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February 27, 2009

Brendan Simms on the geopolitical consequences of the slump - Or why we will soon know if the EU has a future

Posted by Brendan Simms

Brendan Simms - Professor in the History of International Relations at the Centre of International Studies at the University of Cambridge - argues that the slump means that we will soon know if the EU has a future.

There has been no lack of analysis of the causes of the economic slump which first engulfed the United States and then much of the rest of the world since last autumn. Many see it as the result of nearly three decades of Thatcherism, of Reaganomics, or some other form of "unrestrained" capitalism. Some view it - not without Schadenfreude - as the end of the capitalist system tout court.

Only a few subversive spirits remind us that the "sub-prime" mortgage crisis with which it all started was essentially a well-meant Democrat-sponsored scheme designed to spread home-ownership downwards, and that the much-maligned Republican caucus in Congress had shown far more vigilance in trying to regulate it.

One way or the other, all of these voices assume that the principal impact of the slump will be felt in the slowdown of the economy itself, and the resulting socio-cultural consequences. In so far as they look at foreign affairs, they often blithely lament - or rejoice - that the slump will greatly reduce the power of the west and especially the United States in the world.

In fact, many of the recent international travails of the western cause have been the product of global prosperity. Take the huge surge in oil prices, for example. These contributed greatly to the belligerence of Hugo Chavez in Venezuela, enabling him to cock a snook at his critics, to hire Cuban medics, and even bait the US by offering cash assistance in the wake of hurricane Katrina.

The Iranian Mullahs were able to fund regional terrorist groups such as Hamas and Hezbollah, and stave off domestic unrest through a generous programme of subsidies. They could respond to US and Israeli threats over their nuclear programme with relative equanimity, knowing that any attack would send the price of oil sky-rocketing to an unacceptably high level. Likewise, Russia's Vladimir Putin - flush with oil revenues - victimized tiny Georgia with relative impunity.

Now it is different: the shrinking world economy has led to a collapse in commodity prices, especially for oil. Iran and Venezuela face a huge gap between revenue and current expenditure, because their budgets are based on a break even figure of about $90; today it hovers between $30 and 40 per barrel. An attack on Iran's nuclear installations would now not necessarily lead to economic paralysis. Even Putin's Russia, buffeted by falling demand for its oil, now saddled with the reputation of being an unreliable energy supplier as well, with its currency under current attack, and huge stock market losses, is markedly less powerful on the international stage.

What we do not know, of course, is whether these states will now moderate their stance, or rather seek to compensate their populations through external adventurism for what they lack in financial muscle. The recent Russian intimidation of the Ukraine over Europe's gas supply, and further steps towards the nuclearisation of Iran, are not promising signs.

Moreover, the slump will also put pressure on relations within the west, and its allies. Iraq, for example, is progressing far more successfully than many had dared to hope two years ago, but the falling price of oil will serve to accentuate the already bitter distributional struggles between Kurds, Sunnis and Shiites. It is something that fledgling democracy could have done without.

But perhaps the greatest threat to the unity of the democracies is the Obama administration's protectionist turn. The pledge to put US jobs first, and to impose restrictive tariffs if necessary, may make domestic sense for a while, but it will bring down on his head brutal retaliation from the European Union at a time when a common front over Afghanistan and Pakistan is vital.

It is indeed to Europe where we must look for the most lasting impact of the slump. The widespread prosperity of the past decade was often seen as a vindication of the EU, but it also gave electorates the confidence to defend national sovereignties.

Ireland - once the poster boy of the Union - became the classic example of this when it rejected the Lisbon treaty last year. The erstwhile deputy Prime Minister, Mary Harney used to enjoy outraging her communitaire colleagues by saying that Ireland was closer to Boston than Berlin.

Now, as the economic crisis ravages the "Celtic Tiger", opinion polls suggest that a fresh referendum will pass, albeit narrowly. Voters believe that only the EU can rescue them from the mess, that they would have been sunk without the Euro, and that only the Germans still have the creditworthiness to pump prime the European economy. Suddenly Berlin seems a lot closer again than Boston.

Everything now depends on how the Union handles the crisis. If it can weather the storm, protect the currency and restore prosperity, the moment at which many European states will agree to the final and irrevocable surrender of sovereignty necessary for ever greater integration, inconceivable only two years ago, may not be far off - Ireland is surely a straw in the wind here.

If, on the other hand, Europe too is swamped, or if the Germans refuse to dig even deeper into their pockets, then the European project will have been dealt a fatal blow. It will have raised expectations, however irrational, and failed to satisfy them.

This author long believed that only security concerns, such as Islamist terrorism or Russian expansionism, would generate the unstoppable pressure to integrate, but the economic crisis has created unexpected new opportunities and dangers. We may know whether "Europe" has a future much sooner than anyone had foreseen.

Dr Brendan Simms is Professor in the History of International Relations at the Centre of International Studies at the University of Cambridge and co-President of the Henry Jackson Society.

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