Blog

IF THERE is one thing to remember about history, especially political and economic history, it is its ability to repeat itself time and again without people learning the lessons of the past.

Take the current economic situation with the eurozone countries desperately trying to get themselves out of the mire, without any of them losing face or seeing an obvious ‘winner’ to come out of this difficult situation.

The horse-trading that we are seeing is tantamount to when Churchill engaged the help of Roosevelt to win the war against Hitler. Hitler, he warned his American counterpart, could not be trusted, and the British and American people had an unbreakable cultural bond. An interesting take on things, since it had only been 165 years since the colonies had broken free from the shackles of British imperialism, and a mere 76 years since the Crown had unsuccessfully tried to influence the outcome of the American Civil War in favour of the Confederacy.

Still, an accord was struck, proving once more the old adage that in geopolitics, there are no permanent allies, only permanent interests. That, frankly, is exactly where we are with the global economic crisis today. Politicians and policymakers are procrastinating – as much out of a dire necessity to save face and their country’s economic future, as uncertainty about what to do next.

In reality, most of the major players need this economic system to work. Of course, 1929 is still sufficiently recent in the collective memory and economic depression benefits very few. Within the EU, the stronger countries need a weaker currency, while the weaker countries need cheaper debt. Both goals will be achieved if the euro is maintained.

Outside of Brussels, the anaemic US recovery cannot afford a meltdown across the pond, bearing in mind that the European economy, while fragmented and culturally diverse, still outstrips that of the US. If the US struggles, China cannot be far behind, and with them the entire South East Asian region, and probably Australia too.

Come to think of it, probably the only countries that would benefit from a Great Depression would be Russia and Iran. Both are well stocked with their own energy supplies, both have low levels of debt, both can feed their own people, and neither are particularly dependent on exports. Yes, Russia supplies much of Europe with natural gas, but the energy business is such that buyers have relatively little bargaining power.

The sight of US Treasury Secretary Geithner checking into a Frankfurt hotel confirmed the view that for now, at least, the United Nations of Finance are as one in ensuring that their industry will not implode. But it still remains a fascinating study in game theory.

Nobody at the table wants anybody else to lose, but nor do they want anyone to obviously win. Throw in the complications of democratic politics and you have every major leader attempting to send messages in code to their electorate that it is they who actually got the best deal, despite what the media might have reported. So we have alliances and deals and axes and detentes breaking out all across the world.

In Europe, the Franco- Germans are trying to get a deal done with the peripheral nations. Here, the stakes are greater scrutiny of sovereign finances in exchange for access to the German national credit card. The bargaining chips are the threat of default from Greece, Ireland, Portugal and others versus the threat of withholding emergency funding to these same nations.

At the next table, the Republicans and Democrats are trying to work out a fair exchange rate between higher taxes on the rich and cuts in entitlements and other spending. Finally, the US and China are seeing if a deal can be done on a stronger Chinese currency in return for continued access to US markets, with Taiwan and North Korea being used as the red herrings. There are still considerable risks. These are all human beings, prone to mistakes. It is very possible that they have miscalculated the severity of the problem and have left it too late to get all the deals done.

It is possible too that the looming elections for many of them – Obama, Merkel, and Sarkozy – will push them towards the political and away from the practical. Finally, it is eminently possible that they are simply not up to the task.

Yet for all the flaws in our global village, it does seem that civilisation is on an upward slope. Contrary to what the media would have us believe, there are less military conflicts than there were 500 years ago, and there is more of an understanding that peace and prosperity are what the people want. Conspiracy theories aside, equilibrium has become the desired economic state for most of the world’s major powers.

Certainly there will be more chapters in this saga. Certainly there will be days when it seems like the world as we know it is going to end and certainly one will find oneself wondering whether or not the men and women in that room understand the consequences. But a solution will be found, it’s in everyone’s permament interest to temporarily ally.

By Jeremy O’Friel