Three key world issues will dominate this coming year: the handling of the global recession, the war in Afghanistan-Pakistan, and the reform of the world banking system. On each the entrails do not look promising. The world economy remains in a highly fragile state with enormously bloated public debt almost everywhere, excessively high unemployment, and whole economies only saved from collapse by huge infusions of public spending in one form or another – quantitative easing in the UK, huge tax breaks in the US housing market, enormous expansion of credit in China (with a real risk of a big bust after an artificially created boom), and consumer expenditure boosted in France and Germany by big incentives to spend. There is a chance that this salvaging operation on an unprecedented scale may work smoothly, but it would be surprising if there were not some unpleasant and dangerous upsets. In particular, the trade-off between reducing the budget deficits fast enough (to avoid a strike in the bond markets) yet avoiding hitting a precarious recovery over the head and pitching it into a double-dip slump is a very fine judgement. There will almost certainly be errors.

The war of occupation in Afghanistan and the civil war in Pakistan are going badly, and neither the US surge nor the change of tactics are likely to do more than postpone the inevitable. Even the significant increase in troop numbers that will be delivered this year is still far short of of what most military analysts believe is necessary to pacify the country – a force level in excess of 500,000. The decision to change direction by massively increasing the training of Afghan police and security forces is badly handicapped by the preceived lack of legitimacy of the Karzai government, the continuing very high level of corruption, the capricious loyalties of a high proportion of Afghans, and a very tight timescale before the window of domestic political consent (already showing clear signs of weakening) finally closes because of casualty levels in a war of uncertain purpose. Equally in Pakistan the army may clear the Swat Valley, but seeking to take and hold the badlands of Waziristan may unleash terrorist or guerrilla action across Pakistan which the Zardari government may well be unable to control, particularly given the provocation of US drone attacks and special forces incursions.
The prospects of serious banking reform are tenuous. The neo-liberal nexus between the multi-national banks and the State, though badly dented by the 2008-9 financial crash, still remains intact throughout the Western world. Obama shows no real disposition to take on Wall Street. In Britain the government still refuses to take public control of the banks (though that would be a much less costly and more efficient option) unless absolutely forced to do so because there is no other alternative, then when it is forced to do so returns them immediately to the private sector in effect by putting them under the control of a panel of private bankers, and in particular refuses to compel the banks to maintain high lending to businesses and homeowners even though that was a condition of bailing them out in the first place and even though that refusal by the government to intervene has led directly to a much higher level of bankruptcies, unemployment and repossessions. Since both New Labour and the Tories remain wedded to the neo-liberal model, the radical reform of financialised capitalism that is now so patently needed will not happen till that power structure is challenged. That will not happen in 2010, whoever wins.

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