Littera Deusto

Economic crisis and international reations

Hereby I do not intended to do a paradigmatic paper in the study of the crisis in relation to politics and international diplomacy, as well as I do not trust the plethora of ominous books promising to give the solution to the crisis. Notwithstanding, I would like to arouse the itch for further investigations ad inquerendum. The economic crisis has become a political crisis [1], and I am on the point of making it plain.Europe’s internal constraints to grow became plain with the first symptoms of its economies’ exhaustion. The persistence of the demographic pressure on a worn out and insecure economy, the rise in prices and, particularly, the escalation in land prices were the deciding factors in the crisis. A true speculative fever seized the real estate market and brought pressure to bear on prices upwards in an irrational manner. Yet, it was notably alarming that, so as to stand up to such crisis, the increase of the fiscal pressure as a falsely provisional measure and the unfair distribution of what collected gave rise to a wicked system which perpetuated the exploitation of the humble classes [2].

Does it not seem to ring a bell? These were, according to Bois, the causes of the European crisis, of the great ‘European crisis of the 14th century’, which brought about the beginning of the end of the Middle Ages. Notwithstanding, in the long term history handbooks will be able to assert, with no fear to make an attempt on rigor, exactly the same lines about the current crisis that lies ahead of us. It is ironic, and likewise woeful, that we can draw a clear comparison with the crisis of the Late Middle Ages, for it is not but the omen that our system – or rather our decisions – will get us sooner or later to a new recession.

In his celebrated initial paragraph of his ‘Eighteenth Brumaire of Louis Napoleon’, Karl Marx observes that every event and important personage occur twice: the first time as a tragedy and then as a farce. Well then, the crises gave the impression to be the exception proving the rule, for they constantly sprout – some experts point out that every 50 years (Kondratiev long wave), others hold that every 9 (Juglar wave), even though the majority of theoritians share the opinion that there are recurrent surges acting regularly every 20 years (Kuznets wave).

The housing and subprime mortgages crisis elbows his way through history. Three years after the Bank of Spain confirmed it (February 2009) and more than four since our economy met its zenith to soon plummet, the severe recession we are going through urgently hurls comparisons in search of references to weigh up its impact and try to hazard, as far as possible, what the future has in store. Is it the most overbearing crisis of the last decades? Is it unrelenting? Is it different from others? How long does it take to overcome a crisis of such magnitude?

Inasmuch as the United States are regarded as hegemony and hence possess the majority of the world power, this crisis not only is an impediment to the world economy, but also to international relations, drawing to her all the attention regarding foreign policy and political dimensions. Thus, the nation’s diplomatic troops have by leaps and bounds turned out to be a key factor to warranty one’s prosperity; dialectics around this recurrent topic have become the countries’ arms in a desperate attempt not to drawn.

Indeed, for years there has not been a day when the press was not brimful of news concerning the economic and financial hardships, measures to be taken, political strains and torrid debates taking place in the international sphere. We could have the impression that there was nothing else going on in the world than the crisis; relevant worldwide issues sank into oblivion for the Western countries, in a real predicament. Many international actors have played a relevant role channeling the crisis; many have ended up in a quandary, for decisions made in one corner of the globe can alter any other part of this globalized world. Hence the importance of such international organizations such as the IMF, the World Bank and the CRAs.

But the most important point here is that the economic crisis has brought about a true political crisis. Paraphrasing Cordell Hull, ‘the political goof followed the economic goof’ [3].

Indeed, political leadership has been severely affected, especially US international leadership as well as attitudes toward the United States have been altered. Prior to the crisis, the United States were viewed as a monopoly in a way because they had a privileged control on the economy. However, this economic crisis has sparked doubts among nations and negatively changed their stance toward the American hegemony. Foremost, the crisis has weakened the free-market capitalism, their economic system, causing the world economy to shift away from the United States, whose global power has been weakened. Likewise, the US style democracy – model to date – has been deteriorated [4]. The laissez-faire model of the industrialized West has proved not to be effective. Since 2007, relations between states have weakened, nationalism is on the increase and Europeism is more and more called into question [5], since states are more concerned about their own matters rather than the problems of other countries. Hence, it is not surprising that the world is shifting from a unipolar system to a multipolar one, as Altman asserts [6].

Moreover, the crisis has threatened national security. Goals for national foreign policy, especially the maintenance of political stability, have been hindered to such a degree that many nations had no choice but to resort to protectionism – as happened in the 1930’s, although this time not with fascist dyeings -. With the crisis extending to developing and emerging states, it begins to affect regimes and perceived countries of influence. Not only burdens have been imposed on the European Union, but also disagreement concerning policies between the United States and Germany/France has erupted [7]. Furthermore, according to D.K. Nanto, increasing violence and terrorism in various states are signs of the severity of the crisis [8].

Nevertheless, along with the negative effects brought by the crisis, positive aspects can be deducted as well. The “beggar thy neighbor” policies [9] are not all the rage anymore. Countries have now opted -at least in front of the cameras – for lending a hand to each other and setting their shoulders to the wheel seeking for a collective prosperity. “The question, ‘Who ought to be the boss?’ is like asking ‘Who ought to be the tenor in the quartet?’ Obviously, the man who can sing tenor”. These are words attributed to Henry Ford, but which must have been thought by many personages along history.

Charles P. Kindleberger would admit, half a century after 1929, “in these circumstances, the international economic and monetary system needs leadership, a country which is prepared, consciously or unconsciously, under some system of rules that it has internalized, to set standards of conduct for other countries; and to seek to get others to follow them, to take on an undue share of the burdens of the system, and in particular to take on its support in adversity by accepting its redundant commodities, maintaining a flow of investment capital and discounting its paper” [10]. Thus, Germany is today the locomotive, and Greece, Spain and others are the astray carriages in a race against the so-called ‘BRICS’ in order not to sink.

References

1. http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-the-economic-crisis-has-become-a-political- crisis/2011/09/06/gIQA3SaK6J_blog.html (04/05/2012)
2. Furió, Diego, La primera gran depresión europea, elpais.com/negocios (10/01/2012)
3. Hull, Cordell, The Memoirs of Cordell Hull, 2 vols., Hodder & Stoughton, New York, 1948, I, p. 364 mentioned in Young J.W. and Kent J., International Relations Since 1945. A Global History, Oxford University Press, 2004, p.75
4. Altman, R. C., The great crash, 2008. Foreign Affairs, 2009
5. Nanto, D., The global financial crisis: Analysis and policy implications, Congressional Research Service, 2009
6. Íbid. 4
7. Nanto, D., The global financial crisis: Foreign and trade policy effects, Congressional Research Service, 2009. Retrieved on April 27, 2012 from http://www.fas.org/sgp/crs/misc/R40496.pdf
8. This striking piece of news highlights this fact and makes our hair stand on end: http://internacional.elpais.com/internacional/2011/12/30/actualidad/1325272878_360030.html
9. Countries have been largely deemed to have tried to get out of the Great Depression of 1930’s by worsening the others’ economic situation. This has been called the ‘beggar thy neighbor’. To know more about this: Rothermund, Dietmar, The Global impact of the Great Depression 1929–1939. Routledge, 1996
10. Kindleberger, Charles P., The World in Depression 1929-1939, Chapter 1, University of California Press, Berkeley, 1973, page 28

Filed under: Economy