Why some see unsettling parallels between this crisis and 1914? And guess who could be the next Franz Ferdinand?
Ecuadorian President Rafael Correa announced a few days ago that he believed his country has overcome the diplomatic spat with Britain over its threat to enter the Ecuadoran Embassy in London in order to arrest WikiLeaks founder Julian Assange.
The saga has shifted from the sensation caused by US military shooting civilians like in a video game and the exposition of the cynicism prevailing in diplomatic circles, to the impasse in which Assange finds himself: to stay indefinitely locked up inside the Ecuadorean embassy, or to be arrested by the British police as soon as he steps outside the building.
So for those not suffering from acute Assange fatigue yet, there is still the option to gamble money on it. Online betting sites have jumped on the opportunity of a good old publicity stunt. For instance PaddyPower.com has and exit in a UK police car at 5/4, in an Ecuador state car at 7/4, and in a Hot air balloon at 90/1…
On the other hand, an interesting angle is what this diplomatic stand-off says about ‘peripheral’ nations increasingly willing to defy Western powers against being treated like dominions, and whether this time the world order is really changing. Indeed despite numerous conflicts, the phoney war on terror, and a kind of continued Chinese veto against the US, the last 2 decades of globalisation have in effect seen the roll out of the western neoliberal agenda without much opposition to its logic of Trade and Finance.
But maybe this time it’s different
However there seems to be a recent inflexion in this global consensus: prominent intellectuals are starting to notice intriguing and unsettling parallels between the current crisis and the pre-WWI period.
Indeed while the term ‘globalisation’ is associated with the explosion of ‘free trade’ since the 1990s, the very first wave of globalisation actually happened between 1870 and 1914. The world was divided between a European core and the peripheral countries of North America, Latin America, and the rest of the world… Great Britain was the centre of the international financial system designed to allow the over-production created by the European Industrial Revolution to be sold on those colonial markets. Globalisation back then also saw a major migration wave of about 10% of the world’s population from Europe to countries of new settlement such as the US, Canada, Australia and Argentina.
In the end, this first attempt at the ‘global integration’ of the world economy was so brutal and unregulated that it actually lacked the safeguards to prevent the catastrophe of WWI. Capitalism betrayed its implicit promise of spreading progress and prosperity in a manner that would civilise the world and prevent the regular conflicts of the ancient regime.
Is the European crisis a crisis of Europe?
This where French academic Max Gallo sees similarities between today and 1914. He recently explained in an intriguing interview with Der Spiegel that “just as in 1914 current events could also trigger a chain reaction, driven by nervousness, panic, conflicts of interest, alliance obligations and practical constraints, which could ultimately defy control by politics and diplomacy.” Real insights or crackpots? At least it has the merit of starting the conversation…
A hundred years ago, says Gallo, it was the mobilization plans of military leaders, worked out down to the last detail, including train departure times, while today it is the anonymous market powers, banks and market traders, with their computerized commands, that have plunged all key players into ‘prognostic impotence’ and a ‘chaos of improvised decisions.’
The radical observation that Gallo makes is that for the first time since the creation of the EU, a twilight is approaching over Europe. For him the introduction of the euro was a ticking time bomb revealing irreconcilable nationalist differences within Europe. Doubt has suddenly crept into the German-French relationship: the French starting to believe that Merkel is pursuing the hidden agenda of preparing Germany, the world’s third-largest exporter, for the fight for survival in the age of globalisation at the expense of the greater interest of Europe as a whole. Of course military action is out of question in the medium term, but the war has become economic and social.
On one hand, Germany is following its doctrine of ‘Ordoliberalism‘, a variant of neoliberalism that emphasises the need for the state to ensure that the free market produces results close to its theoretical outcome in a perfectly competitive market. It was theorised as a reaction both to the consequences of unregulated liberalism in the early years of the twentieth century and subsequent Nazi fiscal and monetary interventionism. Ordoliberalism differs from other schools of liberalism (including the neo-liberalism predominant in the Anglo-Saxon world) in that it places a greater emphasis on preventing cartels and monopolies. At the same time, like neo-liberalism, ordoliberalism opposes intervention into the normal course of the economy. For example, it rejects the use of expansionary fiscal and monetary policies to stabilise the business cycle in a recession and is, in that sense, anti-Keynesian.
On the other hand, France wants to pursue more Keynesian policies anti-austerity policies. It has also lost about 10 percentage points of its competiveness against Germany since the introduction of the euro. As a result, what was once a relatively even balance of trade is now a gaping deficit of more than €70 billion, while industrial production is declining and the government debt is on the rise.
If Gallo worst case scenario eventuates, Europe could be drifting toward an August crisis like the one in 1914, with Greece or Spain assuming the role of Serbia, and there will no longer be a Euro in a few years…
… as well as global.
If things were not bad enough in Europe, the global scene is equality tense. Columbia University professor Ian Bremmer observes in his book ‘The End of the Free Market: Who Wins the War Between States and Corporations‘ that the GFC has accelerated the inevitable transition from a G7 to a G20 world, and with it comes a fundamental clash between free market capitalism and state capitalism.
For Bremmer, the G7 world accepted the assumption that growth in the global economy was driven by the diffusion of the ‘western democratic model’ underpinned by free market capitalism. In that model, multinational corporations were the principle economic heavyweights.
However the sun has set on that world because China, the country that has emerged strongest and fastest from the global slowdown, is one that does not accept the idea that a regulated free market economy is crucial for sustainable economic growth. Bremmer believes that China’s success has actually persuaded authoritarians around the world that they really can have prosperity without undermining their grip on domestic political power. China has enjoyed double-digit growth for 30 years without western style democracy.
Furthermore the events of the last 4 years have made China more important than ever for the future of global economic growth. So for Bremmer this means that we are likely to see governments around the world that no longer feel bound to follow the Western rulebook of decades past.
In conclusion, this brings us back to Ecuador’s rebuke. The real insight is that the 2008 financial crisis has turned into an economic recession immediately followed by a diplomatic crisis about resources, with China securing its grip on South-America and Africa. So when the Organization of American States (regrouping the Latin American states) supported Correa’s defiance against Britain, they knew very well what they were doing and intentionally flexed their muscles to keep challenging the West, continuing a pattern that started a few years ago.
Argentine President Cristina Fernandez de Kirchner holds up a sample of oil produced domestically as she announced the expropriation of YPF
In 2008 not long after he took office, Correa declared his country’s debt illegitimate on the basis that it had been contracted by the previous corrupt regimes and defaulted over $3 billion worth of bonds. In 2010 he nationalised the oil industry against the interests of Western corporations. “With this law, any oil company that doesn’t fulfil the policies of the state will see their fields nationalised and they will leave the country”. Correa pushed the button without remorse, clearly indicating that he had enough of the ‘Free Trade’ game set up by western powers for their own benefit. A few months ago, Argentina did the same when Cristina Fernández de Kirchner expropriated Spanish oil company Repsol and took control of the Argentinean subsidiary YPF, the nation’s largest oil company. She justified the move as “recovery of sovereignty and control.”
History buffs would remember that this is a similar chain of events that cost Iranian Prime Minister Mohammad Mosaddegh his head on 19 August 1953: the refusal from those producing countries to see the main share of the oil profits looted by Western companies. Needless to say that a few ‘peripheral’ countries seriously intend to make history not repeat itself on that one.
The most ‘doom-ish’ geo-strategists (see Nouriel Roubini’s perfect storm) are seriously anticipating more tensions. Cyber-attacks are escalating as diligently monitored by cyber security boffins. And we know this is now part of the modern ‘Unrestricted warfare’ as famously theorised by two colonels of the People’s Liberation Army in 1999. Ultimately, the Assange saga is more about the nervousness of unsettled Western democracies rather than his personal circumstances. Will it escalate or fizz out? Will Greece be the next Serbia? Will Assange be the next Franz Ferdinand? Of course this would be giving him too much importance, but we like the music…
Organization of American States: Permanent Council Convenes Meeting of Foreign Ministers on the Situation between Ecuador and the United Kingdom
Nouriel Roubini: “The 2013 perfect storm scenario I wrote on months ago is unfolding“