LONDON (Reuters) – As his global teleconference broke up in disarray on September 11, 2001, a top economist at a U.S. investment bank began to ponder what the attacks on the United States might tell him about the future shape of the world. His conclusions had little to do with Al Qaeda.

Jim O’Neill of Goldman Sachs had been at a meeting in the World Trade Center only two days before, and flew home to London just hours before airliners slammed into New York’s twin towers. About to become head of the bank’s global economics team, he was looking for a “big idea” to put a stamp on his leadership.

Soon, he had it: the decade after September 11 would be defined not by the world’s sole superpower or the war on terror but by the rise of the four biggest emerging market economies – China, Russia, India and Brazil. O’Neill nicknamed them the “BRICs” after the first letter of their names.

“I’ll never forget that day,” O’Neill told Reuters. “It was right at the core of how I dreamt up the whole thing… Something clicked in my head that the lasting consequence of 9/11 had to be the end of American dominance of globalization… that seems to be exactly what happened.”

O’Neill, who now heads Goldman’s global asset management business, launched the BRIC phrase in a pamphlet published in November 2001. The numbers from the past decade suggest the trend he identified will resonate more in world history than the strikes and their aftermath.

When O’Neill dreamed up the BRIC acronym, the four big emerging powers made up eight percent of the world economy. The top five world economies were, in order, the United States, Japan, Germany, Britain and France.

Ten years later, the BRICs have grown faster than even O’Neill expected to constitute nearly 20 percent of the global economy. China is the world’s number two economic power, while Britain – the closest ally of the U.S. in the decade-long war on terror — has dropped out of the top five, overtaken by Brazil. India and Russia are not far behind.

Within days of the attacks on New York and Washington, the U.S. had launched a costly and attention-sapping global “war on terror” and was plotting retaliation against not just Al Qaeda but also other members of what it saw as a wider “axis of evil,” including Saddam Hussein’s Iraq.

At first sight, the U.S. and its allies appear to have won their war. The Al-Qaeda network is badly damaged, Osama Bin Laden and other key leaders are dead and the group has not pulled off a major terror strike in the West for years.

What is less obvious is the cost of that apparent victory, both financially and diplomatically.

“For most of the first decade of the century, as the world economy gradually shifted its center of gravity toward Asia, the United States was preoccupied with a mistaken war of choice in the Middle East,” said Joseph Nye, a former U.S. under-secretary of state and defense as well as ex-chair of the National Intelligence Council and now a Harvard professor of international relations.

U.S. actions, he says, critically undermined its “soft power” in diplomacy, values and culture, while diverting and ultimately weakening its military and economic “hard power.”

COSTLY OVERREACTION?

The day before the attacks, the U.S. national debt stood at a sliver under $5.8 trillion. A decade on, it has skyrocketed to $14.7 trillion.

Unfunded tax cuts, post-financial crisis stimulus and other increased domestic spending account for much of that. But America’s post-9/11 conflicts added heavily to the burden.

One recent estimate, from Brown University in the U.S., put the cost of America’s wars in Iraq, Afghanistan and Pakistan at up to $4.4 trillion – nearly a third of the total.

“It was pretty immediately obvious that the Americans were going to lash out and probably going to overreact,” says Nigel Inkster, a former deputy head of Britain’s Secret Intelligence Service (MI6) and now head of transnational threats and political risk at London’s International Institute for Strategic Studies (IISS).

“In the overall scheme of things, I suspect the impact of 9/11 and rise of Al Qaeda is going to be seen as not much more than a blip.”

The United States was not the only Western power to take drastic measures.

Like then-U.S. president George W Bush, British Prime Minister Tony Blair saw the September 11 attacks as a defining moment.

“I was very, very clear from the outset that this was not just a terrorist attack of extraordinary magnitude but one that had to change global politics” says Blair in a television interview to be published this weekend on www.reuters.com.

“… I don’t think we were clear on what exactly had to be done but I do think we were clear that the calculus of risk had changed.”

That belief helped send Blair and his country to war in Iraq and later Afghanistan, costly military adventures that ultimately may have made far less difference to Britain than the threats it faced from a fast-changing world economic order — as well as its own internal financial problems.

The Iraq war ended up seriously tarnishing Blair’s premiership and his reputation, after it emerged Britain went to war based on a faulty assessment of the risks posed by weapons of mass destruction.

Wolfgang Ischinger, a former German deputy foreign minister appointed ambassador to the U.S. in 2001, says September 11 “burst the bubble” of any illusion that one superpower could rule the world.

“But in terms of importance for the global power situation, for global governance, I think the rise of the BRICs will have the more enduring effect. 9/11 created such a lot of confusion that it took us the better part of a decade to figure out what conclusions we should draw from it and the wrong turns some countries took.”

LESS A TURNING POINT THAN FINANCIAL CRISIS?

On a flight into Houston, Texas for a meeting between Jordan’s King Abdullah and Bush when Al Qaeda struck, Jordan’s ambassador to Washington Marwan Muasher’s initial worries were over an anti-Muslim backlash in the United States. He believes Washington did well to avoid that, but misjudged its broader reaction and should never have launched the Iraq war.

“But there have been other developments since then such as the financial crisis that in some ways, overshadow much of 9/11,” says Muasher, who later became foreign minister and is now a vice president at the Carnegie Endowment for International Peace, a U.S. think-tank.

“It is not a matter just of U.S. decline, it is a matter of the emergence of other powers. The age of the unipolar power of the United States was very short in part because it was ultimately never sustainable.”

Ian Bremmer, president of political risk consultancy Eurasia Group, says the world has already moved on from September 11.

“With hindsight, 2008 was the seminal moment,” Bremmer told Reuters. “Not only did we have the financial crisis, we also had the Beijing Olympics. Before that, China was seen simply as an emerging market, a backwater. Suddenly we saw them coming into their own.”

China paraded brash self-confidence at the 2008 Olympics opening ceremony, showing off spectacular new buildings in its capital and brushing aside Western concerns at human rights abuses.

The country’s growing financial and economic weight – it now holds $1.2 trillion of U.S. government debt, by far the biggest foreign investor in these securities – means the West can ill afford to question it.

When a government debt crisis hit Europe this year as buyers shunned the most indebted countries, leaders begged China to come to their help by buying up euro-zone securities – a scenario unimaginable in the 20th century.

August 2008 also saw fellow BRIC Russia swiftly won a war with U.S.-backed neighbor Georgia, the first time Moscow had sent troops outside its borders since the 1991 collapse of the Soviet Union. That more muscular approach from emerging powers — particularly in their own backyard – could in future be adopted by the likes of China or India.

HASTENING THE WEST’S (RELATIVE) DECLINE?

Reflecting broader changes to investment patterns, Stephen Jennings, the CEO of Moscow-based investment bank Renaissance Capital, says he sees more and more big “south-south” business deals now struck in developing nations, funded by BRIC banks on behalf of emerging market investors – and at which there is not a single face from London or New York.

“The traditional financial centers and Western economic model are losing their pre-eminence,” Jennings said in a speech to investors in Moscow in June. “There is a gravitational shift of business, capital and ideas toward emerging market economies. fast-growing economies, including Russia, are becoming the leaders of the new economic order.”

The diplomatic order has also changed. When it came to salvaging a deal at the Copenhagen climate summit in 2009, U.S. President Barack Obama went into a room not with the other G8 developed states but with the leaders of the emerging world: China, India, Brazil and South Africa, the latter increasingly keen to position itself as part of a wider “BRICS” grouping to counterweight older powers.

The uprisings of the so-called “Arab Spring” across the Middle East and North Africa — which blindsided not only regional leaders but also Western intelligence agencies and apparently Al Qaeda — were seen by some as a wake-up call for more authoritarian BRICs like China. But critics said the uprisings also pointed to double standards on the part of the U.S. and its allies.

The West, they charged, backed authoritarian Arab rulers when they needed their business or support in the “war on terror,” then abandoned them when their positions became untenable.

Now, Britain and the United States have been embarrassed by documents found in Libya suggesting that their intelligence services were cooperating closely with Col. Muammar Gaddafi’s regime.

“In many ways, it shows the whole hypocrisy of the approach that said you had to embrace the dark side to defeat terror,” says Jan Egeland, Europe head of Human Rights Watch and United Nations global humanitarian chief between 2003 and 2006, a role in which he became a frequent critic of U.S. Policy.

“It was devastating for the reputation of the West — and it happened at the same time as the emerging economies were already closing the gap in other ways.”

A CHANGED WORLD

In many ways, much of what has happened since September 11, 2001 was precisely the opposite of what conventional opinion expected.

Whilst the US and allies spent much of the following decade at war in the Middle East, in much of the rest of the globe the number of conflicts fell sharply.

Whilst development economists such as Jeffrey Sachs say the billions spent on Western wars represent a lost opportunity to tackle poverty and hardship in the poorest countries, BRIC economic growth in particular has lifted millions from poverty – despite a growing internal wealth gap in many states.

Now, following a long-standing historical pattern, the growing economic power of the BRICs is starting to translate into greater military strength – and the West’s financial decline is mirrored in ever more drastic cuts to its defense spending.

London’s International Institute for Strategic Studies highlighted in its annual survey of global military power this year a key theme: while Western military budgets are being pruned, those in Asia and the Middle East are growing sometimes by double digits every year.

“There is persuasive evidence that a global redistribution of military power is under way,” it said.

This year, Britain replaced China as the only member of the UN Security Council without an aircraft carrier, scrapping the Royal Navy’s flagship “Ark Royal” just as China launched its first such vessel.

Goldman’s O’Neill believes the dramatic economic growth of the BRICs will dwarf the long-term impact of September 11. His bank is now touting the merits of what they term the “N-11″ – the next 11 big emerging market economies after the BRICs, including such powers as Mexico, Indonesia and Turkey.

He also believes the attack and its aftermath may have played a part in shaping the BRICs’ newly assertive approach in the world.

“What it may have done at the margin was to sow the seeds of doubt about the power of America and therefore the need for them to stand more on their own two feet,” he says.

With the West’s single-minded focus on the Middle East, Al Qaeda and its allies, some worry that the old powers missed their chance to help shape the new world order that is emerging. But even had they been paying more attention, perhaps it would have made little difference.

“The focus on the Islamic world meant that shift (to emerging powers) took us by surprise,” says former British spy Inkster. “But it probably would have done so in any case.” (Additional reporting by Jamie McGeever, Darcy Lambton, Alan Wheatley and Noah Barkin; Editing by Michael Stott)

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In February the trade gap narrowed to 6179 million pounds, the least since June 2006, from the revised 8066 million pounds thanks to exports that climbed the most in seven years boosted by sales of chemicals where the manufacturing sector resumed its expansion.

However, the pace of progress continued in March as today’s data showed that trade deficit widened to 7.5 billion pounds from the revised 6.3 billion pounds. The depreciation in pound enhanced demand for British products but the rise in imports was stronger. Imports climbed 5.2%, the highest in 18 months, to 29 billion pounds led by cars and intermediate goods while exports surged 1% to 21.4 billion pounds only in March.

Moreover, Non-EU trade deficit also increased to 4103 million pounds compared with the revised to 3406 million pounds, while total trade deficit widened to 3.4 billion pounds from the revised 3.4 billion pounds. Probably U.K.’s trade was affected by the fiscal crisis in the euro zone which is considered the largest trading partner to Britain.

As of 08:45 GMT, the pound plummeted versus the dollar to 1.4780 from the day’ low at 1.4822.

Policy makers at the BoE revealed previously that the economy in the coming period is going to depend on exports taking advantage of the pound’s slid against major currencies. The sterling fell more than 7% against the green currency from the beginning of the year till the end of March.

The economy grew 0.4% in the fourth quarter last year followed by 0.2% growth in the first quarter which reflects the improvement witnessed by the economy. Manufacturing and services resumed their expansion in March as a result of recovery in global demand.

Today, British companies continued to release better than expected profits; BT Group posted a rise in operating profit to 1.53 billion pounds from 1.32 billion pounds a year ago and it expects amelioration in revenue and operating profit during the coming three years.

BoE left both key interest rate and APF quantity unchanged in May and probably will keep them steady till the end of the current year. Meanwhile, the main focus of the new government led by Cameron is lowering the huge deficit that reached 12% last year. Cameron is looking forward to reducing the deficit within 50 days by 6 billion pounds. At the same time these cuts should not affect recovery that is gathering momentum. Thus, the coming period is predicted to be challenging to officials; the inflation report released yesterday stated that there are growth risks surrounding the economy.

Published on Thu, May 13 2010, 09:18 GMT

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London's benchmark index was up 1.15 percent to close at 5,744.89 points.

Lloyds Banking Group (LBG) was the most traded stock, seeing 157 million units change hands, followed by Vodafone, which saw 137 million shares switch owners.

The day's top performer was Petrofac, which added 84 pence — or 6.99 percent — to finish at 1286, followed by Xstrata, which added 51.50 pence — or 4.12 percent — to stand at 1300.

Smith and Nephew was the worst performer, dropping 4.50 pence — or 0.69 percent — to close at 652, followed by Glaxosmithkline, which shed 8.50 pence — or 0.67 percent — to finish at 1257.

Meanwhile, sterling rose against the dollar and the euro

At 17:17, the pound was trading at 1.5275 dollars, rising from 1.5184 at the same time on Wednesday, while the currency stood at 1.1260 euros, ascending from 1.1239 over the same period.

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The euro zone after expanding 0.4% in the third quarter last year expanded only by 0.1% in the fourth quarter. In addition, data concerning the first quarter of the current year is raising concerns that the 16-nation economy may return to recession again.

Today’s data showed improvement in Germany, as unemployment slipped to 8.0% in March from the revised 8.1 where unemployed dropped by 31,000%, posting the largest fall since August 2008. In the euro zone, jobless rate edged up to 10.0% in February from 9.9% in January. The rate rose to the highest level since August 1998 after remaining unchanged for three consecutive months, mirroring the slowdown in recovery witnessed recently in the euro region.

Other data released today showed that CPI flash estimate for March rose to 1.5% from 0.9% above estimates of 1.1%. Prices afterfalling in negative territories since June last year increased gradually due to the high spending and mild improvement which managed to lift prices in the past few months, while inflation moved between 0.9% and 1.0% since December. But the reading spiked this month to fastest level since December 2008 as a result of the incline in oil prices which reached a high of $83.45 a barrel this month. One of the policy makers at the BoE forecasted that the rise in commodity prices is more likely to push inflation in the coming period.

ECB in their monthly bulletin in March, however, expects low inflationary pressures over the medium term, close to the 2%, the lower bound set by the bank. Policy makers are expecting annual inflation to range between 0.8% and 1.6% this year and between 0.9% and 2.1% next year.

Despite the rise in oil prices that were slightly affected by the dollar’s advance, prices may anchor again due to the pressure stemming from the high unemployment rate that will weigh on consumer spending. Still, many companies are shedding employees to cut costs to return to profitability again.

Nevertheless, the concern now is on the swelling budget deficit in euro-zone economies. The high debt in European economies is threatening recovery that is still fragile.

Today, Moody’s said Italy to face challenging economic conditions this year as it is encountering both high debt and low growth. The Italian economy shrunk 5.1% last year and is expected to struggle this year to recover due to the high debt that reached 1.8 trillion euros which represents 5.3% of GDP and is predicted to incline to 117% of GDP in 2010.

By extension, Greece which may have an aid from the EU and IMF if it failed to cover its debt will suffer to rein in deficit to 8.7% from 12.7% by the end of the current year due to high interest on its debt sold this year. Recent data compiled by Bloomberg, Credit Agricole and Investment Bank shows that Greece will pay 13 billion euros as an interest on its debt this year more than the yields that prevailed before crisis.

After the news the euro advanced against the dollar to 1.3440 from the day’s opening at 1.3412. The 16-nation currency is unable to rebound despite the EU support for Greece as the abilities of EU economies to trim the debt to the 3% ceiling set by the EU is uncertain.

Published on Wed, Mar 31 2010, 10:02 GMT

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