cent, respectively. Those are still solid numbers that some western leaders would envy. But the support has been on a constant slide for the past four years because more and more Afghans have given up hope that the current government will deliver stability or prosperity.

The US, the UK and other key troop-contributing governments worry that a Karzai victory heavily tainted by allegations of fraud will further disappoint the Afghans and embolden the Taliban. And in the western countries that send the troops his re-election could also fatally undermine public support for the mission. The latest opinion polls show that about two-thirds of Britons want UK troops out of the country – not only because of rising casualties, but also because of the perception that Afghan politicians are using their authority, which rests on the support of western troops, for self-enrichment.

The US, for now, has little choice but to stay put. The US public is as fidgety as that in Britain but President Obama has made success in Afghanistan a key plank of his foreign policy and he will not want to give up so soon. The US may send more troops if General Stanley McChrystal, the commander of US and NATO forces in Afghanistan, requests reinforcements.

The situation is different in other NATO allies. The Dutch are scheduled to leave next year, and the Canadians say they will withdraw in 2011, though NATO is working hard to get both governments to change their mind. That may prove impossible unless events in Afghanistan give the public some reason to believe that NATO is managing to turn around its flagging mission. Even the British presence cannot be taken as guaranteed, if public support for it continues to slide.

The prospect of European troops departing brings two risks. One is to the security of Afghanistan itself. Together, the UK, Canada and the Netherlands supply the bulk of the troops that keep a semblance of order in three of the volatile southern provinces (though the US is reinforcing its presence in the south). NATO and the EU are busy training new Afghan soldiers and police to replace the western troops. But on the evidence of the past few years, the central government is unlikely to have enough properly trained replacements to take over from the Europeans anytime soon. Some local Afghan leaders say that if the Europeans withdraw in the next year or two, they will leave the country too, or strike deals with the Taliban. Either way, the government in Kabul would lose out. The second risk is to NATO itself. Why should Washington take the alliance seriously if it finds itself manning the ramparts in Afghanistan alone?

To prevent European support for the war in Afghanistan from collapsing, the governments need to take two steps. First, those capitals that have done little to drum up public support for the mission need to step up. In the UK, Prime Minister Gordon Brown gave a major ‘why we fight’ speech on September 4th. More effort of this sort is needed. Second, assuming that Karzai is declared the victor, the West needs to find ways of making clear to is government that it needs to do more to fight corruption. This could include withholding EU and national aid from the most corrupt parts of the Afghan government.

Getting the Kabul government to change its ways will not be easy: when the US special representative, Richard Holbrooke, recently suggested that Afghanistan might have to deal with complaints of ballot-rigging by holding a second round of elections, Karzai walked out of the meeting; he later told a French newspaper that the US wanted him to be more “docile”. But the European governments and Washington are right to try. The government in Kabul and its western partners need to find ways of changing the perception that the Karzai government is failing, or public pressure may force European troops to withdraw sooner than is good for the country.

Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.

by Charles Grant

Have western attitudes to the rise of China been based on wishful thinking? China’s increasingly tough approach to diplomacy is leading governments in the US and in Europe to rethink their policies towards China. Western leaders are starting to question some of the optimistic assumptions on which those policies have been based.

Until very recently, many western bankers, business people and politicians were broadly optimistic about the rise of China. They assumed that as China became more developed it would become more western. As it integrated into the global economy its society would open up, it would play a constructive role in multilateral institutions, and it would help western governments sort out key foreign policy challenges. China’s leaders seemed to understand that their top priority – the economic development of their country – required friendly relations with other major powers, notably the US.

There has also been a pessimistic view of China’s rise, held by people in the US defence establishment, some right-wing think-tanks and the human rights lobbies. They have argued that as China develops it is becoming more assertive, less willing to compromise with the West, less welcoming to foreign investors and more repressive politically. Like other rising powers throughout history, the pessimists have thought, China would disrupt the international system. They have pointed to China’s soaring defence budget as support for their case.

Of course, both views have been based on truth. China is not a monolithic entity. Within the leadership, many institutions and personal and ideological factions compete for power. But until recently the optimists dominated western views of China. I was an optimist when, two years ago, I wrote (with Katinka Barysch) ‘Can Europe and China shape a new world order?’ (http://www.cer.org.uk/pdf/p_837.pdf). Our report argued that China was evolving into the “responsible global stakeholder” that Robert Zoellick had urged it to become when he was US deputy secretary of state.

Over the past year the optimists have found it increasingly difficult to sustain their view. There are still examples of China being helpful – for example, it has sent ships to catch pirates in the Indian Ocean, and engaged in G20 discussions – but overall it has become a much pricklier partner.

China’s foreign policy has become more assertive. Its claims to the Indian state of Arunachal Pradesh have become more vociferous. It is being less helpful to the West over the Iranian nuclear problem – and has become more hostile than Russia to further sanctions on Iran. Its treatment of the EU is sometimes contemptuous – it cancelled one summit and regularly punishes countries whose leaders meet the Dalai Lama in an official setting. Western governments have suffered increasingly powerful cyber-attacks that have been traced to mainland China.

China’s political system has become more repressive. Moves to introduce greater democracy into local government and the Communist Party have faltered. Dissidents are facing a tougher time. In December Liu Xiaobo was sentenced to 11 years in prison for organising a pro-democracy petition.

China’s economic policies have become more nationalist. Many foreign investors in China complain about exclusion from key markets and unofficial forms of discrimination. China’s manipulation of its currency downwards, driven by a mercantilist desire to boost exports and foreign currency reserves, exacerbates the problem of global economic imbalances and is fuelling protectionist sentiment in other countries.

Recent events have brought home to public opinion in the West how China is changing. At the Copenhagen climate change conference in December, China worked hard behind the scenes to scupper the kind of deal that western countries and many poor nations wanted (at one point it sent a deputy foreign minister to negotiate with Barack Obama). And this month Google has said that it may leave China because of cyber attacks on its business and increasingly stringent internet censorship.

If one talks to people in China about the troubled state of relations between China and the West, many of them are baffled. They know little of the incidents that have caused problems, which are unreported in the Chinese media. They say that most Chinese people are focused on domestic issues – such as jobs, pollution and soaring house prices – rather than foreign policy.

So the source of China’s tougher line seems to be the leadership, rather than pressure from the people. Three factors may explain why hard-liners are winning more arguments within the leadership.

• China’s economy has performed impressively during the global recession, growing by 9 per cent in 2009. Meanwhile the western economic model is viewed as discredited. China’s leaders would not be human if they did not feel a bit cocky – especially since they have been on the receiving end of patronising lectures from western leaders about the superiority of western capitalism. The emerging super-power feels it has the right to assert its own interests more forcefully.

• Yet China’s leaders feel insecure. The unrest in Tibet (in 2008) and Xinjiang (in 2009) caught them by surprise. Rapid economic growth and urbanisation are creating huge social tensions. Endemic corruption makes local party bureaucrats unpopular. The booming housing market – fuelled by the government selling land to property speculators – means that many young middle class people cannot afford to buy flats. Few Chinese people want western-style democracy, but the leaders know their legitimacy is built on thin foundations. Hence their reluctance to allow a more open society.

• The current leadership, led by Hu Jintao and Wen Xiabao, is due to hand over to the ‘fifth generation’ of leaders in 2012. There is much manoeuvring for position. The machinations within Zhongnanhai, where the top communists live and work, are impossible to decipher. But some key figures seem to be pushing a nationalist line in order to boost their support among party cadres. In China, as in most countries, nationalist policies can be popular.

American attitudes to China are palpably hardening. At some point this year the US may declare China to be a currency manipulator and then apply protectionist measures. The EU finds it very difficult to get tough with anyone. But European leaders are increasingly critical of China, at least in private. China’s leaders should not assume that European markets will remain open to them indefinitely.

China’s attitude to international relations is ultra-realist. It will take what it can get, while respecting power and facts. But China’s leaders may have miscalculated by underestimating the impact of their harder line on Washington and European capitals. How well-informed are the people in Jonghnanhai? Do they receive objective reports on how Chinese words and actions impact on western political systems? And do they care what western leaders think?

Undoubtedly, there are Chinese leaders who stand by the premise of the ‘peaceful rise’ slogan – that China’s economic development requires some modesty in international affairs and good relations with the West. When the most senior leaders see that their current approach may spur several powerful countries to work together to contain China, they may wish to modify their course. But if they maintain the hard line for a prolonged period, China’s relations with the West will become very tense. Free trade and the world economy may well suffer.

Charles Grant is director of the Centre for European Reform.

By Katinka Barysch

George W Bush convened the first G20 summit in Washington in November 2008, at the height of the global financial and economic crisis. At two further summits in 2009, G20 leaders pledged to co-ordinate their economic stimulus packages (as well as exit strategies), avoid protectionism, address global imbalances, triple the resources of the IMF, and work out stricter rules for banks, hedge funds and other financial players.

The G20 was hailed as the body that would prevent the global economy from hurtling into another great depression. It would also allow the world's top economies, including for the first time the big emerging markets, to co-ordinate their policies in such a way as to make future crises less likely. 

"Whatever happens, the G20 is already a winner", wrote Martin Wolf in the Financial Times at the time of the G20 Pittsburgh summit in September 2009. "The fact that it has become central to global policymaking may prove a more important legacy of this crisis than any specific agreements it reaches."

Less than 18 months after the initial Washington summit, however, the G20 has almost disappeared from public view. As growth has returned in most countries, the sense of urgency to 'fix' the world economy has started to fade. The new body's legitimacy is already being questioned. That is unfortunate because the G20 still has a daunting to-do list. The risk now is that the debate about what the G20 should do is superseded by one about what it should look like.

Critics are right that the G20 is unwieldy. Once the representatives from international organisations such as the IMF and the WTO, as well as regional groupings such as ASEAN, are added, the total number of leaders and top officials at G20 summits is closer to 30. The easiest way to cut the G20 down to size would be to reduce Europe's over-representation: France, Germany, Italy and the UK are members. Spain, which holds the rotating EU presidency, will once again attend the next G20 summit. So will the presidents of the European Commission, the European Council and the European Central Bank (and now Jean-Claude Juncker, who heads the eurogroup, wants to come, too). The fact that one third of G20 participants hail from Europe and only two from Africa reduces the legitimacy of this body in the eyes of many poorer countries.

The Europeans will one day have to streamline their representation. (Meanwhile, Pascal Lamy suggests how the Europeans can make less of a nuisance of themselves, see 'Too many Europeans in G20: If you must hog the seats, could you at least talk less?'.) Perhaps other emerging economies will be added instead. But this is not the time to open the Pandora's box of who should be allowed to attend G20 summits. If the group is to regain momentum and authority, it needs to first and foremost deliver on its promises.

On trade, G20 governments have not fully lived up to their pledge to refrain from protectionism. In the 12 months following the Washington summit, the countries represented there adopted 179 policies that harmed foreign trade, investment or workers, according to Global Trade Alert. The overall damage, however, has been limited and the pace with which G20 countries have imposed new tariffs and anti-dumping actions has slowed in the last six months. World leaders had also instructed their trade negotiators to finish the WTO's Doha round by the end of 2009. But multilateral trade talks remain stuck.

The G20's report card is similarly mixed when it comes to re-regulating financial markets. Despite the promise to work out new rules together, several G20 members have announced measures without consulting their partners, for example the US administration's Volcker rule or the EU’s alternative investment directive. Nevertheless, the newly established Financial Stability Board (consisting of G20 finance ministers, central bankers and regulators) has helped to forge a broad consensus on what needs to be done in terms of capital and liquidity ratios, bankers' pay and so on. At the next G20 summit in June in Toronto, governments are likely to back plans for a new levy on banks.

Least progress has been achieved on global imbalances. The G20 has been sidelined, while the real discussions about exchange rate policies and trade balances have taken place between Washington and Beijing. Whether the Americans manage to put global imbalances on the Toronto agenda despite Chinese opposition is a serious test for the new forum.

To achieve results, the G20 leaders need to do two things. First, they need to concentrate on unfinished business and resist the temptation, or the pressure, to take on new tasks. The G20 has rightly rejected suggestions that it should discuss geo-political issues, such as Iran's nuclear programme. It should avoid being saddled with global climate change discussions. South Korea's idea of adding development and poverty reduction to the agenda of the G20 summit in Seoul in November is harder to dismiss. Such a broadening of the agenda would keep emerging economies interested and show that the G20 agenda does not merely reflect rich countries' interests.

Second, for the G20 to make a difference, leaders need to focus on the urgent but unexciting task of integrating the G20 into the existing systems of global governance. The G20, like the G7/8 before it, is a process, not an organisation. It cannot take legally binding decisions. It does not have a permanent secretariat. But it does have a signalling function that can galvanise governments and other international organisations to act. It did so, for example, by adopting a strong stance on tax havens at the London summit in April 2009. In March 2010, Angel Gurria, secretary-general of the OECD, said (at the GMF Brussels Forum) that on taxation and transparency, there has been "more progress in the last 12 months than in the previous 12 years, because of a clear mandate from the G20". But not all institutional links function that smoothly. Officials in the UN and other venerable bodies resent that the G20 is hogging the limelight. Yet it is these bodies that will have to implement G20 decisions.

Katinka Barysch is deputy director of the Centre for European Reform.