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Russia will begin the process of recreating old Soviet empire in 1999.

Russia and China will be moving into a closer, primarily anti-American alliance in 1999.

Asian economies will not recover in 1999. Japan will see further deterioration. So will China.

Asia will attempt to protect itself from U.S. economic and political pressures. Asian economic institutions, like an Asian Monetary Fund, will emerge in 1999.

The main question in Europe will be Germany's reaction to the new Russia. The Germans will try to avoid answering that question for most of the year.

Forecast

The Post-Cold War world quietly ended in 1998. A new era will emerge. 1999 will see a more conventional world, in which other great powers in the world will unite to try to block American power. In 1998 the United States worried about Serbia, Iraq, and North Korea. In 1999, the United States will be much more concerned with Russia, China, and Japan. The world will not yet be a truly dangerous place, but it will begin the long descent toward the inevitable struggle between great powers.

Two forces are converging to create this world. The first is the recoil of Russia from its experiment in liberalism. The other is the descent of Asia into an ongoing and insoluble malaise that will last for a generation and reshape the internal and external politics of the region. In a broader sense, this means that the Eurasian heartland is undergoing terrific stress. This will increase tensions within the region. It will also draw Eurasian powers together into a coalition designed to resist the overwhelming power of the world's only superpower, the United States. Put differently, if the United States is currently the center of gravity of the international system, then other nations, seeking increased control over their own destinies, will join together to resist the United States.

The die has been cast in Russia. We wrote in our STRATFOR SERVICES 1998 Forecast: "Whether or not Yeltsin survives politically or personally is immaterial. The promise of 1991 has become an untenable nightmare for the mass of Russians. The fall of Communism ushered in a massive depression in the Russian economy while simultaneously robbing it of its global influence."

In 1998 we saw the consequences of this. The reformers in Russia were systematically forced out of power. Power seeped out of Yeltsin's hands.

A restoration of sorts is well under way in Russia. As so many times before in Russian history, the pendulum is moving from adoration of the West to suspicion and contempt.

Russian politics has searched for a center of gravity ever since the reformists began to lose credibility. In December 1998, that center of gravity emerged in the form of Russian chauvinism and anti-Americanism. When the United States bombed Iraq without even consulting the Russians, the lid suddenly came off the pent up anger Russians felt at their loss of great power standing.

The United States has treated Russia as if it were a third world country, subjecting it to continual humiliation. All of this has tapped into a deep vein of Russian chauvinism and xenophobia. In a country that has become virtually ungovernable, this powerful nationalism is now the only means of uniting the country. No one can govern Russia any longer except on a powerful, nationalist platform.

The situation in Russia reminds us of the last days of Weimar Germany. Unable to provide either prosperity or national security, Weimar Germany was replaced by a regime that used national security issues as a means to unite Germany and revive the economy through military spending.

Where Germany focused on the Rhineland, Sudetenland and the Danzig Corridor, Russia will focus on the Baltics, Ukraine and Central Asia. We expect to see massive increases in defense spending, intended both to increase Russian power and stimulate the Russian economy.

Russia will not represent a global threat, but it will challenge U.S. power along its periphery, in a contest that will begin in 1999.

Asia cannot solve its problems. It is therefore caught in a process of mitigation, keeping things from becoming unacceptably bad. In order to do this, Asia must seek to insulate itself from the United States in particular and the global economy in general. It appears to us that the Asian solution will be to create Asian institutions to supplant the global institutions within which Asian economies are increasingly uncompetitive. We expect to see increased resistance to American demands for trade. Asia's efforts to work around its fundamentally insoluble economic malaise will lead to increased friction with the United States on all levels. Most important immediately, we see the reemergence of a Moscow-Beijing axis designed to block unilateral American actions in Eurasia.

Furthermore, this relationship will both insulate Russia and China from U.S. political and military pressure, and create politico-military counter-pressure on the United States designed to elicit greater economic cooperation. 1999 will be the year in which this alliance will take full shape.

There will be outriders to this alignment. Japan is increasingly at odds with the United States over economic policy. Japan will not join in the Russo-Chinese alliance, but it will use it to attempt to extract concessions from the United States.

The question is what pressure it will put on the new Europe.

Germany is deeply torn. The political instincts of the new government, forged in the 1960s, reflect a profound uneasiness with the United States and its leadership. Fear of Russia is a visceral feeling in Germany, and mismanagement there could quickly destabilize the government. With Russian troops on the Polish frontier, the old German nightmare, the Polish question, is about to arise.

Germany is now in the process of defining an identity and a policy for the 21st century. It is simply unclear to anyone, including the Germans, what this identity will be.

Then there is the United States. We are in a world increasingly resistant to the one superpower. There is no second superpower, but there are several great powers. These great powers are in the process of cobbling together an alliance that, taken together, may not fully counterbalance the United States, but will serve to limit American freedom of action.

1999 is the first of many years of increasing tension and conflict involving not only minor players, but also the world's great powers. It is the beginning of what will prove to be a tense first decade in the 21st century.