Year ends on better note for Obama

But going into his third year in office, the US president faces persistent economic problems at home, this time with a hostile Congress.

WASHINGTON // Barack Obama, the US president, may feel he has had as good an end to the year as possible after the November mid-term election defeat suffered by his Democratic Party.

In the space of two December weeks, he managed to push through a lame-duck Congress a tax law that no one seemed to like and which included significant unemployment benefits.

He had the nuclear arms reduction treaty with Russia ratified despite stiff opposition from Republicans.

And the administration made history with the repeal of the "don't ask, don't tell" law, allowing gay men and lesbians to serve openly in the military for the first time.

But Mr Obama faces a new year with a hostile House of Representatives and only the slimmest of majorities in the Senate and the challenges are piling up. His third year in office, traditionally also the beginning of a sitting president's re-election campaign, promises to be his hardest yet. It could also signal a transitional year in which foreign policy begins to take a front seat.

This mostly depends on the US economy, where signs of recovery remain fragile. This week, it emerged that house prices fell across America, signalling that the housing market recovery had stalled.

The news bucked a trend in recent weeks that suggested the US economy was on the verge of strong, sustainable growth. Retail sales have returned to pre-recession levels, the manufacturing industry has shown growth and exports are back to 2007 levels.

Of most concern to the Obama administration, however, will be joblessness. One million jobs were added to the labour market last year, but unemployment still hovers at 9.8 per cent. Reducing that number will be the main short-term priority for the administration and its success in doing so will determine the direction the White House will take over the next two years.

"As long as the economy underperforms, domestic policy will continue to dominate the administration's agenda," said Stefan Halper, director of American Studies at Britain's Cambridge University and senior fellow at the Nixon Centre in Washington. Mr Halper also served in the White House and state department in the Nixon, Ford and Reagan administrations.

But the economy is on "the right track", he said, and predictions of America's decline were very much exaggerated. The country's response to the most serious economic downturn since the 1930s rather showed, he said, America's "immense power".

And should the economy stop being the "topic of conversation around the breakfast table", Mr Halper said, "we should see increased attention to global affairs".

Such a transition would suit the administration, which is likely to encounter legislative deadlock in the next few years. An early indication of what kind of opposition the administration is likely to meet in Congress will come in February when the administration presents its 2012 budget.

While there are areas where cross-party consensus might be found, on education or renewable energy, prospects for bipartisan co-operation in 2011 "are not bright," according to Thomas Mann, a senior fellow with the Brookings Institute, a Washington think tank.

"We will learn quickly whether Republicans are willing to shut down government and delay a necessary increase in the debt ceiling in order to achieve sharp reductions in domestic spending," Mr Mann said in an e-mail. "Congress will be more an arena for staging disagreements and arguments leading up to the 2012 elections than for enacting new law. Energy in the federal government over the next two years will perforce come from a president acting more on his own authority and initiative within the executive than is desirable."

And it is on foreign policy that Mr Obama has the greatest discretion to act. He should start, said Mr Halper, by formulating a foreign policy "based on some coherent, strategic notion of American objectives" that domestic pressures have so far left the administration unable to draw up.

"What we have had is a generally reactive but moderate foreign policy with a dramatic change in tone, but not in the broader objectives of America's global posture."

The new year will see significant developments on the global arena. The US is scheduled to pull its last troops from Iraq by the end of 2011, and though some are likely to stay pending agreement with the newly formed Iraqi coalition government, a war that has already dramatically receded from public attention in the US is likely to be all but forgotten.

In Afghanistan, US troops are also scheduled to begin their withdrawal, though there the picture remains more complicated and any pull-back remains at the mercy of the perceived or real progress of Afghan security forces and co-operation with Pakistan's military.

The main challenges for US foreign policy, however, are China and the Palestinian-Israeli peace process, said Mr Halper. The first, representing the rise of successful state capitalism, is an "ideational" challenge.

"China represents a form of governance based on ideas that are antithetical to our own," said Mr Halper. "We are being challenged now by nations that have very high rates of growth and at the same time have managed to maintain stability and, further, leave their populations with the view that the future is bright … we're entering a period in which we have to revitalise the presentation of democratic, pluralist government."

The second is as much a domestic as a foreign policy challenge. The peace process is frozen and the administration seems to have run out of ideas for how to move ahead. Strong bi-partisan support for Israel, furthermore, would likely stymie any attempts at significant change in US policy, but Mr Halper suggested it was time for the US to reconsider its options.

"We cannot and should not allow the continued building of Israeli settlements in Palestinian land. We have been pushed to the point where we've been embarrassed, been made to look incompetent and none of that should have come our way."

"[The US] has tried hard to preserve the security and integrity of Israel because we feel we have a moral obligation stemming from World War II. But we've also allowed that sense of moral obligation to cloud the geo-political dimension of our policy and it's not been helpful."