August 3, 2011
After this crisis, nothing will be the same againPosted in Irish Independent · 189 comments ·
ON this day 97 years ago, Germany declared war on France, dragging Ireland into a world war that had begun miles away with an assassination in Sarajevo and finished at home with a war of independence that ended British rule in Ireland. It is interesting that by 1921, “victorious” Britain would end up losing more of her land mass than “defeated” Germany. Empires were swept away, new countries created and the entire world, as Europeans knew it, was reinvented.
Looking back at the extraordinary second decade of the 20th Century, one of the most fascinating aspects of the story is just how few people saw it coming. With the benefit of hindsight, it is also fascinating to see just how wrong conventional wisdom was about the likelihood of war.
Equally noteworthy were the ultimate social implications of the catastrophe and the fact that the ‘insiders’ and the establishment in all countries tried to maintain the economic and social status quo as if the slaughter on the battlefield and its impact on the societies could be separated from the greater body politic.
For example, one of the best-selling books in Britain and Ireland in the run up to the war was ‘The Grand Illusion’ by Norman Angell.
Angell, a left-leaning English economist and journalist, argued that because the world was so tied together by international trade and finance, economic interdependency would ensure that no European power would fight another. He concluded that since it would make no financial sense to fight, no country would do so.
How wrong was that? Yet it was the prevailing wisdom of the elites — both on the left and the right — in most countries.
The financial markets, which — back then, as today — were supposed to assess future risk, hardly budged after the assassination in Sarajevo, preferring instead to dismiss it as a “typical” Balkan episode. Surely this couldn’t reverberate from there to engulf the whole continent?
In London and Dublin throughout July 1914, people went about their business as if nothing major was happening. Not until July 30, less than a week before all-out war, did the markets begin to panic.
We are now told — in Leaving Cert history at least — that the war was the inevitable consequence of the rivalry between Britain and Germany or between France and Germany. Actually, no one thought that at the time.
A shameful episode from the war, which killed, according to the National War Memorial, 49,000 Irish soldiers (a quarter of all Irishmen in uniform), was the attempt by the establishment to prevent the yearning for social change which follows such an experience.
For those of us watching the present financial crisis play itself out, the lessons from the pre-war nonchalance are well worth heeding. The idea that a crisis — any crisis — can be “contained” seems a bit naive. Also the notion that trade dependency or financial links can prevent Armageddon doesn’t seem to stand up.
Yesterday, Spain and Italy’s bond markets weakened substantially, signalling that the European crisis is about to get worse, not better.
At the moment, we have an enormous worldwide financial crisis and yet the official line is that it will be manageable. For example, the official view is that the dollar won’t collapse.
Why not? All it takes is for people to lose confidence in it as a permanent store of wealth and, like sterling, it will fall and fall and perhaps be replaced by some other currency.
Think about the expression “a sterling performance”, it is still being used to denote an exemplary, gold-plated effort, yet the once-strong currency from which the expression derives hasn’t put in a sterling performance in years. As soon as Britain became a serial debtor, sterling was done for.
The same is likely to happen to the US, but what we know from financial markets it that these events rarely happen in an orderly fashion. One day, everything is fine, if a little imbalanced. Next day, we have a panic.
Interestingly, the financial markets rarely get these things right, in the sense that liquidity can drain from a system overnight — as we saw in Ireland, Greece and Portugal. Italian and Spanish yields are now above 6pc, despite a massive bailout which was supposed to bring them down towards 2pc.
From a political and social point of view, wars are an extreme version of social upheaval. They change everything. Similarly, all dramatic changes to the social and political status quo — even recessions — tend to have a lasting impact on subsequent politics.
The British establishment believed during the war that they could preserve the class system, the empire and the like, despite the fact that they were ordering the slaughter of their own sons. This was particularly the case after 1916 when it became increasingly clear that their was no point to the war and the stalemate would simply lead to more and more killing.
GIVEN the fact that “victorious” Britain did in the end lose more post-war territory than Germany, it is clear that it was not “business as usual” and that the war threw everything into a state of flux, whereby even the people who ruled half the world couldn’t control their own backyard.
The present economic crises — globally, not just in Europe — could have similar consequences and the US may not even be able to control the value of its own currency.
Politically, with America owing China so much money and the American and European taxpayer lumbered with so much debt when both economies are not growing, something has to give. Either the citizens will pay or the financial market casino will pay.
If history is any guide, the end of this debt crisis globally will lead to the rightful humiliation of the interests of the banking system. We need the global banking system to be reined in.
Banks need to be seen as utilities that plod along making small profits in return for providing credit to the economy. For example, in a bankrupt country, why should â‚¬500,000 for running a public bank — which is little more than a safe-deposit facility backed by the Government and owned by the people — be seen as too little? Come on, this is nonsense.
In 1918, the victorious powers tried to superimpose the old economic model on the new Europe. The gold standard was reinstated and free markets were to be upheld. Added to this, Germany was punished in the traditional, “business as usual” way. Bankers and central bankers, counting German reparations, were given a primary role in the settlement. We know where this led.
We can’t return to business as usual. We must learn from this crisis, but before we do, we have to entertain the possibility that it is far from over.
The nonchalance of Norman Angell’s ‘The Grand Illusion’ should be a lesson to all of us. As this summer rolls on, the complacency of the summer of 1914 should be remembered, not because any war is coming, but because globally, yet more financial crises are brewing.
Sometimes it pays to allow ourselves to think the unthinkable.