Few investigations can have begun with lower expectations than the Chilcot inquiry into Britain's involvement in the Iraq war.

Critics have been withering:

-- the Chairman Sir John Chilcot, a former Whitehall mandarin, has strong links to the establishment and is unlikely to rock the boat, they say.

-- there are no senior legal figures on the panel capable of addressing the key issue of whether the invasion of Iraq was legal. None of the panel members has spoken out against the war.

-- there is no political pressure for a radical result because the Tories voted for the invasion and the last thing they want is to let the inquiry rock the boat ahead of their expected general election victory in the Summer.

-- the scope of the inquiry is too broad, possibly leading to insufficient detailed inquiries into complex issues.

But Chilcot has denied that his report will be a whitewash, there is clearly a widespread public desire to have all the lingering questions answered and the government has granted immunity from disciplinary action to serving officials and military personnel giving evidence to encourage them to give frank evidence.

Do you expect to learn anything new from the inquiry?

Once he was regarded as an obvious front-runner for the job of EU president, then it was pointed out that it was unlikely anyone would be chosen from a country that is not in the eurozone, not in the Schengen border-free area and which has an exemption to the bloc's charter of fundamental rights.

Ah, but if you don't choose someone with proven political clout to fight Europe's corner, a G2 of China and the United States will have things all their own way soon, declared Foreign Secretary David Miliband over the weekend.

You need someone with a high profile who will stop the traffic in world capitals, he added.

Oh no, we don't, several EU countries say. We want someone with a lower profile who will be better able to secure consensus among members states than Tony Blair.

Other detrators say they don't want Blair because he backed the U.S.-led invasion of Iraq in 2003. The Conservatives in Britain have said that appointing him would be viewed by an incoming Tory government as a virtual act of war and that he runs the risk of being almost immediately thrust into controversy as the Chilcot inquiry into the Iraq war begins.

The actual decision is likely to be made at a summit next month. Meanwhile Blair himself seems to be standing on the sidelines, so much so that some of his supporters are urging him to launch a more dynamic campaign.

Do you believe Blair's the man for the job?

-Tim Cocks is a Reuters correspondent in Iraq.-

This month we reported that the number of civilians dying violent deaths in Iraq had hit a fresh low since the 2003 U.S.-led invasion — about 125 for September.

Sounds like a lot, but for a country that only two years ago was seeing dozens of bodies pile up in the streets each day from tit-for-tat sectarian killing, it was definitely progress.

And as I prepare to end my assignment in Iraq this week, I need no argument from numbers to convince me that things are better here than when I arrived in Feb. 2008.

During my first few months, militants loyal to to anti-American cleric Moqtada al-Sadr were raising hell in Baghdad, firing mortars and rockets at the Green Zone almost every hour. We could hear or feel them thud on impact, especially when they fell short, on our side of the Tigris.

A rocket hit the BBC building opposite us, causing a blast loud enough to shake our windows, although thankfully no one at the BBC was hurt by the strike.

U.S. airstrikes on Baghdad’s Sadr City slum were killing many civilians. Roadside and car bombs were erupting all over the place and the streets were largely deserted after dark.

Eighteen months on and things are hardly back to normal but, as any Iraqi will tell you, Iraq feels safer than it was.

Security forces have been purged of Shi’ite militiamen and are doing a better job of stopping suicide bombings, enabling U.S. combat forces to largely pull out of Iraq’s cities in June.

We rarely hear explosions in Baghdad. A semblance of law and order seems to be taking shape.
Reporting from Iraq, as a Westerner or an Iraqi, has been a tough business for some time. For Westerners, apart from the fact that few foreign correspondents here speak passable Arabic, the big headache remains security.

Ever since insurgents started kidnapping Westerners and beheading them in 2004, the foreign press corps here have been living in a kind of semi-incarceration, behind rows of concrete blast walls that make you feel a bit like a lab rat in a maze.

It varies from media organisation to the next, but all of us are pretty restricted in our movements.
We generally keep a low profile, moving around Baghdad in low key armoured cars. We don’t wander the streets for long periods of time or frequent bars and nightclubs after work.

The assumption is that any Westerner is a prime target for kidnappers — for political reasons or for a juicy ransom.

And this is not to say there are no dangers to Iraqi media workers. More than 130 have died in violence since the beginning of the war.

Seven of our colleagues from Reuters have been killed in that time, most of them Iraqis.

Security restrictions have left us heavily dependent on dedicated local journalists who can visit places we cannot and help us cobble together stories we send to the wire.

That’s perhaps as it should be in a global news agency with strong local talent, but it’s hard not to miss roaming the streets as I would in almost any other country.

As a military correspondent, embedding with U.S. troops has been an experience, though it can hard to get the full picture that way — for instance, persuading a nervous bystander in the street to talk to you when you’re surrounded by heavily-armed American soldiers has proved a real challenge.

As security improves, our leash has been lengthened. I’ve been able to travel to places with that were once off-limits, like many parts of northern Iraq.

Will it continue getting better? No one can claim to know the answer to that question. Many Iraqis are pessimistic, as well they might be after decades of war, dictatorship, brutal sanctions and sectarian bloodshed. But since Iraq was pulled back from the brink in 2007, it has defied gloomy predictions.

But I’m reminded of comments by the head of the Red Cross Iraq delegation Juan-Pedro Schaerer about avoiding the temptation to write off Iraq’s persistent violence as “normal”.

This week, one of our journalists, Ahmed, was awoken in the middle of the night by loud gunshots.

Gunmen had stormed the house of his neighbour and family doctor, and shot him in the head. Ahmed took him to hospital, where he remains in critical condition. He may never walk or talk again.
Clearly, that feeling of nearly normality is fragile.

Related blog: A voice in the wilderness?

Thomas Mucha is the managing editor in charge of correspondents for GlobalPost, where this article first appeared. The views expressed are his own. --

It’s been a fascinating few weeks for global news — the real kind, of course — but also for the fake stuff.

I’m referring to "The Daily Show" and "The Colbert Report," which sent correspondents and producers to locales where comedy shows don't normally operate: Iran and Iraq. Along the way, these two Comedy Central commercial properties cooked up plenty of laughs. But they also produced some insightful — and certainly entertaining — coverage of these two complex and important global stories.

If Wolf Blitzer isn’t quaking in his beard, he should be.

These foreign forays produced powerful storytelling that illustrates how intelligence and humor, when mixed with a little ground truth, can add depth to very serious matters. It also demonstrates how fake news is, indisputably, a power on the global media stage. As an added bonus it was yet another funny and scathing attack on the pompous earnestness that typifies much of the mainstream media: You know you're in trouble if you can be so brutally, and effortlessly, parodied.

Let's start with Iran, where The Daily Show began with a simple idea, but then got much more than it was expecting.

To cover the country's presidential election, Daily Show host and executive producer Jon Stewart sent “senior foreign correspondent” Jason Jones and producer Tim Greenberg to Tehran for two weeks (the trip followed Jones' last Daily Show piece, "End Times," which savaged the New York Times and went viral on the web).

Armed with official journalist visas granted by the Iranian government, Jones and Greenberg traveled to Tehran to tell jokes, but also to poke fun at American conceptions of Iran as "evil."

In full parody mode, they titled their series “Behind the Veil: Minarets of Menace,” and produced an animated introduction filled with ominous Middle Eastern music, and featuring a preening and heroic Jones scampering through the desert. It's the kind of cable TV flash-and-dash that Anderson Cooper would kill for.

Media-mocking humor is rampant throughout the reports: there's Jones dressed as the stereotypical foreign correspondent — requisite facial stubble, khaki reporter's vest and dark sunglasses, a Persian scarf draped roguishly around his neck.

There are bumbling interactions with the usual media suspects in Iran, including former foreign minister Ebrahim Yazdi, reformist cleric Mohammad Ali Abtahi, and Newsweek journalist Maziar Bahari, to whom Jones speaks Arabic instead of Farsi.

There are also street interviews with "seething" Iranians where Jones tries, and fails, to make them say how much they hate America. On the contrary: upon learning of Jones' Daily Show connections, one smiling and stylish young man launches into a killer impersonation of Stewart's staccato George W. Bush. "Heh, heh, heh .... heh heh heh."

The coup de grace comes when Jones visits a Tehran home complete with a happy and clearly prosperous couple, two bubbly kids, flat-screen TVs and a Wii gaming console. "You have a beautiful cave," Jones says, handing the young daughter a carton of Marlboro Reds to "earn their trust."

Yes, the joke here is on the American audience.

Iranians are normal. They wear Dolce & Gabbana and Diesel, play video games and produce rap music. They know more about American geography and history than many Americans (one elderly man ticks off U.S. presidents in reverse order — "Bush, Clinton, Bush the father, Reagan, Carter, Ford, Nixon" — juxtaposed, naturally, with an American in Times Square who can't answer the question, "Name a country in the Middle East that begins with I-R-A-N.") The satire is funny. It is also devastatingly effective.

But as the events in Tehran darkened (Jones and Greenberg left Iran before the serious violence began), the tone of the coverage changed.

A later piece points out that Yazdi, Abtahi and Bahari ("the Axis of Evil's Axis of Evil") had been detained by authorities. The reports filled with the grainy and visceral YouTube videos culled from Andrew Sullivan or Nico Pitney's running coverage of the uprising. And the final report leaves the humor behind altogether:

“As I watch what’s happening there now, " Jones says, "I know that somewhere in that sea of faces are the same people I had met, people who were gracious enough to take me into their homes, and schools, and coffee shops, people who indulged my asinine questions, people I hope will be safe and not be harmed or arrested for the simple act of wearing green and wanting a voice.”

Do the millions of Americans who watched this series (or, more likely, internet video clips of it) have a better understanding of what's happening inside Iran? Do they now have a stronger sense of daily life there? Do they now know more about the things that unite, rather than divide, the people of these two countries? And did they have fun watching it?

Mission accomplished.

The Colbert Report, which earlier this month broadcast a week of shows from Saddam Hussein’s former Al Faw Palace in Baghdad, was equally impressive in its foreign coverage — not least for pulling off the technical feat of producing five 30 minute programs from a war zone 5,200 miles from its studios in Manhattan.

So why transplant an entire comedy show into difficult, even dangerous, conditions? To correct yet another shortcoming of the mainstream media, of course: Iraq had fallen off the news map. Here's how Colbert explained it in the June 6 edition of Newsweek, for which he was the magazine's guest editor:

“I hadn’t seen it in the media for a while, and when I don’t see something, I assume it’s vanished forever, like in that terrifying game peekaboo. We stopped seeing much coverage of the Iraq War back in September when the economy tanked, and I just figured the insurgents were wiped out because they were heavily invested in Lehman Brothers.”

Funny, of course. But Colbert's Baghdad caper was also smart, courageous, and culturally relevant (the media-savvy President Obama doesn't play along with a dangerous comedian like Colbert unless there's a political upside).

Clips of the Baghdad shows quickly flooded YouTube, Hulu, Facebook, Twitter, as well as the mainstream media (The New York Times, Baltimore Sun, Time, Newsweek and others covered it). And so, like Jones in Iran, Colbert's mission was also accomplished.

No, this is not journalism. And neither Colbert nor his Daily Show counterparts make that claim.

But in an increasingly global media landscape where satire bleeds into analysis and where hope meets the brutality of a Basij baton, fake news is playing an increasingly important role — particularly on the internet, where hundreds of thousands of people download, watch and share these clips each day.

Love it or hate it, millions of people are paying attention to fake news across America and the world.

(Click here for the article on GlobalPost.)

(For previous columns by Thomas Mucha on GlobalPost, click here.)

(Above: U.S. General Ray Odierno, Commanding General, Multinational-Force-Iraq, prepares to give actor/comedian Stephen Colbert of Comedy Central's "The Colbert Report" a haircut during Colbert's performance for U.S. military personnel at Al Faw Palace in Baghdad in this USO handout photo dated June 7, 2009.  REUTERS/Steve Manuel/USO/Handout)

-Tim Cocks is a Reuters correspondent based in Baghdad.-

For the U.S. military, it’s the million dollar question — or rather the $687 billion question, according to a recent estimate of the Iraq war’s total cost. Is Iraq now stable enough for them to take a permanent back seat?

The short answer is no one knows. The only way they were ever going to find out was to leave Iraq’s own forces to it and hope the whole thing doesn’t come tumbling down. They started doing that on Tuesday when they pulled out of Iraqi cities.

It’s been an encouraging start. A big bomb in Kirkuk cast a shadow over Iraq’s celebrations of its new-found sovereignty, but since then things have been relatively quiet. Militants might try to take advantage by stepping up attacks, but for the moment they seem content with celebrating a “victory” over the occupation — and setting off the odd bomb, of course.

The United States’ coalition partners have for the most part long since departed. British forces handed over southern Iraq to the Americans in April, but since 2007 their 4,000 odd troops left had been largely confined to Basra airport anyway.

And one thing the crystal ball gazers have learned about Iraq’s hugely complicated, many-sided conflict is that the past is rarely a reliable guide to the future.

When optimists thought Iraq was poised to enjoy democracy after the fall of Saddam, it spiralled into years of bloody insurgency and sectarian killing. Later, just when it seemed all hope was lost and Iraq would have to be partitioned, things starting getting dramatically better.

The idea that Iraqi forces aren’t ready to take on the country’s security usually centre on claims that they are untested, not well trained or infiltrated with militiamen.

But few deny they look more professional and integrated now than anyone would have thought possible two years ago. They might still be full of militiamen, but those militiamen are no longer kidnapping or killing political rivals, as in the past.

And there are clearly some things the Iraqis do better. For one thing, they know the language and understand the culture.

When I was on a U.S. patrol in Iraq’s troubled Diyala province, a U.S. unit nearby accidentallly shot and wounded a civilian in Jalawla town, forcing them to vacate it because a public outcry would put other soldiers at risk of attack.

What they had done is fire a warning shot at a vehicle after the driver failed to heed a command — in English — to stay back. But few Iraqis in rural areas speak basic English.

The real test will be when U.S. pulls all combat forces out, under President Barack Obama’s orders, by September next year.

Many Iraqis I’ve spoken too seem convinced the insurgents are just biding their time, sharpening their knives and stockpiling explosives waiting to reignite the conflict.

But whether or not Iraq can look after itself, at some point the Americans have to say: Look, we’ve done our best to get the lid back on Pandora’s Box. Now it’s over to you.

-Patrick Hennessey is the author of “The Junior Officers’ Reading Club: Killing Time and Fighting Wars.” The opinions expressed are his own.-

In the same week in which Major Sean Birchall became the 169th British service person to die in Afghanistan since the start of operations in 2001 (and perhaps more significantly, as is often unmentioned, the 164th serviceperson to die since the British moved into Helmand Province only three years ago), four families announced that they were planning to sue the Ministry of Defence over the deaths of loved ones in the lightly armoured “Snatch” Land Rover in Iraq and Afghanistan.

Major Birchall was on patrol in the Jackal, a vehicle with less protection than the Snatch but much more mobility and firepower. The 10th person to die in the vehicle it seems that similar concerns are being raised over the suitability of the Jackal as have been being voiced for some time now over the Snatch.

As someone who spent months on patrol in Iraq in the Snatch and even longer driving both on and off road around Afghanistan in the even more vulnerable WMIK (the topless Land Rover largely unchanged since the Long Range Desert Group charged around North Africa in it in the Second World War and the vehicle the Jackal was brought in to replace) the public concern over military vehicles is at once understandable, praiseworthy and a little disconcerting.

Understandable because grief is a terrible thing and grieving families will always want to try and understand why they have lost husbands, sons and brothers and praiseworthy because it is only right that societies should try and ensure that the men and women sent to fight on their behalf are equipped as well as can be, but disconcerting because the argument always seems to lose sight of certain considerations; the devil, as always, is in the detail.

Consider, for a moment, a Snatch Land Rover driving down the Strand. A few people will no doubt stop and look, some will point and a few will know what it is and wonder why it is there, but it will likely go mostly unremarked, dwarfed by the buses and (no doubt) mostly stationary in traffic.

If the exercise were repeated with a Mastiff, one of the better protected vehicles in Afghanistan, or one of the Warriors which have done such sterling work in Iraq, or even the British Army’s most heavily protected vehicle, the Challenger 2 Main Battle Tank, then traffic would grind to a standstill as people dropped their shopping and either ran or stared.

Protection, although important, is only one of many consideration for a commander, be it a junior one like I was, planning local area patrols, or a senior General working out what assets to use where. For all its vulnerability I preferred the WMIK because liked being able to see and hear and interact with people as we drove around, I know many who have a similar opinion of the Jackal and admire its all terrain ability. Soldiers also value being able to keep a low profile, a soft posture, something not exactly feasible in a tank.

We would be better protected if we went out in more heavily armoured vehicles but then we would be better protected if we simply stayed in our bases and never patrolled. In fact, the men and women serving in Afghanistan would be best protected of all if they weren’t there and we brought them all home: sometimes a degree of protection is rightly sacrificed for operational effectiveness.

And laudable though public concern is, the only people who can make the call of what is and isn’t operationally effective are the commanders on the ground. I applaud the efforts of all those who seek to secure the best for the military and would agree with those who argue that politicians have not always honoured their side of the bargain by sending troops to war ill-equipped and under-funded, but I remain wary of tactical decision being made in the Courts at home and will watch the development of these cases with interest.

--- Bernd Debusmann is a Reuters columnist. The opinions expressed are his own ---

The U.S. armed forces, the world's most powerful, outnumber the country's diplomatic service and its major aid agency by a ratio of more than 180:1, vastly higher than in other Western democracies. Military giant, diplomatic dwarf?

The ratio applies to people in uniform (or pin-striped suits). In terms of money, the U.S. military towers just as tall. Roughly half of all military spending in the world is American. Even potential adversaries in a conventional war spend puny sums in comparison. The 2010 defense budget now before Congress totals $534 billion, not including funding for the wars in Iraq and Afghanistan. China's defense budget is $70 billion, Russia's around $50 billion.

Is the huge imbalance between the size of the U.S. armed forces and the civilian agencies that make up "soft power" -- chiefly the foreign service and the United States Agency for International Development (USAID) -- destined to remain a permanent fixture in the political landscape?

The gap is not likely to shrink dramatically, despite a growing internal debate over how to balance the instruments of power. Ironically, the man who has provided some of the most memorable statistics illustrating the hard power-soft power gap is Defense Secretary Robert Gates, the only holdover from the cabinet of George W. Bush and President Barack Obama's most inspired choice.

One of Gates' favorite examples: The 6,600 foreign service professionals of the State Department equal the number of personnel of one (out of 11) aircraft carrier strike group.

The Pentagon spends slightly more on health care for the military than the State Department spends on looking after foreign affairs. And the United States employs more military musicians than professional diplomats.

The gap is meant to shrink, so that the United States can "renew its role as a leader in global development and diplomacy," in the words of the White House Office of Management and Budget. It lists $53.9 billion for the Department of State and other international programs in the 2010 budget, a tenth of the defense budget.

The Obama administration wants to double foreign assistance by 2015 and "significantly" increase the size of the foreign service and USAID, the foreign assistance agency which shrank from a high of about 15,000 during the Vietnam War to just over 1,100 now.

OBAMA TURNS AWAY FROM OLD NOTIONS

Building up "soft power" is a sign that Obama is turning away from the notion that diplomacy is largely a tool to convey threats - a notion popular among the neoconservatives who drove the Bush administration's policy - rather than to negotiate compromise and avert war instead of cleaning up the post-war ruins.

Adding people to civilian agencies that promote U.S. foreign policy interests may well be easier than adjusting the arsenal of the armed forces to the wars they are fighting now or are likely to fight in the near future.

Cutting the size of the military itself is not a subject of debate in Washington, not only because it is obvious that they are badly stretched by the two simultaneous wars in Iraq and Afghanistan but also because few Americans, and even fewer American policymakers, doubt the wisdom of permanent military supremacy for the United States.

How that should be guaranteed is a perennial subject of debate, reignited this month by the defense budget Gates submitted. It calls for a 4 percent increase over the previous year, not insignificant in a country facing a $1.2 trillion deficit next year, and showed that the "military-industrial complex" the late Dwight Eisenhower warned about is alive and well.

In his presidential farewell address in 1961, General Eisenhower said the military establishment and a permanent arms industry combined to create a military-industrial complex whose "influence  --economic, political, even spiritual-- is felt in every city, every State house, every office of the federal government."

That influence is still felt, as shown by the reaction to Gates' decision to readjust the arsenal, moving more money to the tools of irregular warfare and scrapping high-ticket items originally designed to fight a Cold War enemy who no longer exists. Case in point: the F-22 jet fighter, an aircraft pilots describe as the Ferrari of the air. It costs $140 million apiece.

The Air Force originally wanted 381 of the planes, Gates wants to halt production at 187 already built or in the pipeline. The aircraft is being built by companies in 44 states. That translates into 88 senators and ensures broad political support in Congress as well as vivid complaints over job losses once production ends.

Before betting on the outcome of the congressional fight over big-ticket weapons systems, keep in mind an old Washington adage: "The president proposes, Congress disposes."

So we're not going to know the full details of what the cabinet thought about going to war in Iraq.

Justice Minister Jack Straw has blocked the release of cabinet minutes on the subject on the grounds that to open them up would undermine democratic decision-making. If ministers thought everything they said in cabinet was going to be made public, his argument ran, they might be reluctant to express their full and frank views and therefore the principle of collective cabinet responsibility would be undermined.

The Information Tribunal had ordered the disclosure of the minutes of two key cabinet meetings, on 13 and 17 March 2003, when the legality of the invasion was being discussed. Anti-war groups have always suspected that the cabinet failed to discuss properly or challenge the decision to invade Iraq.

Iraq was a war entered into without any need for self defence and without any united international front against aggression, opponents of the conflict say. The legality of going to war was a crucial point and suspicions have persisted ever since 2003 that the then Attorney General Lord Goldsmith was "leaned on" by Tony Blair to declare the invasion legal even without a second United Nations resolution.

Do you believe Jack Straw has a point about the need for confidentiality here?

-- Preston Keat is director of research at Eurasia Group, a global political risk consultancy, and author of the forthcoming book “The Fat Tail: The Power of Political Knowledge for Strategic Investors” (with Ian Bremmer). Any views expressed are his own. For the related story, click here.

There are a number of macro risks that will continue to grab headlines in 2009, including the conflicts in Afghanistan and Iraq, cross-border tensions and state instability in Pakistan, and Iran's 
ongoing quest to develop advanced nuclear technologies.

These risks are real, and will not be resolved easily or quickly. But there are two other general groups of political risks that could be defining both for investors and policy makers: first, the prospect of a number of interrelated market risks in developed and emerging Europe, and second, the challenges faced by the United States regarding multilateral leadership (particularly in the area of financial regulatory reform).

Political risks have historically mattered much more in emerging markets, but political risk in the developed, industrial democracies is rising more quickly than anyone would have predicted a year ago.

Europe

Political-market risk in emerging Europe is significantly higher now than any time in the past decade. Russia and Ukraine, and even recent star "emerging Europe" performers such as Turkey, Hungary, and Romania face serious vulnerabilities in the coming 
year. In addition, western financial institutions based in countries
 like Germany, Italy and Austria are particularly vulnerable to a credit 
crisis in Eastern Europe, where they have large loan exposures. Russia's growing anti-westernism, its state intervention in strategic
 economic sectors, and its assertive posture regarding Georgia have been widely discussed, and will remain concerns in
 2009.

This also plays into one of the most problematic country risk 
stories right now: Ukraine. Its steel-centric economy is in free
 fall due to dramatically reduced global demand, many of its companies
 have large foreign debt financing needs that they will struggle to meet, 
 and its domestic politics are gridlocked and bordering on 
dysfunctional.

Add serious ongoing tensions with Russia to the list, and 
the situation looks bad from almost every angle. The year has
 already started badly, with Gazprom cutting gas supplies 
to Ukraine, and the
 standoff highlights the growing animosity between Moscow and Kiev.

The global financial and credit crises, combined with recession in
 Western Europe, have exposed several other countries in emerging Europe 
to serious financial market risks. In Hungary, the IMF and the 
EU needed to step in with a dramatic aid package in order to head off a potential currency and bond market collapse. And in Romania, there are
 growing concerns about a real estate bubble, rapidly declining economic
 growth, and the evaporation of repatriation cash flows from Romanians 
living in Italy and Spain.

Both the Hungary and Romania stories highlight the increasing 
interconnectedness of political and market risk in the EU. The newer
 member states can no longer be considered in relative isolation from the
 core, Western European countries.

The most notable example is the 
exposure of Western banks to credit risk in Eastern Europe. In recent
 years western banks have made substantial home mortgage, consumer, and
 business loans to eastern Europeans that were denominated in western 
currencies. The borrowers were
 exposed to local currency risks that the often did not fully understand
.

Italy, 
 Austria, and Germany had the largest exposures. Now these western
 governments may need to step in to assist with the solution. In fact, if
 the EU and European Central Bank had not intervened in dramatic fashion 
in Hungary, a number of western-European banks and pension funds would
 have been in very serious trouble. The problem is that this may only be 
the beginning of a crisis that could involve dozens of countries in both 
the East and the West.

The U.S. and Multilateralism

In the past several years the dynamics of "multilateralism" have evolved 
fairly dramatically. Two central developments this year:

1.  A number of
 additional players such as India, China, and Brazil are actively
 seeking to play a larger role in multilateral negotiations and 
institutions.

2.  The U.S. is in the process of a presidential 
leadership transition, with an expectation that the new administration
 will address these issues differently than its predecessor.

This new environment presents both challenges and opportunities. A 
larger number of "key" players at the table means that policy 
coordination could be much more difficult - a classic collective action
 problem. At the same time, engaging newer, emerging-market countries may 
make sustainable "breakthrough" outcomes more plausible, as these 
countries will be central to tackling complex issues such as climate 
change and global trade.

Prior to September of 2008, the central challenges of 
multilateral cooperation were in areas such as energy/climate change, 
 trade, and security. Then the global financial and credit crisis offered 
an almost perfect experiment. How would the world's leading 
countries, along with those who aspired to positions of greater 
leadership (e.g. China, India, Brazil) manage this systemic crisis?

When it comes to a new financial regulatory architecture, the U.S. is 
likely to find support for its agenda in the UK and China, who will
 share the its general aversion to giving meaningful regulatory authority 
to multilateral institutions such as the IMF. As long as these three key
 players can agree on general principles for market regulation, power 
will remain in the hands of national governments rather than any
 multilateral organization.

But this 
is where a key, lurking political risk comes into play - can the U.S.
 actually take the lead in developing a coherent approach to new 
regulation of capital markets?

Congress will probably feel that it needs to act in a dramatic
 fashion and enact new legislation. The Treasury and the Federal Reserve 
will also have serious, and potentially conflicting agendas. So even if
 the multilateral dimension looks manageable, the domestic and
 bureaucratic politics of new regulation present a substantial new risk.