Multiple reasons lay beneath the decision by China and Japan to denominate their trade in local currencies rather than the U.S. dollar – the global “reserve currency.” As the Financial Times puts it: “The two Asian economies said that they wanted to reduce costs and risks for their companies – an implicit call for less reliance on the dollar, which is currently their predominant medium of exchange.”

There is some basic cost savings in doing this – avoiding the volatility of dealing with three exchange rates instead of just two.

And politically, the two have sought various ways to lessen tensions after a series of maritime incidents between Japanese patrol craft and Chinese fishing boats. Giving China a greater stake in Japan’s currency, the yen, and vice versa, can help stabilize a relationship that has not been warm since the Sino-Japanese war of 1895.

This deal imbues a bit of the “mutually assured destruction” dynamic that America and China share by virtue of their economic interdependence, and by doing so, raises the political costs of careless rhetoric, blowing maritime incidents out of proportion, or, on Japan’s side, failing to properly acknowledge 20^th century war crimes.

But the larger message this pact sends is economic and it is directed at America: “We have no faith in your leadership.”

China and Japan, the second and third largest economies on earth, also happen to be the first and second largest holders of US Treasury bonds (aka, US debt). Trapped in that situation – a selloff would hurt them as much as it would hurt the United States – they have taken a baby step toward unseating the dollar’s dominance in global trade and finance. The short-term implications may be good for the US: the more China opens its currency, the renminbi (RMB), to global markets, the cheaper American exports will be.

Longer-term, however, this is a part of the long game played by Beijing. Since American financial “creativity” nearly threw the world into Depression in 2008, China, Russia, Malaysia, South Africa and others have called for the creation of a new global reserve currency not beholden to the dysfunction of the US political scene.

They are a very long way from finding one – the dollar will likely remain dominant for a decade or more, conferring on the US economy enormous benefits in terms of interest rates, not to mention giving the Federal Reserve and US Treasury far more power than their balance sheets warrant.

But the slip sliding continues. A Japanese official was quoted in China’s media denying that its intention of buying $10 billion in Chinese government bonds – another precedent that grew out of the weekend summit meeting — is a plan to diversify away from the dollar. And if you believe that, they have a nuclear plant they’d like to sell you.

And yet this persists. Late last month, as we digested our turkey, U.S. District Court Judge Jed Rakoff threw out another kind of turkey presented by the SEC to his court. Citigroup, which like many other banks regularly created “investment vehicles” for clients that it then bet on to fail, had agreed to pay $285 million to avoid these practices being dragged through the courts, which would not only be embarrassing (though at this point, could shame really matter?) but also potentially expose senior executives to criminal charges.

There it is! “Criminal Charges.” Imagine that. Yes, I know, attorneys regularly cut such deals to save court costs or, perhaps, because they worry the charges might not stick at trial. But let’s face it, the American public—right, left and center—has had it with white-collar criminals being treated as “overzealously creative” while teenage shoplifters are threatened with jail. The SEC’s response—to petition Congress for the right to raise the fines—is not enough. These cases should not be settled; the settlements send a message of impotence that will come back to haunt us.

The reforms of banking regulation and securities law in the United States and Europe have been uncoordinated and, while sometimes useful, often blunted and sidestepped by the financial industry. Amazingly, the market for over-the-counter derivatives— the SIVs (structured investment vehicles) and MBSs mortgage-backed securities and CDSs (credit default swaps) that dragged the world towards the abyss in 2008—remains almost entirely unregulated. Thirteen years after Brooksley Born, then-chairwoman of the Commodities Futures Trading Commission, warned that this market concealed a ticking timebomb, and four years since it detonated, trillions of dollars worth of transactions that tie American banks to their counterparties around the world remain opaque. She was shutdown by Wall Street’s Clinton-era guardians of the day—Alan Greenspan, Robert Rubin and Larry Summers.

Similarly, efforts to reimpose the Glass-Steagal separations of commercial and investment banking after the 2008 debacle also failed. This, for now, appears to be the state of play—American democracy, entangled in the political complexities of legislative wrangling, has chosen to cross its fingers rather than put up its dukes.

But the Obama administration can still do a great deal of good by simply rediscovering its stomach for prosecution. The Justice Department in the United States should pursue broad charges against those who led America’s leading investment banks and other financial institutions to the brink of collapse in 2008. Focusing on fraudulent claims about the performance of complex securitized financial products—products sold as AAA risks—should be possible, particularly if the Justice Department employs the RICO (Racketeer Influenced and Corrupt Organizations) statutes that helped bring the U.S. mafia down to size two decades ago.

Astoundingly, when Goldman Sachs was found to have sold subprime mortgage products that it specifically designed to fail—in part so that a major client, Paulson & Company, could be against it—the government accepted a 2010 settlement offer rather than continue with a criminal case. The settlement was a record $550 million. That’s a rounding error on Paulson’s balance sheet (though they had a miserable 2010, it must be said, as karma apparently has finally taken a hand).

But pursuing such cases to their legal end, even if the prosecution somehow failed, would restore credibility to U.S. regulators and ultimately have a much more profound effect on the financial sector. Instead, the government sent a message that, yes, it may pursue charges in egregious cases, but the option to pay it off will remain.

Clearly, RICO was not designed for Wall Street. But then, back in the mid-1980s, the National Organization for Women used RICO to file suit against radical anti-abortion groups that had gone beyond protesting and actually physically blocked women from entering clinics providing abortion services (not to mention those that simply existed in order to blow them up). The case went to the Supreme Court, which ultimately ruled in 1994 that RICO could be applied to a political organization. It’s worth noting that the entire case rested on whether RICO could be applied to an entity, like the anti-abortion movement, which wasn’t in business to make a profit. I highly doubt that issue presents much of an obstacle with Wall Street.

In the two economic mega-crises of the twenty first century so far, the 2008-2009 Great Recession and Europe’s sovereign debt debacle, the protection offered by these supposed sentinels of risk has been defective, at best.

Indeed, there is a good case to be made that the three agencies, Standard & Poors, Fitch and Moodys, have earned a junk rating themselves as they doled out AAAs to the likes of Ireland, Spain and others now looking less sovereign and more like wards of the Bundesbank. As late as 2010, Moody’s issued a AAA bill of health for Spain. All three had Ireland rated AAA for most of 2009. Today Ireland’s at Baa3. How’s that for clarity?

This week, S&P has made news again by putting 15 nations in the euro zone on notice of a possible downgrade – i.e., announcing a negative outlook for their sovereign debt, including that of AAA performers Germany, France, the Netherlands and Finland. While many will view this merely as the agency catching up with reality – no matter how prudent a euro zone nation is right now, the costs it will pay to borrow money almost certainly depend on a credible longterm plan emerging from Friday’s EU summit – both the credibility and the basic business model of ratings agency have been so debased in recent years that only a serious reform can salvage their role in the global economy.

The fact is, the three ratings agencies all blithely continued to issue AAA stamps of approval very late in the game to the very instruments of disaster that caused both the 2008-2009 Great Recession and the euro zone crisis.

The problem is not their understanding of sovereign balance sheets or the questionable value of mortgage backed securities. Instead, there is a basic conflict of interest inherent in their business model. Currently, it is the issuer of debt – banks, brokerages, municipal governments and other entities – who pay for the privilege of the particular bond or offering being rated.

In effect, this allows issuers to shop around for the highest rating (and to develop a longterm, cozy relationship that benefits everyone – except, perhaps, the investor and the taxpayers that eventually bail them out). The obvious reform here is to forbid these agencies from accepting money from market makers, and instead have investors fund the cost of risk assessment. Dissidents within the ratings agencies would thus be empowered, and investors would ask questions when noted experts from the outside raised issues. This change would eliminate a serious risk of “false positives” in the global economy like, say, the idea that an investment bank can survive lending out $395 billion with just $11 billion in the vault (as was the case at AAA rated Bear Stearns in 2007).

It isn’t as if no one else noticed these things coming, after all. The human harbingers of the 2008 disaster — economists like Nassim Taleb and Nouriel Roubini, regulators like Brooksley Born – warned years ahead of time that ratings agencies had lost their souls. Ahead of the euro zone crisis, Roubini again and his fellow dismal scientists Bernard Connolly and Kenneth S. Rogoff again questioned the AAA consensus.

Again, the usual players were wired to ignore them. Central bankers and politicians wore ideological blinders; investment professionals happily served up any Kool-Aid that would keep capital flowing.

The ratings agencies, however, allegedly exist to provide a clear-headed view into these problems. That is much harder when the people paying your salary are the same ones you’re rating.

Exacerbating their poor performance as coalmine dwelling canaries, the agencies have also managed some astounding errors given the sensitivity of their writ. S&P deserves credit, in my book, for being on the leading edge of well-deserved downgrades. But it has damaged its credibility with dumb errors.

Last month, S&P issued an accidental downgrade of French sovereign debt – Excuse moi? The EU is asking, with good reason, what “accidental’ means. This followed that agency’s infamous $2 trillion gaff when it downgraded the United States last summer. Again, as richly deserved as the downgrade may have been, S&P essentially discredited (no pun intended) the gravest decision the firm ever took with sloppy math.

Some reform is brewing, thankfully, but not here in the land of deregulatory delusion, and not enough to address the conflict at the heart of this problem.

The European Union, which never liked these three private-sector US firms holding such sway over its economy anyway, reacted with typical parochialism to the first round of downgrades of the PIIGS sovereign ratings by ordering the creation of a European ratings agency (as if it were the rating agency’s excessive zeal, as opposed to their internal contradictions and European profligacy, that caused the EZ crisis). Wisely, this plan was dropped in favor of new rules insisting that bond issuers switch agencies every three years (presumably to prevent apathy or misplaced incentives from setting in). The EU also plans an audit of each agency’s sovereign debt ratings methodology.

Tepid as these actions may be, this is a good deal more than the US Congress managed: it dropped plans for changes just like I’ve described above after administering a good televised tongue lashing and, no doubt, realizing the entire financial lobby opposed the reforms.

And don’t blame the Republicans here, either: the ratings agency victory occurred during House – Senate negotiations in 2010, when the Democrats controlled both chambers, with opposition led by New York’s Sen. Charles Schumer and the venerable Rep. Barney Frank. Just as in an earlier scandal, when Congress considered an overhaul of credit agency rules when the agencies failed to properly rate debt from reckless companies like Enron and WorldCom, a bipartisan tide rose to carry Fitch, Moody’s and S&P out of harms way once more.

Speaking of conflicts of interest …

Follow me on Twitter and preorder my book, “The Reckoning: Debt, Democracy and the Future of American Power,” coming in April from Palgrave Macmillan.

Gloom and doom from one side, glee and visions of sugar plum fairies from the other: As usual, the Pushmi-pullyu beast that is America’s political elite has it exactly wrong as it weighs the dire (or wondrous) implications of “Draconian” cuts facing the U.S. armed forces over the next decade.

With each side eyeing the supposedly automatic cuts in military spending amounting to $600 billion over the next decade, scare-mongers will build the nascent threat of China’s military into a goliath while politicians whose worldview automatically ranks “defense” as less important than, say, “high speed rail” will seek to make those cuts stick.* Between the two polls, pols eyeing jobs and defense contracts in their home districts will weigh in, too, guaranteeing that, unless a more informed conversation displaces the current one, whatever happens on this issue will be misshapen, hacked, and contorted to suit ideological and pork barrel considerations, not the strategic needs of a great nation in relative decline.

Missing, so far, from the conversation that most of the American public has been exposed to is this question: What should the United States military be asked to accomplish in the first half of the 21^st century, and is the awesome force slogging away in Iraq, Afghanistan, and, in more routine missions, across the planet properly organized, equipped, and trained to accomplish it?

Following 9/11, the Bush administration punted on this question, though before the attacks Rumsfeld had indicated he planned a significant rethink of America’s global footprint and capabilities. This effort, which went by the wonky moniker “defense transformation,” ultimately became conflated (and tarnished) by the completely separate and ultimately disastrous decisions taken by Rumsfeld and his commanders to try and invade and occupy two countries in Asia with a force roughly the size of the one that invaded the island of Okinawa in 1945.

But the transformation that began during the late 1990s, aimed at pushing the military to evolve the Cold War-era divisions and air wings that dominated it at the time into a force more in tune with 21^st century missions and (it was presumed at the time) lower appropriation levels, had real intellectual value. With cuts in the wind and ground wars like Iraq and Afghanistan unlikely to recur any time soon, that debate deserves to restart.

For good reason, this debate got backburnered as counterinsurgency, urban combat, and other tasks the military thought it had left behind in Vietnam demanded fresh attention. But some on the intellectual side of the armed forces kept the idea, known as the “Revolution in Military Affairs,” alive, and while it remains on life support, the basic outlines exist of a “win-win” plan to maximize capabilities while reducing the bloated Pentagon budget.

Let’s set aside the political reality that Washington already is racing, like Jack Bauer in a particularly gray and bureaucratic episode of “24,” to defuse the automatic cuts. Let’s assume we use that figure—$600 billion over the next 10 years—as a baseline for cuts.

With the winding down of the Iraq and Afghan wars, and rational streamlining of the out-of-control Pentagon bureaucracy, radical reform can achieve a “have the cake and eat it too” solution. This, necessarily, is an incomplete list, and each item can be debated (and, I hope, will be). But, in my view, here’s how it’s done:

First, the U.S. must strive at all costs to never again to deploy a massive ground force in Asia. As both current wars indicate, (not to mention the Korean and Vietnam conflicts that preceded them), the problems logistical, cultural, and political involved are beyond our ability to fathom going in, and in neither place has the sacrifice of American lives and treasure guaranteed a good outcome in the long run.

Instead, the US must play to its own strengths: Naval and air capabilities should take priority, with a renewed focus on ships and in the air on reducing personnel demands through automation. Personnel, not weapons or even red tape, is the Pentagon’s largest structural cost. Less here is more, and as former Secretary of Defense Gates noted, there are billions to be saved.

The Army should be reduced both in global footprint and overall size, exiting from Europe entirely and ceding its post-Afghanistan operations in the Middle East to a slightly expanded Marine Corps. Army spending should favor Special Operations Forces, which more than proved their worth in the past decade, and more intensive training of the Army’s reserve units, where pay should be kept at levels that make reserve service attractive across the U.S. socioeconomic spectrum.

The Navy should cease construction of the Ford-class aircraft carriers and its purchase of the carrier-borne version of the F-35 Lighting II warplanes. R&D should shift to the development of smaller platforms that house pilotless drones of much greater range than the current 800 mile reach of piloted naval aircraft, with existing, very expensive Nimitz-class carriers mothballed as these newer platforms come on line. (Anything less than an 800 mile range makes America’s carrier force vulnerable to a new generation of anti-shipping missiles deployed by China (and inevitably, eventually, but others).

If Britain, France, Australia, or even India wants to purchase one of our surplus large-deckers, we should be happy to sell one to them. Meanwhile, in one of the few areas that China could actually compete with the U.S. militarily in the next 30 years, development of nuclear attack submarines should continue apace.

U.S. diplomats should launch a new, aggressive effort pursue deeper cuts in the expensive and redundant U.S. and former Soviet nuclear arsenals, with a new emphasis on engaging second tier players, particularly China, India, and Pakistan, in global talks. Spending on missile defense systems should be made contingent on actual capabilities, and the agencies currently involved in separate initiatives—including the U.S. Space Command, Air Force Global Strike Command, the Missile Defense Agency and the U.S. Army Space and Missile Command—merged into a single, cost effective U.S. Missile Command.

The Air Force, like the Navy, should begin to phase out piloted combat aircraft and consider early retirement, in particular, of strategic bombers and deep-strike aircraft. The Marine Corps and Army should phase out aviation altogether, relying on Navy and Air Force assets for their requirements.

As ground capabilities go, the Army should continue the phase out its remaining heavy armor in favor of lighter, more deployable forces, retaining at most a single heavy armored brigade for contingencies and, within reason, transferring surplus M1A3 Abrams tanks to allies that actually need them: Germany, France, Poland, India, and South Korea.

The Marine Corps, which conducted a very thorough force structure review released last March, should retain its current structure, growing from 186,000 to 210,000 to support a third active Marine Expeditionary Brigade (which requires about a dozen naval vessels as support ships).

Shifts like these would take a decade or more and would be painful to those who have devoted their careers to piloting warplanes, tank warfare, or directing aircraft carrier operations. But the country has been here before, as cavalry gave way to motorized units, battleships to carriers and supersonic bombers to subsonic stealth technology. The bright side is that these older, legacy systems have built in operational costs that no longer justify their existence. With the right debate, the United States can get the defense it needs, at a price it can afford.

When it comes to our military affairs, viva la revolution!

Follow me (The Unraveler) on Twitter and preorder my book, “The Reckoning: Debt, Democracy and the Future of American Power,” coming in April from Palgrave Macmillan.

Call it Schnittskrieg: a war of cuts, deep, damaging austerity that amputates and excises and rearranges the targeted economies until – at least in theory – they can safely be allowed to maintain their links to the Reich … I mean, euro zone.

An unfair characterization? Perhaps a bit overdone, I’ll allow. But from the point of view of many in Europe – and not just “those old enough to remember” – a bit of hyperbole right now seems warranted.

The need for Europe’s PIIGS (Portugal, Italy, Ireland, Greece and Spain) to produce viable, medium-term blueprints for major reform and fiscal deleveraging cannot be debated. But Germany actions (and German inaction in some cases) have made the situation worse, imposing radical austerity that destroyed any chance for growth in these economies. At the same time, German policymakers have dictated European monetary and other policies that produced a very strong euro on international currency markets, rendering the bright spots inside these small economies – the Greek shipping sector, Ireland’s high-tech firms, for instance, or Spain’s vibrant telecoms and wine industries — impossibly uncompetitive at precisely the moment when they are most vital to national survival.

On the surface, German Chancellor Angela Merkel seems to be balancing domestic political interests (“stop sending our hard-earned money to bailout profligate Greeks) against hard economic reality (the collapse of the single European market hurts no economy as much as Germany’s, whose manufacturers have thrived since the euro zone’s creation).

This oversimplifies the issue, however. For Germany’s economic policymakers, wired to focus like a laser beam on hyperinflation of the kind that destroyed the Weimar Republic and brought you-know-who to power, this is a teaching moment. Most economists insist the obvious fix is to allow the European Central Bank to act as the Fed did in 2008 – standing at the ready to lend into the crisis and prevent credit markets from seizing up, systemic risks like major bank defaults and the contagion that implies from taking down the global economy.

Irwin Stelzer, director of economic policy at the Hudson Institute, lays out Germany’s battle plan in the Wall Street Journal:

“Lenders fleeing from risk put their money in safer bunds, keeping German interest rates low, saving Germany €20 billion between 2009 and 2011, with an additional €20 billion still to come according to a Brussels research institute. The troubles of Greece et a l. are keeping the euro lower than it would otherwise be, fueling Germany’s export machine. And German voters heartily approve of Ms. Merkel’s insistence on teaching the overly-indebted nations the virtues of German prudence and hard work.”

So what, you realists say? Germany should look out for itself – like all great nations do. Perhaps, but other “great nations” have a huge stake in this problem, and the Fed’s intervention on Thursday should have put to rest any silly questions about whether Europe’s flu could spread across the Atlantic.

Arguing for precisely this move, the codirectors of the Center for Economic Policy Research laid out the global stakes here as they demanded action:

“The risk of a financial meltdown in Europe is significant and growing each day,” wrote Dean Baker and Mark Weisbrot. “The financial fallout could be bigger than that following the collapse of Lehman Brothers in 2008, and could easily push the U.S. economy into recession. The European authorities are moving much too slowly to contain this risk. The European Central Bank (ECB), especially, is not fulfilling its function as a central bank to act as a lender of last resort in a crisis situation.”

The Fed’s coordinated action spurred a rally on Wall Street and other markets, but it really only provided blood for a patient that is hemorrhaging from multiple sovereign wounds. Yet Germany continues to refuse to act – or to allow the ECB, which it controls for all practical purposes, from intervening.

Merkel, speaking Friday, insisted the idea of a “Eurobond” backed by the healthiest six EZ economies, or massive ECB intervention to restore confidence that there is a “bottom” to the crisis, both remain out of the question. The debt crisis, she told her parliament today, is a marathon, not a sprint. A strong Germany – and Germany’s economy has chugged along quite nicely so far, thank you – is synonymous with a strong Europe. Ipso facto, I’m not going to do anything to hurt the German economy even if it causes enormous pain outside of it.

“Marathon runners often say that a marathon gets especially tough and strenuous after about 35 kilometers. But they also say you can last the whole course if you’re aware of the magnitude of the task from the start.”

Some advice to the chancellor: Don’t let the Spanish or Irish runners get hold of that starting gun. They are angry – and while the know they have themselves to blame for allowing things to get out of hand during the bubble years, they also see clearly that Germany’s selfish approach to the solution has made their plight far worse than it needs to be.  They also understand that Germany’s true interest – protecting German financial giants like Commerzbank, Deutsche Bank and others that lent recklessly in the boom years – has taken precedent.

The anger directed at Berlin takes on local characteristics, of course. The Greek media has taken to dressing up Merkel in an SS uniform. In one, a Greek “collaborator” points out a man relaxing in a café to a group of arm-banded German soldiers (the swastika replaced by the euro’s symbol, €). The incredulous caption: “Here’s another one enjoying a coffee!”

In Ireland, bailed out last year by the European Financial Stability Facility (EFSF), some ask whether they fought the English for 300 years only to wind up ruled by Berlin. As oneIrish commentator puts it, “Is this what Ireland has come to? A country which by 2016, the 100^th anniversary of the 1916 Rising … sold our assets [and] ceded our sovereignty to a nation which only 60 years ago was butchering its way across Europe. “

But the die seems cast, and Schnittskrieg, relying as it does on the markets rather than the Luftwaffe or Wehrmacht to bring smaller nations to heel, is working like a charm. So, does this mean Merkel has Die Volk back home on her side?

Hardly. This is where the analogies end, however. For Germans, enthusiastic participants in the last century’s effort to take over the continent, want nothing to do with it today.

Spiegel, Germany’s best news magazine, ran a roundup on its website this week of newspaper editorials entitled “Germany as Isolated on Euro as US Was on Iraq. The round up is filled with anguished accounts of Germany’s dilemma, from left and right.

Die Welt, the conservative weekly, wrote an oped labeling Germany “Europe’s indispensible nation,” borrowing a phrase from U.S. Secretary of State Madeleine Albright. In the 1990s, of course, Albright meant used that phrase to emphasize America’s willingness to wear the mantle; in contract, Die Welt regards it as an affliction.

“Scarcely a people is less suited to this task than the contrite Germans, who spent decades pretending to be smaller than they really are and who would prefer to be just a big Switzerland in foreign policy terms. But now they’re suddenly realizing that the world is relying on them to save the euro and avert a disaster for the global economy. The Germans are going through a crash course in being a leading power.”

Let’s hope the lesson sinks in soon.

With little fanfare, Angola, once a bountiful source for Portugal’s slavers and colonial economy, has grown into Africa’s largest producer of oil in the past several years, though Nigeria nudged past it again in 2010.

This is just the latest example—the most obvious being Italy’s appeal to China for a bailout—of capital flows around the planet performing a 180 degree turn. With the United States and the EU’s historically dominant sources of such bailouts suffering themselves, the search has intensified for “lenders of last resort.” And, in such an atmosphere, national pride has clearly taken the back seat.

The irony, of course, is lost on no one. Portugal ruled Angola as a colony until 1975, and its hand (with American help) remained influential during the country’s long period as a proxy for the Cold War, pitting the pro-American rebels of UNITA against the Soviet-backed MPLA (Popular Movement for the Liberation of Angola). The MPLA ultimately won and rules the country to this day. The idea of Angola bailing out its former masters has the MPLA smiling broadly.

Europe on the eve of World War I (above). Not shown – the “pink” British Empire, including Canada, Australia, New Zealand and other Commonwealth protectorates.

In these times of trouble, former imperialists elsewhere, too, have found powerful incentives to get over their historical qualms. This week, for instance, a former executive with Italy’s state oil company, Eni, won the prized post of oil minister in Libya’s new government.

In South America last month, the 21^st annual Ibero-American summit featured a far more solicitous attitude from the representatives of Europe—Spain and Portugal and tiny Andorra. Seated across from representatives of Brazil and fast growing middleweights like Peru and Colombia, the nations that “discovered” America looked rather pitiful. As the summit’s Uruguayan secretary-general put it, rather diplomatically,:”For the first time, Latin America is not part of the problem, but part of the solution.”

During the boom years, both Spain and Portugal leveraged their language advantages and entered the banking, retail and technology markets in Latin America in a big way. Telefonica, Spain’s telecommunications giant, is probably the best example of this strategy—using Latin American investments to transform a once-backwards state telephone company into the fifth largest telecoms firm in the world.

But Spanish companies have not a euro to spare now.

The greatest of all European empires, too, is taking a stab at this game. David Cameron, Britain’s prime minister, has made improved economic ties with rising giant India—once the “Jewel in the Crown” of Britain’s empire—a major initiative.

You could almost hear the collective national sigh of relief when Tata Motors, the huge automotive arm of the Indian conglomerate, confirmed it would build a new plant to build Land Rovers in Britain, not India, as had been feared. Tata’s purchase of Land Rover and Jaguar in 2008 effectively ended a century of British owned auto manufacturing. Another Tata tentacle, Tata Steel, brought sad, creaking British Steel in 2007.

During the boom years, reestablishing ties with former colonies—often under the guise of exploiting a common language—was all the rage. The British have tried, with mixed success, to do this for years through the Commonwealth. But efforts really picked after the millennium.

France turned its annual meetings of the “Francophonie” nations into a Trojan Horse for its national champions. Never shy about its paternalism, particularly in former French Africa, the summits have grown increasingly balanced in recent years as members with growing economies suddenly present opportunities that go beyond winning big concessions for French multinationals.

As the Francophonie website notes, “The French-speaking zone accounts for 19% of world trade in goods. With 18.9% of world exports and 19% of world imports, French-speaking countries account for 19% of world trade in goods.”

With the market for France’s goods in the Eurozone collapsing, those numbers sound more attractive than ever. The diffident French have blocked takeovers of French companies by foreign firms in the past out of economic nationalism, including a bid by Pepsi to buy Danone, and an effort by India’s Mittal to buy steelmaker Arcelor. But with the cost of French borrowing skyrocketing, such nationalism looks unsustainable. For French former colonies—and indeed, British, Belgian, Dutch or German ones, too—it’s a buyer’s market.