Political Tensions Takes Center Stage At World Economic Forum

Bears were nowhere to be found at Davos, but dark international clouds were swirling, reports Dan Gross.

DAVOS, Switzerland—The World Economic Forum is a trendy place. The agenda, the discussion, and the general feeling all function as barometers of what’s hot and what’s not in the larger world. Judging by the recently concluded confab, economic tension is out and political tension is in.

On Friday night, Sean Parker, the Facebook investor immortalized by Justin Timberlake in The Social Network, and Mark Benioff, the chief executive officer of Salesforce.com, spent healthy chunks of their massive fortunes on a raucous, raging party in a hotel bar space on Promenade, the main drag of Davos. After a private performance by John Legend, who wowed the rapt crowd with a slow, soulful version of Bruce Springsteen’s Dancing in the Dark, DJ Mark Ronson set the room throbbing. The décor included several pieces of taxidermy, including a massive stuffed black bear on the stage.

It was the only bear I saw in Davos all week.

Goldman, Sachs CEO Lloyd Blankfein was in the crowd—jovial, personable, making self-deprecating small talk with journalists and policy wonks. Informed of the great interest in his new beard, he responded with incredulity. “My wife says I’m the least interesting person in the world,” he told me. Jamie Dimon of JPMorgan Chase seemed to be the only banker scowling in the Alps this week. Sure, big banks may be laying off employees and struggling with new business models (who isn’t these days?). But they aren’t in danger of fading away. Europe’s governments are keeping up with their obligations, money is cheap around the world, volatility is low, and so God is in his heaven. Economic challenges remain—especially unemployment in Europe—but Davos Man cares much more about the stock and bond markets than the labor markets. The world economy is gliding past crises and the markets have got their mojo back.

Economic complacency was sufficiently in evidence that Christian Lagarde, managing director of the International Monetary Fund, felt compelled to warn against it. “While a collapse in 2012 was avoided, “we should make sure we guard against the relapse in 2013,” she told Newsweek/DailyBeast editor Tina Brown at an event early in the week. “Don’t relax.”

If the economic tension was low, however, the political tension was quite high this year. And it set the stage nicely for the coming year: political differences are much more likely to be a source of tension and grab headlines than economic crises.

The much-vaunted “Spirit of Davos” consists of equal parts ecumenicism, tolerance, civility, and a belief that important challenges can be dealt with through dialogue. But it seemed to be routinely flaunted.

A certain political prickliness was the order of the day. Russian President Dmitry Medvedev came rolling into town, a convoy of several vehicles, a van, side doors opened, black-masked gunman at the ready. And he pushed back against the chorus of voices complaining about human rights and state intervention.

British Prime Minister David Cameron, fresh off his big Europe speech, came in and delivered a forthright defense of his country’s fiscal and foreign policy—even as it was announced that the British economy shrank in the fourth quarter. London Mayor Boris Johnson responded with some friendly fire, urging the government to “junk the rhetoric stuff” and get to work on creating jobs. German Chancellor Angela Merkel expressed annoyance at critics of Germany for its continued advocacy of austerity programs and refused to apologize for the fact that her nation’s economy is simply more productive than those of her neighbors. “We are doing everything we can to encourage domestic consumption, but we are still criticized for imbalances,” she said. “But if we meet Europe halfway, if we become less competitive, we won’t be able to export.”

The Middle East was the source of an uncharacteristic vibe at Davos: fatalism. After all, the Davos ethos holds that no problem in the world can’t be solved—or at least partially solved—through 75 minutes of good conversation. But as my colleague Chris Dickey reported, there’s a growing sense of helplessness about the situation in Syria. At the annual Friday night dinner, Israeli Defense Minister Ehud Barak spoke with gentle sarcasm about efforts by the World Economic Forum to bring together Israelis and Palestinians. Meanwhile, Barak told The Daily Beast (in the form of Chris Dickey) that a U.S. strike against Iran was not out of the question. “You could under a certain situation, if worse comes to worst, end up with a surgical operation,” he said.

Japan’s economy is widely seen as coming back. The annual Japan Night reception featured a video from Prime Minister Shinzo Abe, proclaiming that Japan’s economy would be coming back strong and suggesting that its resolve to deal with foreign policy issues—i.e. China—should not be underestimated. The new policy aimed at getting the long-suffering economy back on track—a bout of quantitative easing that is making the yen weaker—is likely to aggravate tensions between Japan and Germany. At a dinner with journalists, hedge-fund manager George Soros spoke of an “incipient war in currencies.” Soros also suggested that any slowdown in growth in China (a massive economy noteworthy for its small representation at the IMF) could lead to an escalation in external conflicts. “The Japan-China conflict is already one of the sharpest ones in the world,” he noted.

And just as Parker and Benioff imported the elements for a great party from the U.S., American political partisanship was shipped off to Davos as well. The small U.S. delegation was led by House Majority Leader Eric Cantor and California Rep. Darrell Issa, who are among the toughest and most implacable foes of President Obama. The U.S. may have maneuvered past the fiscal cliff and has put off debt-ceiling brinksmanship. But Cantor told audiences that the sequester—the automatic, indiscriminate spending cuts that are supposed to kick in—is unlikely to be averted. On Saturday, a panel on the dysfunctional U.S. political system, which included die-hard centrist David Gergen, concluded without the requisite optimism.