I am hugely reassured to hear that, in this era of global crisis, British diplomats are focusing on the really important issues:

An agreement has been signed to bring two giant pandas to Edinburgh Zoo, the first to live in the UK for 17 years.

The deal was signed at Lancaster House in London by the Royal Zoological Society of Scotland and the Chinese Wildlife Conservation Association.

It was witnessed by Deputy Prime Minister Nick Clegg and Vice Premier of China Li Keqiang.

Tian Tian and Yangguang, a breeding pair born in 2003, will be under the custodianship of the zoo society.

The project represents the culmination of five years of political and diplomatic negotiation at the highest level and it is anticipated the giant pandas will arrive in their new home as soon as a date is agreed.

The Chinese government is said to charge around $2m a year to rent a pair of pandas. Apparently though, “the Giant Panda Project will be funded through sponsorship, offering unparalleled opportunities in terms of international corporate, commercial and diplomatic relationships between China and the UK.”

Happy days.

Behind the dense forest of exotic acronyms is a simple fact: the catch-all classification ‘emerging markets’ has lost much of its usefulness. It was invented in the 1980s, by World Bank economist Antoine van Agtmael, to replace the now-defunct acronym LEDCs (or ‘less economically developed countries’) by which the West had until then blithely referred to the rest of the world. The term ‘emerging markets’ served as a useful way to refer to fast-growing although crisis-prone markets like Russia, China and Mexico.

Within the term ‘emerging markets’ was quite a 1980s-assumption: these markets would follow the development route laid down by ‘developed’ economies, until they arrived in the neo-liberal end point reached by the US, the UK and other western countries. And the phrase also came to have strong associations with the currency and debt crises of the 1980s and 1990s.

But things have changed. The bigger emerging market countries have now overtaken the weaker developed markets, not just in total GDP, but also in the pricing they pay on their sovereign debt. Emerging market countries like China and Russia have accumulated trillions of dollars in foreign exchange reserves, and are now the main creditors of western sovereigns. In the 1980s, emerging markets depended on the west for capital inflows. Now the situation is reversed, and the US and EU depend on China to buy their sovereign debt.

It was partly to recognize this shift in economic power to emerging markets that Goldman Sachs economist Jim O’Neill introduced the now-famous acronym BRICs (Brazil, Russia, India and China) in 2001. It was a runaway success. A decade on, and MSCI has launched a BRIC index, there are several BRIC-focused funds, BRIC-focused blogs, BRIC conferences, and the leaders of the BRIC countries even held their own BRIC summit in 2009. 

However, the success of the acronym, and the increase in capital flows to BRIC markets that followed, quickly led to questions and criticisms of the BRIC tag. In 2008, for example, when Russia’s economy slid into recession following the war with Georgia and the Credit Crunch, some analysts suggested Russia should be dropped from the grouping. This suggestion was sufficiently alarming to Russia that it organized not one but two BRIC summits in Russia in 2009. .

Beyond BRICs

Some analysts and economists have pointed out that the BRIC grouping misses out as much as it includes. Jerome Booth of emerging market fund manager Ashmore Investment says: “I came up with CEMENT: Countries in Emerging Markets Excluded by New Terminology.” What, for example, about Indonesia, which has a bigger population than Russia, greater political stability than India, and an economy set to grow by 7% in 2011? Both Morgan Stanley and emerging market fund manager Templeton have suggested turning the BRICs into BRIICs.

What about Turkey, which emerged from the Credit Crunch in remarkably robust health? Its stock market is up 12% year-to-date, while the MSCI BRIC index is down 2%. Turkish president Abdullah Gul told the Financial Times it “wouldn’t be surprising we start talking about BRIC plus T” – although that acronym hardly rolls off the tongue.

Other investment banks, perhaps jealous of the kudos Goldman won with its BRIC creation, have tried to make their own acronyms go viral. HSBC’s ex-CEO Michael Geoghegan tried to float CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. He said: “Each has large, young, growing population. Each has a diverse and dynamic economy. And each, in relative terms, is politically stable.”

But investors did not take CIVETS to heart (one says: “BRIC sounds big and serious. Isn’t a civet some kind of animal hormone gland?), and the acronym lasted little longer than Geoghegan, who is departing from HSBC.

Rival firm Standard Chartered has tried this year to introduce the ‘7% Club’, which would include any market whose economy is growing at rates of 7% a year or more. Standard Chartered says: “Focusing too much on BRICs has its limitations. One is that there are several other countries that are not far behind and could plausibly be in the top four within a decade or two, most likely displacing Russia or possibly Brazil.”

Having an acronym with a fluid membership allows for any outperformers to join and underperformers to drop out. But the 7% membership rule makes for some strange members in the club: China, India, Vietnam, but also Turkmenistan, Sudan, Sierra Leone and Chad. Anyone for Sudanese debt?

Goldman Sachs’s Jim O’Neill has sought to create a new acronym to acknowledge the rising stars coming after the BRICs in emerging markets: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam. He has dubbed these countries the ‘Next 11’, which is probably catchier than, say, SKIVE PIMP BNT.

The NEXT 11 tag has already had some success – Castlestone Management launched a Next 11 fund in August 2010, and BNP Paribas launched a Next 11 ETF.  Jeffrey Sacks, emerging market debt portfolio manager at Principal Global Investors in New York, says: “The Next 11 tag is interesting because it catches the middle tier of rising stars, and all the markets in it share quite similar economic fundamentals.”

Its the PIIGS, STUPID

Meanwhile, a sign of the times of how bad things have got for developed markets is analysts have started to invent acronyms to group them together in ‘bad groups’. The main example of this is the PIGS acronym, for the weaker Eurozone economies of Portugal, Italy, Greece and Spain, although some analysts prefer to include Ireland to make it PIIGS.

No one has owned up to inventing PIGS, indeed, Barclays Capital analysts have been banned from using it, as it has led to fury among PIGS policy-makers, with one Portuguese politician calling it a racist plot fried up by the British media to deflect attention away from the weak UK economy. The British press responded by inventing its own acronym, STUPID, to include the high deficit economies of Spain, Turkey, UK, Portugal, Italy and Dubai.

But some investors warn that such acronyms, droll as they are, can make the markets less safe. Gerard Fitzpatrick, senior portfolio manager at Russell Investments in London, says: “These acronyms can spread systemic risk. They create herd behaviour, with investors mindlessly running from anything tarred with the PIGS brush.” Jerome Booth agrees: “The problem with all these acronyms is they’re short-cuts. They save you the effort of thinking. Thinking is hard work.”

But these sorts of neural shortcuts are not confined to acronyms. There are many types of classifications and groupings that have a big influence on investor behaviour, but which can be arbitrary or misleading if followed too religiously. Perhaps the most influential classification is how sovereigns are treated by big index providers like MSCI and S&P’s.

For example, investors and analysts have been expecting MSCI to upgrade Taiwan and South Korea, both of which are investment grade, to ‘developed market status’. However, it has yet to do so, despite other indices like S&P and FTSE graduating these countries.

Bankers in the GCC have also long been waiting for MSCI to upgrade GCC markets like the UAE from ‘frontier’ to ‘emerging’, which would instantly lead to large capital inflows from index-tracker funds. But so far they’ve waited in vain.

Another huge driver of investor behaviour is the stamp given sovereigns by rating agencies. Indeed, whole economic policies are designed with a view to preserving ratings, as the British government’s anxiety about the UK losing its AAA sovereign rating show this year. Much of Russian finance minister’s economic policy from 2001-2003 was designed to win Russia an investment grade credit rating, which it finally did in 2003 – although financial reforms notably dropped off following that achievement.

The loss of investment grade, meanwhile, can be a traumatic event – take Standard & Poor’s downgrade of Greece to junk status in April 2010, which was enough to cause the EU to call for rating agencies to act in a “responsible and rigorous way”, during “this very difficult and sensitive period”. The other rating agencies then followed suit, leading to Greece falling out of the MSCI investment grade index.

The rating a sovereign is given has a huge impact, then, on its market perception and on its domestic economic policy – on government spending on schools, hospitals and other critical public services.  And yet, if the Credit Crunch has shown anything, it is that rating agencies are over-worked and under-qualified organizations manned by analysts who would often far rather be working at an investment bank. They are just as prone to inaccuracy and fallibility as other areas of the market.

One investor says: “There are all sorts of classifications and generalizations that get slavishly followed and  which prevent people from looking at fundamentals. And the media is responsible for a lot of it. It’s journalists who are most obsessed with coming up with catchphrases, or awards, or lists of ‘who’s hot’. Too many investors outsource their thinking to analysts or hacks. People need to think for themselves.” Think for ourselves? PIIGS might fly.

Enjoy this? There’s more by me on psychology and philosophy at my blog, The Politics of Wellbeing.

The conflict had several immediate results.

Already fraught relations between Moscow and Tbilisi plunged to new depths and diplomatic relations were severed.

Russia and three other countries recognised the independence of the breakaway Georgian regions of South Ossetia and Abkhazia.

And relations between Russia and the West – the US and the EU – deteriorated to their worst level since the collapse of the USSR – there was even talk of a new Cold War from western politicians.

The Cold War analogies led some commentators to argue Russian foreign policy had taken a decisive anti-western turn and things could and/or should never be the same again

Two years later, the one thing that seems unlikely to ever be the same again is the shape and size of Georgia. If recognition from Russia was not enough, the recent International Court of Justice opinion that Kosovo’s unilateral declaration of independence was not against international law, makes it even less probable Tibilsi could regain control of its lost regions.

But otherwise those predictions and talk of a new Cold War couldn’t appear more misplaced.

Russian relations with Georgia remain hostile. Although the border has reopened in places and some business links survive, ties look set to remain frosty as long as Prime Minister Putin and President Saakashvili remain in office, given their dispute now has a personal animus that goes beyond the geo-political.

But when it comes to relations with the western powers, over the past year things have improved significantly.

One of President Obama’s most successful foreign policy initiatives to date has been the ‘reset’ of relations with Russia that has led to a new nuclear arms control agreement, START 2, but Washington appears to have been pushing at an open door. Though the talks over START took a bit longer than expected and the Russians bargained hard, President Medvedev genuinely seemed to want to do a deal.

When it comes to Europe, the Russians were reaching out to their arch rivals, the Poles, even before the tragic air crash in Russia that killed the Polish President and many of the country’s elite in April. Mr Putin, who has a reputation for playing hardball, handled the consequences of the disaster with a sensitivity that surprised many and Poland has reciprocated.

Russia knows Poland is now an important player in the EU and the overtures to Warsaw show Moscow wants to improve relations with the wider EU, damaged in the past few years by disputes from the disruption of gas supplies via Ukraine, to the killing of the former Russian agent, Alexander Litvinienko, in London.

What lies behind this change of policy in Moscow?

The reasons for the change of approach from Russia were outlined in a leaked Foreign Ministry paper in May  and they appear to be highly pragmatic.

The economic crisis came as huge shock to Russia’s leaders as the economy shrank by up to 10%. The fall in global economic activity led to a big fall in the price of oil on which Russia depends for much of its GDP.

The penny seems to have dropped in Moscow  that the oil and gas industry need to be much more efficient and the country needs to diversify away from reliance on the energy sector. So President Medvedev and Prime Minister Putin want to modernise the Russian economy, and they have decided they need good relations with the western economies to get access to investment and technology.

Last month, Russian Foreign Minister, Sergei Lavrov, wrote a significant essay in Russia in Global Affairs explaining the policy change in more depth

So is Moscow turning  westwards, rather than to its new partners in the BRIC bloc – China, India and Brazil – when it really needs help?.

Well this change could be a sign that the talk of the shifting balance of power in the world is overblown.

Equally, it could well be a sign that the emergence of new powers, alongside the presence of the traditional western powers, has given all states more options in foreign policy – and a country like Russia, which sees national interest through the lens of realpolitik, can pick its horses for courses in the global arena.

The World Tonight is broadcast at 22.00 UK time on BBC Radio 4 and online

- Focusing on Chinese domestic society, the Economist highlights the growing activism and changing dynamics of the country’s vast labour force, with its associated implications for the global economy. Analysis over at VoxEU, meanwhile, assesses evidence of a potential Chinese property bubble.

- Elsewhere, with David Cameron back from his visit to India, Adrian Hamilton and Geoffrey Wheatcroft offer their views on his approach to international affairs. Kim Sengupta meanwhile remarks that the new Prime Minister “has started his foreign policy journey with a series of very deliberate steps”.

- Finally, Sir John Sulston talks to the New Scientist about the implications of global population change for sustainable development – the subject of a new initiative that he’s leading for The Royal Society.  Prospect Magazine‘s blog, meanwhile, highlights favourable demographic trends in the developing world, while figures this week confirm that the EU’s population has now passed the 500 million mark.

Michael Pomerleano explains the need for a new institution with the necessary legitimacy to provide global financial stability, arguing that “[n]ational public policies can no longer be independent of global collective-action problems”. Amartya Sen, meanwhile, explores the continuing significance of the 18^th Century ideas of Adam Smith to contemporary global economic troubles.

- Elsewhere, in an interview with The Christian Science Monitor, Henry Kissinger offers his views on Obama’s recent nuclear initiatives, US-China relations, and coherence among the BRICs. Over at World Politics Review, Nikolas Gvosdev reports on the lack of support forthcoming among BRIC countries for strict sanctions on Iran and highlights some of the other options open to the US administration in dealing with Tehran. Jonathan Holslag, meanwhile, assesses China’s recent diplomatic “charm offensive”, concluding that this will yield little over the long-term if words aren’t backed up by meaningful action.

- Finally, two television debates and nearly three weeks into the British general election campaign, David Marquand explains why this is “a moment for careful historical reconnaissance”. Assessing the rise of Nick Clegg and the Liberal Democrats, he explores comparisons with the three-party politics of Britain in the early 1920s. The FT’s Philip Stephens, meanwhile, assesses the impact of the debates and the implications of a hung parliament for the British electoral system.

- Francis Fukuyama talks to former US Treasury Secretary, Henry Paulson, about China’s approach to the financial crisis. Daniel Drezner, meanwhile, reports on the discontent of leading G20 countries at Beijing’s apparent insouciance over implementing agreed economic reforms.  Elsewhere, Patrick Messerlin charts the actions of the emerging G20 powers across economics, trade, and climate – suggesting that while much progress has been made, they still require leadership from OECD countries. Oxfam’s From Poverty to Power blog, meanwhile, offers a progress update on the financial transaction tax.

- Elsewhere, Der Spiegel interviews the man that headed Obama’s transition team, John Podesta, who offers his thoughts on the healthcare debate, the Washington political process, and Obama’s engagement with the rest of the world. The FT’s Edward Luce and Daniel Dombey, meanwhile, assess the centralised nature of foreign policy decision-making in the Obama White House – highlighting the emphasis placed on improving the inter-agency process compared with the Bush years, but also the lack of a grand strategic thinker to which the President can regularly turn (à la Kissinger).

- Finally, Prospect Magazine has an interesting article on “seasteading” – described as involving “a future in which the high seas will be increasingly commandeered for unconventional purposes” (such as medical tourism, gambling, sanctuaries for minority groups etc.) – and the opportunity it may present for the creation of “micronations” populated by libertarian-minded groups.

- European Geostrategy suggests that EU security and defence policy is like a jazz band and explains why a White Paper providing a “grand strategy” is needed. EUobserver, meanwhile, has news on the emerging shape of the European diplomatic service – its structure and staffing – as member states gear up to secure the important EEAS secretary general post.

- Elsewhere, Constanze Stelzenmüller takes an in-depth look at the travails of German security policy, offering insights into how it might evolve. Highlighting the lack of strategy, she argues that “fundamental decisions regarding German security policy have been repeatedly forced into the Procrustean bed of moral necessity, domestic imperatives, or the demands of external alliances.”

- Finally, over at openDemocracy, Andy Yee explores the “hedgehog’s dilemma” between China and the West, highlighting a gradual acceptance of different core values. TIME magazine, meanwhile, assesses the slow progress toward democracy in Hong Kong and the possible wider implications from Beijing’s perspective.

It doesn’t take a genius to see that America needs more help in dealing with China. That’s why we must shift from what is primarily a bilateral and at times unilateral, pound-the-chest approach to one involving more support from other key countries, many of whom are also having big problems with China, including the European Union and India.

This enhanced multilateralism must be based on at least two premises that are hard to discern in U.S. policy today. The first is that China is not just bursting on the global stage, but rather is changing the world as it does so. Put another way, we can forget about trying to force China into conforming to Western rules and institutions without allowing the country a big voice in reshaping those arrangements to serve its own needs. Secondly, the U.S. and its partners are better off compromising with China on these arrangements so long as they have rules and enforcement mechanisms. The key goal must be to encourage China to obey laws and regulations that are agreed upon.

Not sure I’m wholly convinced that Van Rompuy and his travelling circus are the missing link in getting China to be a constructive world citizen – but hey, we can dream.