Do not write off the US just yet

The American economy has a history of speedy recoveries.

The popular revolt in the US against the Bush administration's $7bn bailout plan is likely to be the first of many political upheavals to upset governments around the world as they struggle with the global financial crisis. Although the focus of the crisis has been on the US financial system, attention is now turning to how the world will change as a result of the banking meltdown. Some European analysts predict - with undisguised glee - that the burst credit bubble will signal the end of US world leadership, just as economic weakness brought down the British Empire.

It may be too soon to write off the United States, but there is no doubt that the fate of George W Bush - who has moved from lame duck to dead duck as a result of the crisis - awaits many incumbent politicians in Europe and beyond. Power is already ebbing away from the German chancellor, Angela Merkel, whose allies lost control of the state of Bavaria on Sunday, scoring their worst result in a regional election there for 54 years. Mrs Merkel's chances of winning a second term in next year's national elections are looking increasingly slim.

The British prime minister, Gordon Brown, is struggling to recover from record low opinion poll ratings. While his aides trumpet his success so far in rescuing two failing banks, the Labour mood is still sombre, and more realistic members of the party note that falling house prices, rising unemployment and a banking crisis do not usually secure re-election. Unemployment is rising in France and Italy, with the European Central Bank unable to lower interest rates because of inflation fears. A scream of voter anger was heard on Sunday from Austria, where 29 per cent of voters cast their ballots for two far-right parties, in a slap in the face for the ruling centrist coalition.

The distress is not limited to Europe. The "triple shock" in credit, food and fuel markets is having a disastrous effect in many parts of Asia and Africa. Pakistan is particularly badly hit and is barely able to feed its population. Pakistan's financial weakness is now a factor in the US war against the Taliban. Diplomats say the country's need for aid provides a powerful lever for America to exploit to persuade the government and army to support the war on terror, despite widespread popular opposition.

Economists looking for a silver lining have focused on the emerging market economies to rescue the world. Consumers in the so-called BRICs - Brazil, Russia, India and China - now equal the US shopper in buying power and can take over as the motor of world growth, according to Jim O'Neill, chief economist at Goldman Sachs. But even these countries are not insulated. Stock markets in India and China have fallen further this year than US markets. Trading on the plunging Russian stock markets has had to be repeatedly halted.

Yesterday, the Russian prime minister Vladimir Putin, said the "irresponsibility" of the US financial system was to blame for the global economic crisis. No one can predict where this turbulence will end. But the longer it lasts the more people line up to blame the US and call for a new world order built on more solid foundations than unchecked credit. One of the loudest voices in Europe predicting American decline is John Gray, professor of European thought at the London School of Economics, who has compared the Wall Street meltdown to the collapse of the Soviet Union.

The era of US leadership stretching back to the Second World War is over, he believes, and Washington has only itself to blame. "Having created the conditions that produced history's biggest bubble, America's political leaders appear unable to grasp the magnitude of the dangers the country now faces," he wrote this week. The United States was now only one of "several great powers" facing an uncertain future it can no longer shape.

Such views are echoed by leading European politicians, who see in US distress an opportunity for the EU. The German finance minister, Peter Steinbruck, declared: "After this crisis, the world will no longer be the same. The financial architecture will change globally. There will be shifts in terms of the importance and status of New York and London as the two main financial centres. "State-owned banks and funds, as well as commercial banks from Europe, China, Russia and the Arab world, will close the gaps, creating new centres of power in the financial world."

Such comments smack of some wishful thinking. The EU is no financial superpower and, in political terms, it still punches well below its weight. On the day that EU monitors were scheduled to enter the disputed Georgian territory of South Ossetia, Russian soldiers at several checkpoints yesterday refused to let them in - hardly an indication that the bloc commands respect. Cooler heads have compared the current situation with 1979, a time of recession and surging oil prices when Jimmy Carter, another unpopular and ineffectual president, was in the White House, and Britain was broke and ungovernable.

All the forecasts were that an all-conquering Japan would buy up the whole of the United States. Within the decade, the country had recovered to trounce communism, as Asia sank in economic crisis. "Nobody should write off the American economy. Compared to its European peers, its history of recovering rapidly from recession is impressive. Its track record on innovation and start-ups is the envy of the world," said Charles Grant, director of the Centre for European Reform, in a response to a wave of predictions of US decline. "China's leaders know this very well and have not resorted to the kind of hubris that we have heard from certain continental politicians."

John Chipman, director of the International Institute for Strategic Studies in London, argues that US power is in "relative decline", but sees no candidate to replace it on the world stage. "It remains the case that America is the 'swing' geopolitical player, the one that by its actions or inactions can have the most impact on the comity of nations and the stability of the international system as a whole."

One American who is assured of playing a major role beyond the US presidential election is Gen David Petraeus, who, as commander of US forces in Iraq, was credited with bringing some stability to the country and is now moving to become commander of all US forces in the Middle East and Afghanistan. Visiting London and Paris this week before taking up his new command, Gen Petraeus noted that the US defence budget was still larger than all the other Nato countries put together.

He led diplomats to understand that in Iraq the US desire to reduce troop numbers meshes nicely with the Iraqi government's desire to be seen as pushing the occupiers out. The war in Afghanistan, he believes, will be hard, but never requiring the same numbers of troops as the Iraq conflict. He told The New York Times that reconciliation would be his watchword. "You cannot kill or capture your way out of an insurgency that is as significant in size as was the one in Iraq, nor, I believe, as large as the one that has developed in Afghanistan."

The message seems to be: at a time when Washington is writing blank cheques to bail out Wall Street, there will be no more blank cheques for the wars in Iraq and Afghanistan. Clearly no country will be unaffected by the financial meltdown. For the US, it cannot be business as usual. Nor is it certain that it can bounce back as speedily as it did in the 1980s under Ronald Reagan. But for as long as the crisis lasts, the world will be looking to the US, not anyone else, to fix the problem.