The answer to such a question lies in history which is a good teacher, although its students are usually too busy to pay attention to it. Afghanistan is a land locked country nestled between Iran and Pakistan, with the former Soviet central Asian republics to the north. Despite its rugged and inhospitable terrain, great powers have jostled for it and poured blood and treasure to dominate it for centuries. The intervention has come for reasons as varied as empire building, safeguarding borders and proselytizing. In recent times, the Mughals and the Persians fought many wars over it in the 17th century. The British and Russians were involved in a rivalry that began in the early 19th century and lasted more than a century. This rivalry came to be referred to as “The Great Game” and led the British to fight three Anglo-Afghan wars, the first of which saw nearly 16,000 British troops slaughtered when they marched out of Kabul.

The collapse of the British Empire did not mean the end of rivalry. The Soviets and the Americans engaged in a global struggle for ideological hegemony and fought proxy wars across the world. Once the Soviets invaded Afghanistan in 1979, it became the frontline state in the struggle against communism. In a story now popularized by a Tom Hanks film, “Charlie Wilson’s War”, the Americans got Israelis, Egyptians, Saudis and Pakistanis to work together to fund and train “the mujahedeen”. Once the Soviets pulled out, many of the mujahedeen were transformed into the Taliban and the Americans lost interest in that part of the world. The Taliban was supported by Pakistan’s intelligence agency, the Inter Services Intelligence (ISI), and had close links with Al Qaeda. Therefore, once the Taliban took over Afghanistan, the country became a base from which Osama bin Laden directed the global operations of Al-Qaeda. What happened thereafter is well known. The 9/11 attacks took place and America intervened again and remains involved till today.

Post 9/11, Americans intervened for a clear purpose – destroy Al-Qaeda and dislodge the Taliban. It is important to remember that very few American ground troops were involved in the actual fighting. The bulk of the fighting was done by groups like the Northern Alliance whose leader Ahmad Shah Massoud had just been murdered two days prior to 9/11 by the Taliban. These groups comprised mainly of tribes which had been frozen out of power by the Taliban. Afghanistan is a patchwork of tribes with their rivalries, feuds and conflicts. The Taliban was a Pashtun phenomenon and therefore the Tajiks, Uzbeks, Hazaras and other tribes never really accepted their domination.

Once victory was easily achieved, America did not push home its advantage and lost focus. Aerial strikes weakened the Taliban and Al-Qaeda, causing most of the leadership to move across the border to Pakistan. Here, they have found refuge with the local Pashtuns who are Pakistanis by accident. The British fixed the borders through the Durand Line Agreement with the defeated Afghan government in 1893 splitting the Pashtuns across the border. Pakistani Pashtuns still have close ties with their Afghan kinsmen and provided shelter to fleeing senior leaders of Al-Qaeda including Osama bin Laden. American action weakened Al-Qaeda and impaired its ability to use Afghanistan as a primary base for its operations. However, as Al-Qaeda lost potency America got lulled into complacency and was distracted by Iraq. Soon the Taliban made a comeback, emerging as an insurgent group harassing foreign troops.

America made another mistake which has since come back to haunt it. It assumed that the newly elected Afghan government would keep the Taliban in check and bring the country under control. This did not happen and, as stated above, the Taliban grew in strength, consolidating its control over the Pashtun countryside. At the same time, the Afghan government under Karzai lost credibility because of corruption and ineffectiveness. The election with its large scale irregularities destroyed the little remaining legitimacy of Karzai and the Afghan government. Its writ does not run outside Kabul and it is totally dependent on American military support. It is because of the fear of losing the war to the Taliban that General McChrystal requested more troops. Now there are approximately 30,000 American troops in Afghanistan but success is still elusive.

Is it possible for General Petraeus to turn the tide? The answer in all honesty is no. America’s Afghan adventure is doomed to fail because of three reasons. First, its objectives are far from clear and possibly irreconcilable. Second, it does not have the troops and the stomach for casualties to achieve its vague ambitions. Finally, it does not have enough cash in the bank to keep fighting the Taliban.

Now that the threat from Al-Qaeda has diminished, America is struggling to define its objectives. Presumably, it does not want Al-Qaeda back, it wants the Afghan government to keep the Taliban in check and it wants to start leaving by 2011. These objectives are not entirely aligned and to achieve them, it is stepping up action against the Taliban, trying to create an effective Afghan national army and negotiating with various players to arrive at some kind of a settlement. The catch is that the Taliban now know that the Americans plan to leave. They can and will play the waiting game. All Afghan players now have less of an incentive to come to a settlement and are positioning themselves for a post-American world. Furthermore, the attempt to develop Afghan military forces is quixotically naive. It fails to realize that Afghan loyalties lie to their tribes and clans. The nation, the constitution and the government are artificial constructs which do not mean much to the Afghans. Perhaps if the Americans dug their heels and stayed on for half a century or so, we might witness some sort of a functioning nation state. But the timeframe proposed by the American administration is too short a time to build a state, even for General Petraeus.

America is fighting two wars and its military is stretched. To dominate the Taliban it cannot just control Kabul and Kandahar. Its troops have to walk the villages and valleys in the rugged terrain of Afghanistan. There have to be more boots on the ground – 30,000 troops are not enough. If America is serious about fighting the Taliban, it also has to be willing to accept body bags. However, a key question arises. Will a war weary American electorate accept casualties? Already, the Dutch government has fallen and the German president has resigned over the Afghanistan war. Other allies are pulling troops out and even the British are war weary. Today they decided to pull out of Sangin, the remote district of Helmand. Just as America is increasing the intensity of its operations, its allies are checking out.

Finally, America no longer has financial resources to continue its Afghanistan adventure. $300 billion have already been spent and a 9% deficit is expected in 2010. The economy is overleveraged with the gross federal debt reaching 83.4% of the GDP in 2009 and household debt is still hovering around 100% of the GDP. On top of that neither the government nor households are saving much. In the light of its perilous finances, how much more money can America pour into Afghanistan? Besides, is a war against an elusive insurgent even winnable? Blood and treasure, the two fundamental things needed to fight the Taliban are in short supply.

Muddying the waters further is the fact that the relationship between America and Karzai has broken down. Both need each other but are increasingly at cross-purposes. Foreign players are boosting their participation in the anticipation of the impending power vacuum once American leaves. Pakistan is especially emerging as the power broker in its historic backyard and once again America may have to rely on its unreliable ally. In short, America is out of its depth operating in such treacherous waters. Afghanistan has proved to be a poisoned chalice for great powers many times in its past. It is now America’s turn to drink from this chalice and hope that the poison is not too strong.

The history of the 20th century has been a story of American enterprise. With their pioneering spirit that enabled Americans to expand through an entire continent, the Americans have been natural entrepreneurs. Innumerable businesses have sprung up and vanished, and American companies have come to straddle the globe. However, things perhaps are starting to change.

Historically, immigrants have given America much of its entrepreneurial energy. The Eastern European Jews who fled the pogroms in Europe created companies like Levi Strauss and Goldman Sachs. More recently, internet giants like Yahoo and Hotmail were started by immigrants born in Taiwan and India. Immigrants often come to America to escape the chafing restrictions in their homelands. America has historically welcomed them and been a land of opportunity. Over the last few years, the Congress has limited the number of H-1B visas to a mere 65,000 per year. Despite protests of industry captains like Bill Gates about the ill-effects of this restriction on the US economy, this limitation seems set to stay.

Americans themselves have had a great entrepreneurial spirit. The entrepreneur is respected and even celebrated. She or he is seen to personify “the get up and go” attitude that enabled the formation of this country. Since the collapse of the dotcom bubble, three things seem to have changed which have weakened America’s entrepreneurial spirit. First, the American education system is not what it used to be. Schools have declined and, all too often, Americans do not have the necessary skills to go down the entrepreneurial route. It is true that Steve Jobs and Bill Gates did not finish college but what is important to note is that both of them are extremely curious people with a hunger for knowledge. Curiosity, creativity and a sense of adventure are essential for entrepreneurship. So is some basic level of mathematics which helps to calculate profit and loss. American schools not only do a bad job in teaching basic subjects like mathematics but they are increasingly grade conscious. When students and teachers care more about grades instead of learning that is a bad place to be. American schools are no longer fostering creativity, thereby weakening entrepreneurial spirit. Second, increasing prosperity has created an excessively consumerist culture in America. Far too many people like the good life far too much. Furthermore, the American work ethic is not what it used to be. This means Americans are deterred by the rocky paths of entrepreneurship which involve sacrifice and fair bit of work. Finally, there has been a diminution in aspiration and risk appetite in America. Increasingly, the best and the brightest in the country do not dream the great American dream like their parents or grandparents did. They are happy being comfortable instead of taking risks. They do not aim high enough and do not have the same sturdy independence of their forefathers. This means that entrepreneurship which was a hallmark of this great nation is not as healthy as it used to be.

Apart from Americans themselves, American institutions have changed as well. While it is still relatively easy to set up a company and go into business, regulations have increased enormously. Some states like California are groaning under the plethora of regulation. Any budding entrepreneur is short of time and cash. Regulation imposes both these costs on an entrepreneur, deterring people from taking the entrepreneurial route. Not only has there been a concentration of power in the hands of the state but there has also been a concentration of power in the hands of big business. In many sectors of the economy – the classic example being finance – not enough competition abounds. Things are a little too clubby and not quite competitive enough to foster a healthy atmosphere for entrepreneurship. Furthermore, the political culture of saving failing companies has interfered with the process of creative destruction which is essential for a free market economy. As the popular saying goes, capitalism without bankruptcy is like Christianity without God. Freedom in a free market has to include freedom to fail. That is what sweeps away the deadwood and frees up capital which is then used by the more innovative to create new companies. It is freedom that has given America its foundation for entrepreneurship and it is the threat to that freedom that is shaking its entrepreneurial roots.

America seems to be sliding backwards precisely when many parts of the world are waking up. After many centuries of decline and turmoil, China is rediscovering its entrepreneurial energy. Everywhere in China new companies are springing up. India, Indonesia, Vietnam and other Asian countries are increasingly emulating China. There is real hunger in much of Asia. Despite the poverty or perhaps partly because of it, Asia is churning up entrepreneurs by the millions. People have hunger; they want better lives for themselves and their children. Institutions in these countries are still weak, rule of law is often not the norm and they are held back by armies of bureaucrats. But the fundamental shift in culture has taken place. People have tasted the power of the markets and want more.

Asian companies used to compete on cost alone. Now they are starting to compete both on cost and quality. Chinese companies like Haier and Zhongxing Medical have gone head to head with Whirlpool and GE, and out-innovated these venerable corporate names. Haldiram, an Indian company with a rustic name, was able to act David to an American Goliath, Pepsi. Tata, another Indian company, spent time and money on cutting edge research to come up with a new type of car, the $2,000 Tata Nano. Entrepreneurs are on the march in Asia after centuries of slumber. Increasingly, new companies and new products shall arise in that continent. It is only a matter of time before Asian companies attain global footprints like Coke, Disney and Microsoft. Should Asia become less bureaucratic, develop better governance and improve its research universities, this trend shall be accelerated exponentially.

This has implications for the rest of the world, especially America and Europe. Europe has long been the wasteland for entrepreneurship. Europeans are, in general, too cynical and too lazy to take the entrepreneurial leap of faith. They have been crushed by regulation, mollycoddled by an excessively generous welfare state and crippled by a paranoiac fear of failure. America faces a choice to either reinvent itself and meet the rising challenge from the Asia or turn European and wallow in somnolent decline.

Experiencing the Fourth of July, 233 years after a group of idealistic men signed a convention in Philadelphia still has a sense of immediacy, poignancy and involvement not seen elsewhere in the world. What is it that makes that the fourth unique?

The writer first experienced the fourth celebrations in Seattle in 2004. It was one of those rare clear days in that rainy city and, as a tourist exploring America for the first time, it was fascinating to observe how the whole city seemed to be in a celebratory mood. People were wishing each other Happy Fourth, hosting barbecues and going to concerts. On the waterfront later that night spectacular fireworks lit up the night skies to the sound of music.

This year, the writer experienced the Fourth of July celebrations for the second time. The venue was Novato, a small town in Marin County, which lies to the north of the city of San Francisco with the Pacific on its west and the Bay on its east. It is a spectacularly beautiful county which is clearly affluent though currently suffering from the recession increasingly affecting the daily lives of most Americans. Yet on the Fourth, Novato put its troubles out of mind in a celebration that was uniquely American.

So what is it that makes Happy Fourth unique? For a start, it is the highly community oriented nature of the celebrations. Families lined up on Grant Avenue in Novato, children, parents and grandparents all waving flags and enjoying their day in the sun. The parade had 102 entries – local schools, sports clubs, war veterans, fire fighters and businesses all joining in. This is typical of most towns across America and the parade is an occasion where civic pride in such communities comes to the fore. In towns in other countries, governments orchestrate such celebrations while, in Novato, the Fourth of July celebrations have always been organized by local residents. Kathy Nickel, the Chair of the Parade Committee, is not a government official but an involved citizen and so are all the other members of the committee. This is also the case in countless small towns across America which is evidence of the fact that community involvement in this great country is unrivalled by any other.

In France, Bastille Day, the fourteenth of July, is the equivalent of America’s Fourth of July. It is the day that people stormed the Bastille prison and started the French revolution. Celebrations are held across France involving parades, dances and fireworks marking the event. They are invariably organized by the local Mayor instead of local citizens. Similarly in India, it is the local official who presides over stale celebrations with little or no community involvement. The annual speech by the Indian Prime Minister is a mere ritual which no one cares about and people treat the day like any other holiday.

Another unique feature of the Fourth of July is that a general air of celebration takes hold over America. People wish each other and passers-by Happy Fourth. Families wave US flags, gather together for barbecues and watch fireworks. For all the pride in other countries, there is no annual occasion where citizenship is affirmed by families in a national celebration. This is extraordinary; even highly nationalistic China has no equivalent of Happy Fourth. All over the world, families get together on occasions like festivals and weddings which help in community bonding, fostering values and forging identities. America celebrates the Fourth of July as a national festival. It is a celebration of being American. Achievement is honored, civic values extolled and people in smalls towns all over America come together to forge community ties.

Radio stations across America interview war veterans and other upstanding members of the community. KQED, the Californian radio station, interviewed Major Nicole Malachowski and Jean Harman, a World War II Women’s Auxiliary Service Pilot (WASP), celebrating the WASP contribution to the war effort and their subsequent shabby treatment at the hands of the US government. There were endless talk shows about the significance of the day and the music, dialogue and sense of history was inescapable. Again, this was not government orchestrated with a national channel blaring tunes of patriotism but a people affirming, discussing and celebrating their nationhood through every available medium.

Finally, what marks out the Fourth of July is its inclusiveness. Everyone is invited to the party and everyone is assumed to be American. The foreigners standing on Grant Avenue in Novato yesterday were as much a part of the occasion as the people who grew up in that town. Candies were handed out, bands marched and kids of all hues and backgrounds mingled together.

No other independence celebration in the world is so inclusive. It is a fitting tribute to the first modern revolution – it preceded the French one by thirteen years, acted as an inspiration for the rest of the world and set up a remarkable constitution that thrives to this day. America has been far from perfect. Indeed, it has seen discrimination and division in many forms but its welcoming inclusivity, manifested most visibly on occasions like Happy Fourth, makes it special.

The current problems in the American economy have deep roots. In the 1990s, the world changed radically. The Berlin Wall fell and the Soviet Union collapsed. Hitherto communist countries in Europe now entered the global market. China’s integration with the world economy gathered pace and socialist India started liberalising its economy in 1991. This led to a huge increase in the world’s labour supply which decreased the worldwide rate of inflation. Consumer goods as wide ranging as socks or microwaves could now be manufactured more cheaply by Indian or Chinese workers. The central banks, however, continued to target a rate of inflation based on historical experience. This rate was higher than the new changed rate of inflation. As a result, more money started sloshing around the economy than was needed. In hindsight it is easy to see how things changed in the 1990s but, at the time, central banks missed the change. As a result, to quote Bernard Connolly, an economist with AIG, “the horse bolted and since then central banks have been scratching their heads as to what to do”.

It can be argued that the loose monetary policy of the Fed was a contributory factor to the dotcom bubble. A more widely held view is that American monetary policy was too loose for too long after the collapse of the dotcom bubble in 2000 and the terrorist attacks of September 11, 2001. This view is held by the highly regarded economist, John Taylor of Stanford University who came up with the famous “Taylor Rule” often used to determine the appropriate rate of interest for an economy.

In earlier times, loose monetary policy led to inflation but in recent times inflation remained low leading to what has been called a Goldilocks economy. This was because the global supply of labour had expanded dramatically. The Chinese, Poles and Indians, amongst others, were working to produce things at cheaper and cheaper prices. Consequently, the money in the economy led instead to an appreciation in the prices of assets. House prices all across the world rose dramatically. As during the dotcom bubble, people assumed that prices of the assets they purchased would only move up. When people started buying houses in the expectation that they could refinance their mortgages at a profit, the bubble started looking dangerous.

Added to this loose monetary policy was the incredible financial innovation that gathered pace in recent years. New products like complex derivatives were being constantly created using mathematical formulae which were increasingly opaque to both investors and regulators. A liberalised financial system provided not just opportunities for extraordinary profits but also the mad rush into new financial products which no one properly understood. The financial innovation and gung ho risk taking added to the credit expansion in the economy and increased asset prices further. Higher asset prices in turn justified still more credit expansion and yet higher asset prices. At the height of the bubble, American banks lent to “ninjas”, people with no income, no job and no assets, on the assumption that houses which they held as collateral would only increase in value.

The players in the financial system took increasing risks on the assumption that the Fed would step in to help if the system itself was at risk. In fact, markets across the world were buoyed by the belief that central banks would ride to their rescue and increasingly started taking unsustainable risks. Furthermore, the regulatory authorities were increasingly unable to calculate the risks in the market. They started relying on the banks themselves for the information regarding their financial products. Rating agencies did the same. Consequently, worthless products were given first rate credit ratings and the bubble in the economy inflated further.

Adding to the cocktail of loose monetary policy and explosive financial innovation were the massive flows of capital by emerging economies and oil exporters to America. Central banks of relatively poor countries like China started gobbling billions and even trillions of dollars. They did so because they wanted to keep their own currencies cheap vis-à-vis the dollar so that they could boost exports, keep up the growth rates of their economies and continue generating employment to peasants flocking to cities, even at the cost of subsidising American consumers by lending their own capital. The oil exporters did so because of fears of instability in their volatile region and also to buy American support for their shaky autocratic regimes. By buying dollars, these countries propped up the value of the dollar and provided the capital for American consumers to live beyond their means as reflected in the huge current account deficits over the past few years.

Fiscal irresponsibility on the part of the American government worsened an already bad situation. It spent far more than it earned. Its tax cuts were not matched by cuts in expenditure and the wars it waged sucked out a lot of money from the American economy. Furthermore, the Bush administration’s pork barrel politics of expediency and short term patronage greatly exacerbated the fiscal situation.

The Fed has cut interest rates twice and the Bush administration is trying to push through a hastily designed fiscal package. It is doubtful if any of these measures will have much effect on the economy. The Fed’s ability to stimulate the economy and bail out the financial system is much weakened these days. The rate cuts are unlikely to have the same effect as in the past and, in the future, any rate cuts might feed into inflation. Prices of oil, food and other commodities have been rising. Furthermore, the cost of labour has been rising in economies like China and India, which in turn will also feed into the prices American consumers pay for their goods and services. When inflation rears its head again, the Fed shall no longer be able to cut interest rates quite so merrily.

There is an external dimension to cutting interest rates. Beyond a certain point, the dollar will come under renewed pressure and will start falling in value. Other countries will be less inclined to hold it in the same quantities. They are already sitting on a depreciating asset and at some stage they will lose their appetite to buy more dollars. In case they start selling some of their reserves, the value of the dollar could fall dramatically and its position as the international reserve currency might be at risk.

The American economy has deep longstanding problems which do not have a quick fix. Given the ingenuity and resilience of the country, the economy has the potential to bounce back. But to do so it has to rediscover the old virtues of fiscal conservatism and monetary restraint. There is no alternative to earning more and spending less, both for American consumers and the American government.

Like the Americans and the French, the Chinese have a sense of manifest destiny. It stems from their long history, prolonged periods as a large empire and their humiliation at the hands of foreign invaders in the 19th and 20th centuries. The Chinese want their country to be rich, powerful and respected in the world. They feel they are a unique people with a history unrivalled by any other civilization and, therefore, aspire to attain their rightful place in the world. As China’s economy grows dramatically it is being able to project financial and military power to achieve that goal. China is a powerful player not only in South-east Asia, Central Asia and North Korea but also in Africa. Its rise in Africa has been most dramatic where it is building infrastructure, buying commodities and lending to governments on a scale reminiscent of European powers in the 19th century. China is also an enthusiastic participant in the WTO and, with a trade-to-GDP ratio of around 70%, is one of the world’s most open economies.

For many, especially in the US, China’s rise is causing alarm. Many wonder how far China will go. It is increasingly acquiring economic and military strength but money and guns alone will not be enough for China to become a great global power. It will also need ideas and this is its Achilles heel. China offers no new ideas or paradigms to the world. It is merely trying to adapt to the world as it is but has little vision of what it would like the world to be.

Academics on both side of the Atlantic often comment on lack of creativity that they find among their Chinese students. In the words of a German professor, Chinese students tend to be smart but not bright; they reproduce answers but do not ask questions and find it difficult to think in new ways. Numerous academics and professionals who have worked with the Chinese have come to similar conclusions. During a recent visit to Paris the writer stayed in a youth hostel and in the evening a group consisting of Australians, Americans, Argentineans, Poles and Indians started talking about world issues ranging from the middle-east to climate change. However, none of the Chinese joined the conversation or exchanged pleasantries with us. They kept to themselves and were sightseers rather than open minded inquiring travelers. In the writer’s experience this behaviour forms a pattern and the Chinese are the most difficult community to reach out to. What explains Chinese insularity and lack of curiosity? It is partly cultural snobbery and partly poor English language skills but the key explanation lies in China’s authoritarian system where people prefer the known to the unknown and lose their spirit of inquiry.

China’s attempts to control the flow of information to its citizens are reminiscent of Soviet methods in the Cold War days. Any visitor to the Xinhua website will find that while the Spanish football league is reported better than in the BBC, the rest of the news is barely fit for adolescents. The Chinese are served propaganda instead of news. During the writer’s first visit to Shanghai, he was shocked to find that credible news websites like the BBC were blocked by Chinese authorities. It is not just news which is censored; all forms of expression are controlled. Furthermore, even the past is off limits for any enquiry. June 4th was the 18th anniversary of the suppression of the Tiananmen Square protests and June 8th was the 50th anniversary of the “anti-rightist movement”, launched by Mao to crush dissent. However, there was hardly any reflection on, leave aside re-evaluation of, the two historical episodes in recent Chinese history.

Since the 1980s China has increasingly embraced the market. It has jettisoned communist policies but continues to pay lip service to communism. It is trying to build a capitalist economy in a society where the Communist Party monopolizes power. The party is forcing China to live a lie. Theory and reality do not match. No principles underpin China and a moral vacuum lies at the heart of Chinese life. Abuse of power and corruption are endemic. There is no rule of law or accountability in the country. Corrupt officials are engaged in a massive land grab as property rights remain nebulous and ill-defined. Guangxi, the Chinese word for connections, is all important. The urban elite do not question anything because the party has allied itself with the elite’s interests. Furthermore, members of the elite draw a distinction between themselves and the party, and shrug away social responsibility. Most are too busy getting rich and, if they feel altruistic, they establish charities rather than raise uncomfortable questions.

In some ways, the Cultural Revolution has shaken the core of Chinese society. Intellectuals talk of the loss of an ethical anchor and a moral compass in today’s China. A generation of spoilt single children, little Emperors, is now coming of age which only believes in conspicuous consumption. The Chinese have a valid reason when they say they do not want to commit to carbon dioxide targets as they are trying to industrialize and their development concerns outweigh environmental ones. But they have no excuse whatsoever for not controlling the exploding demand for tiger bones or ivory which is putting endangered species to risk. The elephant, the tiger and the lion are all at risk because of obscene and irrational Chinese greed.

China’s meteoric rise is creating both external and internal tensions for itself. Japan, Russia, India and smaller Asian nations are all wary and, at times, scared as China seeks to expand its influence along its huge borders. At the same time, internal problems are mounting. The gap between the southern coastal states and the rest of China is widening, there is a huge divide between urban and rural areas, income inequality is acute and the peasants in certain areas are getting restive. Given its one child policy, China faces the spectre of turning old before it becomes rich. The Middle Kingdom’s external challenges will be manageable. As long as it does not invade Taiwan, China will not find its envious rivals clubbing together to hammer it down. Its power shall grow and, although it will never be a credible challenger to the US, it shall be the dominant Asian power for some time to come. Internal problems shall test China more. Will corruption, repression and inequality lead to an upheaval? What will happen in a downturn? How will it deal with its ageing society? And most important of all, as it increasingly becomes a market economy, how long can it continue to live a lie?

Perhaps even more striking has been Sarkozy’s appointment of ministers cutting across political lines. The new defence minister was until recently a key adviser of Francois Bayrou, the centrist presidential candidate. Furthermore, four men of the left are in the cabinet; the most famous among them being Bernard Kouchner, a founder of Médecins sans Frontières and a champion of humanitarian intervention. By putting Kouchner in charge of foreign affairs Sarkozy has sent a clear signal that he is interested in reaching out to everyone. His cabinet is a broad church with members from all shades of French political life, unprecedented in the history of French democracy.

As president, Sarkozy has got off to a sensational start. The media is saluting what the Economist called his “artful mix of political inclusiveness, policy creativity and symbolic renewal” in naming his cabinet. Opinion polls say that he is the most popular newly elected president since de Gaulle. And on June 17th, when the French vote in the second round of their legislative election, his party is expected to win a thumping parliamentary majority. Sarkozy, a short hyperactive man with boundless energy, seems to be riding high but it is still unclear whether France is ready for him.

In France, the socialists may be scattered but socialism remains a powerful idea. The French state accounts for 54 per cent of the GDP and has an overly generous welfare system. Any casual visitor to France might think the country was doing well. It has great healthcare, good infrastructure and some of the best known companies in the world. But the French system rests on shaky foundations. The French work too few hours, a bare 35 per week. Heavy taxation destroys the incentive to work and has driven droves of French across the Channel and even across the Atlantic. Economic growth has been pathetic and unemployment has remained stubbornly high. The infamous French bureaucracy throttles entrepreneurship and makes life extremely difficult for small businesses. Furthermore, the education system is in crisis. It stifles creativity and rewards rote learning. Even the Grande Ecoles, the highly selective and prestigious French schools, do not compare to the top Anglo Saxon universities. The Eiffel Tower is emblazoned with the names of great French scientists and thinkers, counterparts to them do not exist in today’s France. For all its intellectualism and extremely high level of culture, la grande nation is in intellectual decline but is unaware of that fact.

Many of France’s current problems can be traced to May 1981 when the left seized power under Francois Mitterand. The ENA elite dominated and, apart from decorating Paris with yet more beautiful architecture, it did little to prepare France for future challenges. At a time when Britain experienced the Thatcherite revolution and, as a result, emerged as a dynamic economy, France slipped towards statism and decline. Chirac’s election did nothing to change the situation. Though nominally a man of the right, he was a populist without principles interested only in power for power’s sake. An ENA man himself, he shied away from crucial reforms and continued with the policies of the 1980s which were clearly not working. Although he came to power on a promise to mend “social fracture” he is leaving France as divided as ever.

Sarkozy, to his credit, is one of the few politicians acutely aware of France’s problems. He is promising a slew of reforms which, if implemented, will shake up the country. He proposes to exempt workers from tax and social-security charges for hours worked above the 35-hour week, let mortgage-interest payments be deducted from income tax; tighten immigration rules; and stiffen sentences for young and repeat offenders. He also wants to guarantee minimum service on public transport during strikes, loosen the legal right of the big five unions to represent all employees in a workplace, introduce a single job contract with progressive rights and reform unemployment benefit. Other plans include making 50% the top limit on all personal taxation and social charges, reducing inheritance tax, reforming special pension privileges of employees in the public sector and granting universities more autonomy to set fees and recruit staff and students.

The big question is how a France used to the status quo will respond to such changes, many of which will be painful. The unions will go on strike. Students, buoyant from last year’s victory over de Villepin and who voted overwhelmingly for Sego Royal, will take to the streets. Insiders in the famously obstructive French bureaucracy will do all they can do to impede change. Already the Socialists have seized upon the proposed rise in VAT from 19.6 to 24.6 per cent, a rise of five percentage points, and made it a campaign issue. The French have yet to wake up to the fact that the sums in their economy do not add up. Their overly generous welfare state has to be trimmed down and the tax burden has to be redistributed. Bringing these changes shall bring people on the streets, a formidable French tradition since the days of the revolution. France faces turbulence in the coming days which will be reminiscent of Britain in the early Thatcher years when she took on the unions.

Sarkozy’s victory is likely to prove to be a turning point as significant as Mitterand’s election. Then the country made a leftward lurch and now it has moved in the opposite direction. French voters realising the significance this year’s elections have voted en masse. In the presidential election, voter participation was 84%, much higher than 64% in the US and 61% in the UK. Sarkozy campaigned for “rupture” with the past and he now has a mandate to achieve it. The million dollar question is whether France understands what “rupture” entails and whether it has the stomach for change?

In fact, sugarcane is a much more efficient fuel crop and Brazil produces sugarcane based ethanol at a little over half the price of American ethanol. But the US imposes tariffs on ethanol imports from Brazil and refuses to allow free trade. This means that Americans end up paying higher prices for ethanol. American production of ethanol increases demand for corn and pushes up corn prices. This in turn pushes up prices of meat. Also, more acreage for corn comes at the expense of other crops like soybeans and wheat, pushing up their prices as well. So energy autarky ends up impoverishing the average American consumer and harming the Brazilian sugarcane and ethanol producers.

Another example of the move towards autarky came on Friday, the 30th of March when the Bush administration declared that it would reverse more than 20 years of a free trade policy and impose potentially steep tariffs on Chinese manufactured goods. Its justification for doing so is that China is illegally subsidizing some of its exports which is leading to widening trade deficits, the figure last year reaching a record $232.5 billion. The unspoken reason is concern over the loss of jobs in American manufacturing which is increasingly unable to compete with counterparts in developing economies. Again, the tariffs shall harm American consumers. They will end up paying higher prices for goods they could have purchased more cheaply. The tariffs shall also lead to continued investment in American industries which otherwise would not have survived. This investment shall not be efficient as it could have been invested instead to retrain workers, improve schools and develop globally competitive industries.

Autarky is seldom a good option and, in a global economy, it can have severe consequences. If the Chinese retaliate and impose duties on Boeings or Windows, American workers and Chinese consumers would suffer. The ensuing “tit for tat” trade war might end up beggaring everyone in the process.

Why are Americans, erstwhile champions of free trade, turning against their own idea? The reason for it lies in the internal political economy. While the economy has grown over the past few years, the gains of that growth have accrued primarily to owners of capital. Workers have lost jobs as companies have relocated overseas or been unable to survive foreign competition. Since healthcare benefits have been associated with jobs, the loss of employment has been traumatic for the individuals concerned. For politicians, the easy solution is to blame the foreigner instead of carrying out fundamental reforms to improve competitiveness. By imposing tariffs on Chinese goods, politicians can grab votes from workers of threatened industries along with campaign donations from the owners. When considering America’s fixation with ethanol it might be useful to remember that the top 10 corn-growing US states hold nearly 40% of the electoral college votes required to secure the presidency. Championing corn based ethanol helps the economy of these states. It also wins votes and campaign funds apart from burnishing an eco-friendly image.

With so much to gain, American politicians are being tempted to raise the barricades but they should remember that it is by being an open economy and an open society that America has become America.

Apart from such murders, the Russian government has been gradually acquiring increasing powers, weakening democracy and diminishing individual liberties. Tycoons who have fallen out of favour with the Kremlin are either in jail, exile or even dead, and their properties have been confiscated by the state. The government has acquired greater control of the media and independent reporting has suffered greatly. Russia has torn up contracts with foreign companies and interfered in the internal politics of its neighbours. It has also threatened to cut off gas supplies to countries who fail to do its bidding and Putin himself has lashed out against America at the Munich security conference.

Today, an alarming phenomenon in Russia is the rise of jingoism tinged by xenophobia and racism. According to Sova, a group that monitors racist violence, 539 people suffered racist attacks last year, of which 54 died. It is a curious change from the Soviet era when Russia became famous for promoting “friendship between peoples” and hosting large numbers of students from the developing world. Increasingly in recent times, the dominant sentiment in political establishment is “Russia for Russians”. The government banned foreign workers from retail jobs on 1 April this year despite its declining population and skills shortage. Human rights activists described the legislation as state-sponsored racism.

Stemming from this jingoism is Russia’s determination to control its restive regions. The collapse of the Soviet Union has been publicly regretted by Putin, a former KGB colonel, and he does not want the huge and disparate Russian state to unravel further. Ever since Putin came to power he has been tightening his reign on the regions and, two years ago, he replaced elected regional governors with his own appointees, a move which was a further blow to a young Russian democracy. Earlier this year, he appointed Ramzan Kadyrov as President of Chechnya and, this week, Kadyrov is throwing an extraordinarily expensive bash to inaugurate his Presidency. Kadyrov is a violent 30 year old nicknamed as “little Saddam” because of his extreme brutality. Suspected of murdering Anna Politkovskaya, this is a man who runs a private militia, is suspected of personally torturing people sometimes by burning them with a blow torch and is foisting a Stalin-like personality cult upon Chechnya. Despite Kadyrov’s well documented brutality and criminal past, Putin is backing him as the man who can secure Russian control over Chechnya.

What is happening in Russia does not bode well for the world. The criminalisation of the world’s biggest country is a scary prospect especially in the context of its xenophobic nationalism. Difficult though it will be, it is now time for the world to tame the Russian bear.

2. The constitution has been rejected by referendums in the Netherlands and France? Why is she staking her political capital on a seemingly lost cause?
She is not – so far she has not been very clear in saying what type of text she favours, and most States agree something needs to be done to reform the EU.

3. Is her attempt necessary and is its timing right?
Yes, I think the decision-making processes need to be reformed, qualified majority voting should be extended now that membership has practically doubled in three years. With national elections never far off the agenda timing is rarely right: in fact the 2nd half of 2007 immediately after the French Presidential election and well ahead of the UK election is probably the best timing there will be for some time. (Qualified Majority Voting (QMV) is a voting procedure employed in the Council of the European Union for some decisions. According to the procedure, each member state has a fixed number of votes. The number allocated to each country is roughly determined by its population, but progressively weighted in favour of smaller countries.)

4. What difference shall the constitution make?
The Constitution did not radically extend the EU’s powers except in relation to Justice and Home Affairs legislation. Far more important wd have been the acceptance of the term ‘constitution.’ Such acceptance is now virtually impossible.

5. Do you think referendums should be held to approve the constitution?
Difficult to say, the answer depends on whether one thinks generally that referenda are appropriate ways of determining major political issues.

6. What do you think about the opposition to the constitution especially in countries like the UK and Poland?
I cannot really comment as an officer of the UK parliament.

7. What do you think of the Polish attempt to include God in the constitution?
The Constitution contained and was designed to contain central values which have determined Europe’s intellectual and political life, the Christian tradition is extremely important in this respect, and for this reason it is not immediately obvious why it should have no place, divisive as any statement of religious allegiance may be nowadays. This is purely my personal view.

8. Do you think the upcoming French elections would have a significant impact on the constitutional process?
Yes, most certainly, Royal is likely to be more sympathetic to its revival but Sarkozy will not necessarily be opposed. France in spite of its Non to the Constitution is not anti-European.

9. Why are many Europeans uncomfortable with the idea of a constitution?
For different reasons including opposition to immigration, political alienation, perception of unaccountability as much as a genuine fear of amalgamation. The Constitution provided an opportunity to express dissatisfaction when there are not many and when most electorates are regularly presented with indistinguishable options in national elections.

10. How do you envisage the outcome of Merkel’s initiative?
This is difficult to say. The timing is probably right, and there is widespread agreement that something. needs to be done. Much will depend on how realistic she is. And if anything she has proved to be a realist in her political career so far.

The EU constitution began with high hopes. In 2001, EU’s national leaders vowed to make the EU “more democratic, more transparent, more efficient” by creating a constitution. Prolonged wrangling followed and it was only in June 2004 that the constitution was finally created.

The current constitution consolidates all European treaties into a single document and for the first time proclaims the primacy of EU law over national law, a principle which so far has been established only by the jurisprudence of the European Court of Justice. It creates new jobs like the President of the European Council and a foreign minister, and gives the EU formal legal personality for the first time, enabling it to sign international treaties. At the same time it retains national vetoes and adopts a new double-majority voting system that shall enable laws to be passed if 55% of countries representing 65% of the EU’s population approve. Finally, the constitution can only come into force once it has been approved by each of the 27 member states.

Proponents of the constitution argue that an expanding EU simply cannot work unless it comes into force. On its 50th birthday, the EU is a 27 member club which might expand further and its institutions as well as its rules are under severe strain. The EU, therefore, has become more clumsy and bureaucratic. The constitution is the way it will become both more workable and more democratic. Furthermore, as Merkel has declared, the constitution would give Europe a higher profile on the world stage.

Opponents of the constitution see it as another example of “Eurocreep”, the process through which more and more control is ceded to the bureaucrats in Brussels. They fear that the EU is acquiring the trappings of a superstate and feel there are other ways to reform the EU.

20 of the member countries have ratified the current constitution while the other 7 have rejected it. Since Germany took over the presidency of the EU Merkel has been trying to restart the constitutional process. Earlier this year, on the 26th of January, the countries that have approved the constitution gathered in Madrid to breathe new life into the dead document. Having ratified the constitution, they talked up its virtues and stated that they wanted the document to be more ambitious, giving the EU a bigger role in social policy, fighting climate change and immigration. This alienated at least 5 of the remaining 7 countries, judging from the fact that Britain, Sweden and Denmark sent only junior diplomats to monitor the Madrid meeting while France and the Netherlands sent none at all. Even the Berlin Declaration to commemorate EU’s 50th anniversary proved to be a highly contentious affair. The declaration is supposed to be a document reaffirming EU’s values and outlining future goals. However, this fairly innocuous and bland document provoked disputes. Vaclav Klaus, the Czech President, criticized the “untransparent” way in which the declaration had been drafted. Such was the extent of the disputes that , the 27 heads of government were not even asked to sign the declaration to avoid the risk of embarrassing refusals.

Merkel’s attempt to revive the constitution is deeply flawed. The raison d’etre for a constitution was to remove the democratic deficit of the EU. However, the constitution has not caught the fancy of many nations. The French and the Dutch have already rejected it in referendums in 2005. The constitution evokes strong feelings in the UK and Tony Blair was forced to accept the idea of calling a referendum on the issue. It was only the No votes by the Dutch and the French that saved him from an unpleasant and unwinnable referendum. Meanwhile, Vaclav Klaus has declared the current constitution to be “not usable and acceptable” and a new one as not a priority, a view shared by his Polish counterpart who has already dismissed Merkel’s timetable as unrealistic. Merkel’s ambitious timetable will impose early political tests for a new British prime minister and a new French president; both countries will have new leaders later this year who will have to convince a deeply eurosceptic public.

Merkel’ unstated plan is to trim the constitution, make it appear less ambitious and allow the leaders of the remaining 7 member countries to sidestep public opinion and ratify the document with parliamentary votes. The plan makes three grand assumptions. Firstly, that Nicolas Sarkozy would win the French Presidential election. His rival, Segolene Royal, has promised a referendum on the constitution and demanded a social protocol focusing more on workers’ rights and less on economic liberalization. On the other hand, he is in favour of a slimmed down document which would be approved by the parliament. The second assumption is that Gordon Brown would succeed Blair and, as he is averse to a referendum, the constitution would be approved by the British parliament. The final assumption is that once these two heavyweights approve, other countries like the increasingly euro-sceptic Dutch, the idiosyncratic Poles and the cavalier Czechs will follow.

Not only are Merkel’s assumptions flawed and unrealistic, her project to revive the constitution is unacceptable in principle. Europe’s elite has so far built the EU without consulting its people and, so far, the people have pulled along. However, something like a constitution is by its very nature an expression of the people’s will. In modern democracies, people deserve the right to say inconvenient Nos to their political bosses, even on the issues dear to the bosses’ hearts. The French and the British have the right to vote on the constitution while the others have a right not to be cowed down into accepting a document they dislike.

Finally, there is a possibility that European voters might not take kindly a constitution imposed upon them by their political leaders. In a recent opinion poll reported in the Financial Times, the majority in many European countries had an unfavourable view of the EU. Imposing a constitution will not add to EU’s popularity and, lest Merkel forget, the constitution for the first time creates the right for countries to leave the EU.