Financial Crisis and War

Geopolitics is intruding into banking practice elsewhere as well. Russian banks are trying to acquire assets in Central and Eastern Europe. European banks are playing a much-reduced role in Asian trade finance. Chinese banks are being pushed to expand their role in global commerce. Many countries have begun to look at financial protectionism as a way to increase their political leverage.

The next step in this logic is to think about how financial power can be directed to national advantage in the case of a diplomatic conflict. Sanctions are a routine (and not terribly successful) part of the pressure applied to rogue states like Iran and North Korea. But financial pressure can be much more powerfully applied to countries that are deeply embedded in the global economy.

In 1907, in the wake of an epochal financial crisis that almost brought a complete global collapse, several countries started to think of finance primarily as an instrument of raw power that could and should be turned to national advantage. That kind of thinking brought war in 1914. A century later, in 2007-2008, the world experienced an even greater financial shock, and nationalistic passions have flared up in its wake. Destructive strategies may not be far behind.

Harold James, Professor of History and International Affairs at Princeton University and Professor of History at the European University Institute, Florence, is the author of Making the European Monetary Union.

Copyright: Project Syndicate, 2013.

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