Forget 1939; Think 1914

One of the factors contributing to the utter failure of diplomacy in 1914 was the decay of previously functioning institutions in foreign and military affairs. The diplomatic regime that governed Europe from 1870 to 1914 had begun to unravel in the years leading up to World War One. These institutions had avoided a clash between great powers for half a century. There had been some near misses but, in the end, level heads prevailed, and tragedy was averted. This reliance on successful diplomacy bred a degree of complacency, even hubris, among Europe’s governing elites. Countries grew dangerously unafraid of war.

Institutions like NATO, the EU, and dollar-denominated world financial system have all been decaying since the end of the cold war

Consider the similarities to today. Institutions like NATO, the EU, and dollar-denominated world financial system have all been decaying since the end of the cold war. European countries (and Canada) have refused to meet their commitments to spend 2% of GDP on defense preferring to let the Americans do the heavy lifting. As a result, NATO has been hollowed out. Ammunition stockpiles are so thin that the transfer of munitions to Ukraine drained them completely. The industrial base needed to replace these munitions no longer exists and so restocking will be a long, uneven process. NATO has become essentially an American protectorate. This allows NATO members to spend lavishly on social programs while US taxpayers pay the defense bill. This cannot last because the ability of the United States to print money endlessly is coming to an end.

Meanwhile the EU, which was born as a common market to curb Europe’s propensity to murder each other in endless wars, has evolved into a bloated, overbearing monster that seeks to interfere in every aspect of national life. This has forced the UK out of the EU and resulted in small insurgencies in the Netherlands, Belgium, and France. Other sovereign nations such as Poland and Hungary are increasingly resistant to dictates from Brussels. The Euro is in trouble because a monetary union without a fiscal union regime cannot work, as Margaret Thatcher predicted. Spendthrift countries splurge while responsible economies (read Germany) sop up the excess. As retirement age in Greece is being lowered it is being raised in Germany to pay for it. How long the Germans will put up with this is unclear but Like NATO’s imbalance, it is unsustainable. The European Central Bank has serious problems with its balance sheet and a sovereign debt crisis may not be far off.

Post-war pax Americana and unipolar world are fast unwinding

A military loss in Ukraine (i.e., the Russians stay put) could push both NATO and the EU to the brink. Once the finger pointing starts, cohesion will bleed out of these institutions.

At the same time the post-war pax Americana and unipolar world are fast unwinding. While US attention is focused on Ukraine, its standing in the world, diplomatically and financially, is eroding. In fact, the speed of this unravelling is breathtaking and reflects monumentally inept leadership. Just in the past two years BRICS (Brazil, Russia, China, India, South Africa) have made remarkable progress in creating an alternative to the world’s dollar-denominated financial system. Other countries are now looking to join BRICS. In an astonishing move, Saudi Arabia has abandoned the petrodollar and will now sell energy for rubles, rupees and yuan. This is a catastrophe for the United States currency. As the world loses its appetite for dollars, American capacity to print money endlessly will erode and interest rates will rise. There are serious consequences to being dethroned as the world’s prime reserve currency.

As a coup de grace, Brazil, the largest country in South America, has slipped into the hands of a convicted criminal and friend of China following a disputed election. The Brazilian Army has the constitutional authority to intervene in such a situation but was waved off by the US State Department. The question “who lost Brazil” will become a hot topic in the years ahead.

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This is not about economics or politics, it is about ideology and when was the last time you saw an ideologue compromise?

Closer to home, Canadians have lost confidence in their much-vaunted health care system and trust is fast bleeding out of our public heath institutions. As the COVID narrative painfully collapses in the years ahead, this erosion of trust will only accelerate. Meanwhile, in defense of their energy and agriculture industries, Alberta and Saskatchewan have passed Sovereignty and Saskatchewan First Acts. If Ottawa continues to push these western provinces into a corner, these initial fractures could evolve into major fault lines in Canada. Consider what Canada’s GDP looks like without these provinces. And what happens to annual transfer payments to Quebec and the Maritimes without this money? And what happens to Canada without transfer payments? So why doesn’t Ottawa back off and do the classic Canadian thing: “muddle through.” Because this is not about economics or politics, it is about ideology and when was the last time you saw an ideologue compromise?

Thus, we see institutions that dominated our world since the end of the Second World War eroding and collapsing. What will replace them is unclear, but the journey ahead will be treacherous. And don’t count on cooler heads to save us. Look at the world stage, where do you see cooler heads in the ascendance?

Forget comparisons to 1939, today’s world looks a lot more like 1914.

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