Pierre Buhler: World still needs leadership from weary US titan

The unfolding "currency war," which is likely to dominate discussions at the upcoming G-20 summit in Seoul, must be assessed against the backdrop of the new landscape of power - a landscape that has been transformed, in just two years, by the first crisis of the globalised economy.

The economic consequences of the crisis have left a number of developed countries scrambling to bring about a healthy recovery. By contrast, the emerging-market countries, after a short slide, have managed to re-ignite their engines and are racking up impressive growth rates.

There have been financial and monetary consequences as well. Although no currency is, as of yet, qualified to replace the dollar as the world's reserve and transaction currency, this "exorbitant privilege," as Charles de Gaulle put it, has come under stealthy attack. In March 2010, the ASEAN + 3 grouping, which includes China, Japan, and South Korea, established a reserve fund of $120 billion under the so-called Chiang Mai Initiative. This time, unlike during the Asian crisis of 1997, the United States did not even attempt to torpedo this embryonic "Asian monetary fund".

After coping well initially, Europe entered choppy waters when confronted with the prospect of Greece defaulting on its public debt. The crisis within the crisis revived doubts about the viability of a monetary union with large competitiveness gaps between its members.

The crisis has also intensified political problems. Japan, arguably the hardest hit by the global recession, faces an increasingly severe moral, demographic, and governance crisis, highlighted by its recent loss, to China, of its status as the world's second-largest economy. In Europe, bickering between leaders revealed the lack of solidarity underpinning European ideals.

Finally, the crisis has shattered the ideological dominance of the West. In the past, financial crises often originated in emerging economies. This time, powered by the dogma of market resilience and self-correction, the storm formed at the heart of the world economy, the US.

The natural instinct of many is still to look at the American economy, towering over the rest of the world with its $14 trillion GDP, as the engine of global recovery.

However, the economic powerhouse that for decades confidently provided hegemonic stability to the global economy seems at pains to continue doing so. An increasingly uncompetitive civilian industry, the burden of military commitments overseas, wage stagnation: all signal that the American titan may be wearying.

The most worrisome sign, though, is America's rising public debt - now at 95 per cent of GDP and, according to the official General Accounting Office's conservative estimate, is set to soar to $18.4 trillion by 2018.When the implied liabilities of social security and Medicare are added, an unprecedented level of peacetime debt faces the US.

The alternative to a world in which America guarantees global prosperity and stability within a liberal order is one of increasing conflict. Only a multilateral settlement can ensure a smoothly working global order - a cause advanced in late 2008, when the technical G-20 forum was quickly upgraded to a full summit in charge of global governance. Encompassing all big emerging economies, this appeared to be the most effective way to muster the legitimacy denied to the G-7. Can the G-20 deliver on its promise? As the chaos at the climate-change conference in Copenhagen last December amply demonstrated, both the number of members around the table and the differences between them do not bode well. The present currency war is but another sign of that disorder.

Of course, due to its sheer military might and numerous alliances, the US will remain on top for the foreseeable future. Indeed, while hubris and the crisis have seriously undermined the world's "hyperpower," no multipolar order has emerged to follow America's unipolar moment. America has become the "default power", because China, the most likely challenger, is, by its own admission, a long way from economic or military parity with the US.

Yet military dominance alone is unable to confer authority. Having succeeded in integrating the West through prosperity and security after 1945, America must begin to craft a new global leadership structure.

• Pierre Buhler, a former French diplomat, was an associate professor at Sciences Po, Paris.