Trade partners worried of depending too heavily on it

America's debt crisis and economic malaise are shaking confidence in its global leadership.

Many governments see Washington's paralysis as political theatre ahead of a presidential election and wonder how American hard-liners can be allowed to hold up a deal and bring a globalised economy to the brink.

International bankers are concerned that a U.S. default would cause a crash of the dollar, the world's reserve currency, battering economies from Asia to Africa and possibly sparking political unrest. Already, U.S. trade partners are worried about depending too heavily on one country and looking to diversify, just as China is expanding into Latin America and other markets historically dominated by the U.S.

Across the globe, allies fear that the drama between Republicans and Democrats has eroded U.S. credibility, further weakening the superpower's ability to exercise influence in the Middle East and other trouble spots.

Officials interviewed around the world said the United States at the moment is failing to lead by word, deed and example.

“You can't put your house in order being the global economic power?” Ishrat Husain, former governor of the State Bank of Pakistan, asked rhetorically. “How can you expect others to do that?”

Most officials and economic analysts who were interviewed expressed guarded optimism that American leaders would reach a last-minute agreement to raise Washington's debt limit and avoid a government default by Tuesday's deadline. Most took for granted that the sheer size of the world's biggest economy, together with U.S. military might and the fact that no other government is poised to take Washington's place, means it will remain a leading power for the foreseeable future.

“I think nothing will shake the basis of our alliance,” said a South Korean Deputy Defence Minister, Lim Kwan-bin, when asked whether Washington's problems might weaken its 60-year military partnership with Seoul.

This week, Secretary of State Hillary Rodham Clinton tried to reassure Asian governments during a trip to the region. In Hong Kong, she said the debt debate was “messy” but was the way a democracy reaches “the right solution.”

Maybe so. But still few doubted that the debt crisis is taking its toll on U.S. prestige and influence.

The showdown is playing out in a world that began to change in earnest with the U.S. financial crisis in 2008, when emerging economies such as China, Brazil and South Africa began to challenge Washington's status as the lone superpower and to assume a greater voice in global affairs.

Central banks around the world have been moving out of dollars and into other currencies, a trend that would likely accelerate if a U.S. debt crisis diminishes the status of Treasury debt, traditionally one of the lowest—risk investments. China, the largest foreign holder of U.S. Treasury debt, has appealed for Washington to act responsibly and protect investors.

“China has not made any linkage [between debt and other issues] to exert pressure against the United States,” said Shi Yinhong, director of the American Studies Institute at Beijing's Tsinghua University.

Mexican Treasury Secretary Ernesto Cordero said while the U.S. would always be one of his country's primary economic partners, it is “simply a matter of economic common sense” that Mexico must continue diversifying its export markets. A delay in the U.S. economic recovery, he said to written questions, “would obviously imply that this process of diversification of Mexican exports would take place even more quickly”.

Allies say it is not in anyone's interest for the U.S. economy to tumble. Anti-terror partners in Pakistan worry about the loss of badly needed aid. Protagonists of the Arab Spring foresee political paralysis.

Nuclear ambitions

Israelis and South Koreans fear that a weakened United States will relieve pressure on North Korea and Iran to rein in their nuclear ambitions.

“It threatens the position the U.S. holds in the world,” said Israeli lawmaker Danny Danon, a member of Prime Minister Benjamin Netanyahu's Likud party.

If the United States “shows weakness, then it can cause other countries to take action. This can be a major issue with Iran and the terror organisations that it sponsors.”

In Europe, whose financial markets are fragile after bailing out Greece, economic analysts warned that a U.S. debt default could lead to a broader crisis.

“The risk is a very big increase in the rate of interest, and to destroy parts of the banking system,” said Charles de Courson, deputy chairman of the finance committee in the French National Assembly, its lower house of parliament. This could provoke “an economic crisis, and then a social crisis, and then a political crisis.”

The United States is a major market for European companies, and cooperation with Washington on security has been a pillar of Europe's wars in Iraq and Afghanistan.

Europeans already are shouldering more of the expense of global policing and security, such as enforcing a no-fly zone against Libyan leader Moammar Gadhafi and carrying out air strikes against his forces.

Germany's former finance minister, Hans Eichel, says the United States “owes itself and the world” a long-term, sustainable solution to its debt problems.

Keywords: U.S.malaisedebt crisis

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