This issue of Hampton Roads International Security Quarterly focuses on two distinct areas of concern: the reassertion of Russia’s nationalist and aggressive foreign policy, and the intensifying financial market crisis. As always, we try to provide various perspectives on both issues.
First, the question of NATO-/Euro-/US-Russian relations in the post-Georgian world.
Finland’s foreign minister Alexander Stubb classifies Russia’s 8 August 2008 incursion into Georgia as a turning point in world politics. By coining the usage 08/08/08 for that event he draws a distinct parallel to the 9/11 attacks by al Qaida, which clearly changed global politics more than any other event since the collapse of the Soviet Union.
British foreign secretary David Milibrand vows support for Ukraine and Georgia, and calls for a unified European and Western policy of “hard-headed engagement” vis-a-vis Russia. This should include efforts to wean Europe from energy dependence on Moscow – a step that would greatly diminish the Kremlin’s ability to bully its neighbors.
NATO Secretary General Jaap de Hoop Scheffer takes a differentiated approach. He rejects calls for a 180-degree shift in relations with Russia, but states clearly that “business as usual” is off the table until Moscow demonstrates regard for international law. Significantly, Scheffer also cites Russia’s incursion into a neighboring country as grounds for a reappraisal of the balance between an expeditionary NATO and the alliance’s core task of collective defense.
On the western shore of the Atlantic, US Secretary of State Condoleezza Rice addresses Russia’s recent pattern of intimidation of its neighbors in Europe and the Caucasus. Interestingly, Secretary Rice takes pains to understand the Russian point of view, and stresses the commonality of interests between Moscow and Washington. She underscores American determination to deepen bilateral relations.
Rice’s deputy for European and Eurasian affairs, Matthew Bryza, presents a detailed analysis of the Georgian crisis, and discusses how to blunt Russia’s strategic objectives in the Caucasus.
Overall, there is a clear transatlantic consensus that Russia’s current policy of intimidation and aggression cannot be tolerated, but that Russia is too strong to ostracize or ignore. In many ways, the transatlantic atmosphere is considerably less harmonious with regard to the financial market meltdown.
Yes, everyone agrees there is a problem and that short-term government intervention of some sort is necessary. There is much less agreement on the long-term policy implications and the depth of financial market regulation and reform to be implemented. While American policy-makers prefer to focus on the current symptoms of the crisis, even conservative European leaders call for an end to laissez-faire capitalism and the imposition of much stricter national and international regulation of banks, lenders, brokerages, and insurers.
There is also a fair amount of “I told you so” emanating from the European capitals. This includes strong statements by two of America’s (and George Bush’s) closest friends and allies, German Chancellor Angela Merkel and French President Nicolas Sarkozy. Merkel, who held both the rotating European Union presidency and the G8 chair in 2007, gave several speeches and interviews in September 2008 in which she blamed both Washington and London for ignoring her warnings throughout 2007.
Speaking in Austria on 20 September 2008, Merkel said her government had tried in vain to win G8 support last year for tighter regulation of hedge funds and financial oversight of capital markets, hinting that she felt vindicated in her stance as a financial disaster unfolded on Wall Street in recent days. “It was said for a long time ‘Let the markets take care of themselves’ and that there is ‘no need for more transparency’,” German broadcaster Deutsche Welle quoted the Chancellor. “Today we are a step further because even America and Britain are saying ‘Yes, we need more transparency, we need better standards for the ratings agencies’,” Merkel said.
In a separate interview with the Munich newspaper Münchner Merkur she criticized the US and British governments for obstructing Germany’s efforts in the first half of 2007 to bring greater transparency to the markets. “I criticize the perception that the financial markets have of themselves. Alas, they have opposed for too long the introduction of rules with the backing of the British and American governments,” she told the paper. “On top of national rules, we need more international agreements to stem irresponsible financial speculation.” Merkel said that when Germany headed the G8 group of industrialized nations last year, it had advocated greater transparency in international financial transactions, especially in hedge funds. (Two documents from 2007 included in this issue of HRISQ place Merkel, as well as French President Nicolas Sarkozy and British Prime Minister Gordon Brown on the “right side of history” regarding the market meltdown.)
If Merkel’s comments are considered outspoken, then Sarkozy’s contribution in this issue of HRISQ might be termed blunt. While strongly defending the concept of capitalism, he calls the current market system – characterized by insufficient government oversight and excessive compensation for speculators – “mad”. Sarkozy calls for sweeping reforms of the global financial and monetary system, on par with the post-WWII Bretton Woods agreements.
German finance minister Peer Steinbrück agrees with Sarkozy that the era of laissez-faire capitalism is gone. In his contribution, Steinbrück asserts that the United States will lose its dominant position as a result of the current market crisis, and that a multipolar world financial order – marked by strong international cooperation to regulate financial markets – will follow.
Two contributions by America’s leading policymakers round out the picture and provide an interesting perspective. President George W. Bush’s 24 September 2008 address paints a dire scenario if immediate action is not taken to relieve insolvent lenders – a contrast to Henry Paulson’s address given in London just twelve weeks earlier, in which Paulson characterizes the sub-prime lending crisis as a “rough patch”. Paulson proceeds to concede that America’s current “Balkanized” regulatory is less than optimal, and presents his vision for a modern US financial regulatory system.
As always, we wish you interesting reading.