Diplomatic Deficit

Lessons From Debt Crisis Should Guide Foreign Policy

Ukraine Soldiers 3 Sept 2014 Source Reuters-CHANGED
A Ukrainian tank column on September 3, 2014, near the town of Sloviansk.
  • Why it matters

    Why it matters

    The West’s response to the Ukraine crisis is raising the potential for military conflict with Russia, which could have massive repercussions for global trade.

  • Facts


    • Global financial regulations were tightened after the debt crisis in 2008.
    • In the Ukraine, the response appears to be increasingly military, not diplomatic.
    • The West needs a constructive approach to Ukraine, the Handelsblatt publisher argues.
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I would like to tempt you to compare apples with pears.

To begin with, it stimulates the cerebral blood flow.

Besides, there are more similarities between the major banking and financial crisis and the increasingly aggressive East-West relations than we might care to acknowledge.

The causes of both crises, one economic and the other a crisis of foreign policy, are debatable. Were U.S. Federal Reserve Chairman Alan Greenspan and his low-interest-rate policies responsible for the financial crisis?

Or was it the U.S. government’s housing policy? Or Wall Street’s risky financial instruments? Or perhaps all of the above?

We encounter the same lack of clarity in pinpointing the causes of the conflict between Russia and the West. Is Putin to blame, with his invasion of Crimea, in violation of international law?

Or the new government in Kiev? Or the West, with the provocative advances and enlargement of NATO and the euro zone to Russia’s borders? Or did the combination of all three trigger the conflict?

Another aspect common to both situations is that the powers that be have failed to nip the escalation in the bud. The global financial quake exerted its toxic impact from the U.S. real estate crisis to the debt haircut in Greece.

The situation is equally dire in the East-West conflict. What began on Maidan Square in Kiev has since led to NATO troop movements and a border war between Russia and Ukraine.

This is where the similarities end and the differences come to light. After the collapse of U.S. investment bank Lehman Brothers, banks, financial regulators, lawmakers and the media did everything in their power to take corrective action.

Steps were taken to offset the differences between northern and southern Europe, between good and bad banks and among taxpayers, the government and the financial sector.

As the philosopher Karl Popper once wrote: “All life is problem solving.”

And this was precisely the approach taken to put a set of well-oiled mechanisms into effect to combat the crisis. The constitutional state intervened, regulators woke up, society engaged and continues to engage in a lively debate over culpability and atonement, and banks introduced a cultural shift.

The difference between the treatment of the financial crisis and the approach to the current escalation in foreign policy couldn’t be more profound, as politicians, military officials and many journalists continue to escalate the current conflict.

In fact, the reverse of Mr. Popper’s phrase holds true today: “All life is exacerbating problems.” Established forums for dialogue, like the G8, are being suspended, politicians are deliberately misunderstanding their counterparts in other countries, the German president is depriving Russia of its status as a partner, thereby paving the way to demonize the country, and many of my colleagues in the media are hawkish.

The financial sector and society can be proud of their achievements. The banking crisis was an enormous challenge, but what happened after that is reminiscent of a humanist work of reconciliation. The social techniques of dialogue and the balancing of interests exerted their beneficial effect. Debt was restructured and new rules were written and agreed to. Some banks were damaged but the societies as a whole were not.

Let us hope that our military leaders, politicians and media organizations draw a lesson from the treatment of the financial crisis to resolve today’s foreign policy problems. Perhaps they will be inspired by Montesquieu, the French political philosopher of the Enlightenment, who said: “It takes little wit to bring everything into disarray, but much to balance the world.”

Gabor Steingart is publisher of Handelsblatt. The remarks are from a speech he gave on September 3, 2014, at the opening of a Handelsblatt conference on “Banking in Crisis” in Frankfurt. To contact the author: steingart@handelsblatt.com

This article was translated by Christopher Sultan


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