Ten years ago I watched the collapse of Lehman Brothers unfold, refreshing BBC News online in the offices of the Georgian National Security Council. “Look at the Russian stocks!” laughed one analyst as he handed me a fresh printout of the collapsing MICEX index in Moscow. It was as I was staring at it that I realized I no longer understood what was going on. The person I now know I needed to speak to then was Professor Adam Tooze, whose landmark new book Crashed has finally managed to place the banking crisis in its wider political and geopolitical context. Tooze identifies that summer not just as yet another financial crash. “It was the moment a generation of globalization under the sign of Western power and money had reached its limit.”
My 2008 felt a world away from the footage of the shell-shocked Lehmanites. It was an intense blur of Russian tanks, bombed out buildings, and the trembling refugees. I remember the mood in the Tbilisi Marriott, where Western diplomats, spooks, and journalists congregated, as one of shock. Russian tanks? Two hours away? An interstate invasion? The EU officials I met in this atmosphere, as if drawn from Olivia Manning’s 1930s sketches of pearl clutching countesses and stammering diplomats in The Balkan Trilogy, were the most chastened of all. The Russian invasion was quite literally inconceivable to them, even as it was actually happening.
But why? Tooze’s book makes it abundantly clear that pre-2008, the West had not only financial but deeply-held geopolitical illusions as well. “The high priests of Europe’s twenty-first-century cult of innocence reside, of course, in Brussels,” he writes. EU leaders like Romano Prodi, Commission chief in the early 2000s, talked as if “the the EU was realizing Kant’s dream of perpetual peace.” “But, in fact,” says Tooze, “the geopolitical configuration of the post–Cold War world was more uncertain and ramshackle than that.”
Just as Alan Greenspan, the Chairman of the Federal Reserve who stepped down in 2006, had convinced himself that “we are fortunate… thanks to globalization, [that] policy decisions in the U.S. have largely been replaced by global market forces,” the European leadership was convinced that the boom underway, from Lisbon to Vladivostok, was only strengthening a European unipolar order. Russia, Turkey, and centuries of imperial rivalry were over: The only sphere of influence was NATO and the EU. “The state of denial was common,” writes Tooze. Just as they had misread the warnings from Northern Rock, they missed Eastern Europe’s geopolitical deterioration.
Not only were the great questions of capitalism then seen as settled, so too were those of European power politics. Not only were bank runs seen as a thing of the past, but the war in Chechnya, the frozen conflicts in Moldova, Georgia, and Armenia—indeed all of Russia’s military adventurism beyond its borders—was seen as a throwback to the 19th century. Moscow’s mad dash to get its troops to Pristina airport at the close of the Kosovo War their last sorry squeal: not a hint of the “little green men” to come. If the inevitable march of progress hadn’t yet put an end to this kind of behavior, it was sure to do so soon enough.
In Europe, this was the intellectual moment of Mark Leonard’s Why Europe Will Run the 21st Century, which asked us to imagine “a new European century.” It was the period of Tony Judt’s Postwar, which hailed “Europe’s emergence in the dawn of the 21st century as a paragon of international virtues: a community of values. . . .held by Europeans and non-Europeans alike as an exemplar for all to emulate.” In the United States it was the era of the “capitalist peace theories” of Thomas Friedman: that no two countries with a McDonalds or in a complex supply chain like Dell’s would ever go to war. Writers like Edward Lucas, who warned of a new Cold War, or Emmanuel Todd, who welcomed a Russian resurgence, were outliers to say the least: In fact they were routinely dismissed as excitable.
What this translated to in Europe was a view of geopolitics as ideological as the one Alan Greenspan took of financial markets. This was a time when Robert Cooper, the British EU diplomat who held the grandly-named post of Director-General for External and Politico-Military Affairs, would confidently write how “we have to forget the security rules of yesterday.”
Reading Tooze, one can’t help but conclude it was the flip side of the same coin. The prevailing view in Europe was that conflict was simply being outmoded; Euro-Atlantic integration and shared prosperity automatically strengthened a Western unipolar order. Putin’s Russia might also be booming, but it was a throwback, an aberration, not to be taken too seriously. It was sure to get its comeuppance, to learn its place, almost automatically, due to the inherent laws of how things work.
Tooze wants us to grasp the nettle European elites ignored: “that global growth did not axiomatically strengthen the unipolar order.” The boom in Western finance and investment in Central and Eastern Europe strengthened NATO aspiring states, whilst the boom in commodity prices simultaneously revived Russia. Running up to 2008, few Western analysts had appreciated what was really happening. “Ironically the common boom,” writes Tooze, “would prove far more explosive” than the “exhaustion and disorder” that Central and Eastern Europe has shared in the 1990. It was “as if two pressure fronts of global capitalism were rushing towards each other across Eurasia.”
I will never forget watching the Kremlin’s victory concert in Tskhinvali, on the back of a Russian military truck in occupied South Ossetia. We were surrounded by North Ossetian and Russian troops, wide-eyed and drunk, many the same age as me at the time, scarcely twenty years old, as the classic music crescendoed. But what I was watching (and what was scaring me, not that I would ever have admitted it at the time) was not only about 2008.
What began in 1989 with the fall of the Berlin Wall was so tumultuous and so fast we forget how European leaders first imagined very different new orders for Europe. Margaret Thatcher initially opposed German reunification; Mikhail Gorbachev wanted a new Union of Sovereign States, seeking assurances NATO would not expand eastwards. Francois Mitterrand called for a two-speed “European Confederation” embracing Moscow to supersede the old blocs, and Boris Yeltsin hoped Russia would eventually become a NATO member.
What this generation was searching for were answers to Europe’s four geopolitical dilemmas. The first was the German question: How would Europe manage a unified Germany that turned out too big to be just another member state but too small to be the absolute hegemon? The second flowed from the first: If the answer to the problem of Germany was the European Union and the Euro, then how federal would the Union have to become to make it all work? Further east the questions were just as serious. The third unanswered question was: What place would the newly independent states in Eastern Europe hold in this order? Would they be members of the new Union, would they join NATO, or neither? And finally the Russian question: What place would Moscow have in this catallaxy? Would it eventually integrate fully into these structures? Or would it be frozen out? And if so, where would it end up?
Mitterand’s geopolitics were pushed aside, Tooze writes. “Neither Helmut Kohl nor George Bush wanted anything to do with that. It would set the terms for Europe’s reunification.” The path thus chosen is now familiar: The European Union and the Euro were the answers to the first two questions, and eastward NATO expansion with no plans to integrate Russia was the answer to the last two.
These answers would not suffice. The French rejection of the EU Constitution in 2005 was a warning shot, while the financial crisis that followed in 2008 completely exposed the unaddressed issues posed by the German and the Federal questions. And as fate would have it, the issues surrounding Eastern European and the Russian questions would also come to a head that same year, showing up just how naive policymakers had been in the preceding years.
“Truly comprehensive global growth breeds multipolarity,” writes Tooze, “which in the absence of an overarching diplomatic and geopolitical settlement is a recipe for conflict.” Yet this was not how the European capitals understood the mid-2000s. Both NATO and EU expansion eastwards were seen as new episodes of the European Peace Project. How could they not be? With high rates of growth and rapid convergence, the European Commission was a place where policymakers rubbished talk of Russian revanchism as simply paranoid. Vladimir Putin was to be ignored.
What was strange about the period was the disconnect between financial and security analysts. Goldman Sachs first coined the term “BRICs” for the rising economic clout of Brazil, Russia, India and China in 2001. And as soon as Mikhail Khodorkovsky was arrested in 2003, Western investors had figured out that not only was Russia back in business but not playing by Western rules.
When should the Kremlin’s return have become unavoidably clear for the security types? Tooze thinks things were clear enough at the Munich Security Conference of February 2007, where Vladimir Putin first openly challenged Europe’s unipolar order. Viciously attacking the United States for “having overstepped its national borders in every way,” the Russian President warned that the boom’s new multipolar economic order would necessarily lead to a new geopolitics. “There is no reason to doubt,” said Putin, “the economic potential of the new centres of global growth will inevitably be converted into political influence.”
And yet Putin’s Munich speech was not seen as a challenge. It was interpreted as something more like a tantrum.
With theatrical symmetry, both Western illusions—the geopolitical and the financial—entered into meltdown over the summer of 2008. The sudden swing, from the American assertion at the NATO Bucharest summit in February, where President Bush pushed NATO membership action plans for Georgia and Ukraine, to the mood of fear and vulnerability that gripped American policymakers by the August opening ceremony of the Beijing Olympics, was something to behold. The lines between geopolitics and finance started to blur. Just as convictions that a banking collapse was impossible were shattered on Wall Street, Russian tanks outside Tbilisi shattered the conviction that European geopolitics had ended. With financial markets in turmoil, U.S. Treasury Secretary Hank Paulson said that he had heard from his Chinese contacts that Moscow had encouraged Beijing to also dump Fannie Mae and Freddie Mac bonds.
What had happened was on one level analogous to the subprime crisis: a risk had been catastrophically misjudged. Despite Vladimir Putin having warned Western leaders in Bucharest that Ukraine “would cease to exist as a state” if it joined NATO, the risk Russia might pose was obstinately denied. Rather than being seen as a sophisticated “virtual democracy” with ample hard power resources, the consolidating Kremlin regime was dismissed as comical in many quarters, and its geopolitical ambitions were taken seriously next to nowhere. This mood led the West to underestimate the risks ambitious states like Georgia were taking in broadly challenging Moscow. Watching French President Nicolas Sarkozy arrive in Tbilisi after brokering a ceasefire agreement in Moscow was to witness the geopolitical equivalent of the firefighting Ben Bernanke and Hank Paulson were engaged in. With diplomatic “maximum force,” the French President and his Western allies had stopped a situation clearly in freefall.
But no sooner had Sarkozy left than the atmosphere in Tbilisi began to change. People on the ground realized that nothing had been resolved. “Power, like water, will find its level,” I remember one European envoy saying. Just because Putin had not managed to outright overthrow the Georgian government did not mean that Europe had reasserted anything approaching its altogether imaginary status quo ante. The balance in both finance and geopolitics was anything but restored. Tooze is explicit on this. “When added to the incomplete project of the Eurozone and the missing political frame for the North Atlantic financial system,” he argues, “the unresolved geopolitics of Eastern Europe’s ‘Eastern Question’ completed a trifecta of unanswered questions that hunger over Western power.”
They would indeed return.
While it was indubitably fault lines in the American financial system had led to the crisis, Crashed also argues it was the speed and intensity of U.S. policymakers’ response that ensured 2008 “did not result in a spectacular transatlantic crisis,” with the economies of Britain and the Eurozone imploding completely. To save transatlantic finance the Fed licensed a core group of allied central bankers to issue dollar credits on demand: “Through this they pumped trillions of dollars of liquidity into the European banking system.”
What is so jarring in Crashed is the contrast between American and German officials. “If we are looking for one crucial difference it is surely this,” Tooze writes. “From the morning of September 11, 2001, America was a superpower at war.” Whereas Bernanke, Geithner and Paulson knew they are imperial actors defending a financial system that ultimately undergirds American power, in chapter after chapter, we see Merkel and Schauble refusing to move.
This is a key point of Tooze’s, and one worth ruminating on. The divergence in response to 2008 can be traced to how the decisions of 1991 were arrived at on either side of the Atlantic. Whereas the “liberal world order” was built to empower America, the Eurozone was built to constrain Germany. The French intention all along had been to federalize the newly united Germany just enough to prevent it from becoming an imposing hegemon. “Without a common currency,” Mitterrand warned Thatcher in 1989, “we are all already subordinate to the Germans’ will.”
Thus, beginning in 2008, as America acted to preserve its global prerogative, we see Germans refusing to act, also to preserve their own power. At a crucial moment, America wants to remain hegemon while Germany refuses to be federalised—refuses to be the lender of last resort for its profligate European partners. “There will be no transfer union,” Angela Merkel declared.
Though the European Union remained, symbolically and more, a political peace project, thereafter the Eurozone showed itself to be a conflict generator. The consequence of Germany’s decision to not act was the exact mirror image of the Federal Reserve’s aggressive moves—with near mirror image results. Europe’s German and the Federal questions, fundamentally unanswered, were still causing trouble.
Instead of acting like the Fed in stabilizing allied economies, the ECB, squeezed by Berlin, dawdled. It showed little interest in getting involved in Central Europe. “One might have expected the ECB to extend similar support to the East European neighbors of the Eurozone,” writes Tooze. But the Euro-swap lines never came. “Where the Fed had given the ECB the lifeline of dollar swap-lines,” writes Tooze, “the ECB had no intention of extending equivalent privileges to Poland or Romania.” Frankfurt’s decision “shocked the Fed,” which had expected Euro-swap lines to be extended to Poland and Hungary. But with their economies hit by a sudden stop in foreign credit supplies, all the ECB was willing to do was provide Poland and Hungary with short-term funding in exchange for first-class euro-denominated securities. “When the problem,” writes Tooze, “was a shortage of euro funding, this was of no great help.”
As the 2008 crash worsened, Jean-Claude Trichet of the ECB was telling journalists a “common European solution was inappropriate because the eurozone wasn’t a fiscal union.” Germany shot down Hungarian and Austrian initiatives for a common support fund. “Not our problem,” announced Peer Steinbrück, the German finance minister.
Hungary was forced to go to the IMF, opening a new chapter of history as the first EU member state to do so since 1976. Brussels then pushed the IMF for harsher austerity measures to send a signal to the rest of Central Europe. Two years later, in 2010 Hungary’s socialist government paid the price with the election of Viktor Orban.
As the crisis strengthened Russian authoritarianism, the Baltic states, fearing their large imperialist neighbor’s reawakened appetites and the consequences of any break with the West, aggressively pursued austerity to make it into the Euro. Hungary, however, was incentivized by the crisis to strike out on its own; a newly empowered Orban, having no qualms about alienating the rest of Europe, turned to a belligerent, nationalist path, open and friendly to Moscow.
It would take years of crisis for Germany to cave in to some of the federalisation of its resources in the creation of the European Stability Mechanism and the Banking Union. (Eurobonds still remain a bridge too far.)
Hungary was one the first European government to which the approach now synonymous with the Euro crisis was applied: demanding austerity for financial lifelines. This was the opposite of Geithner’s “Maximum Force” approach—call it the politics of Minimum Assistance. It would define EU power brokers’ approach to Latvia, Romania, Greece, Cyprus, Portugal, Ireland, Spain, even Italy.
But the insistence of Steinbrück and Trichet that Hungary was “not our problem” reveals something more pernicious than mere financial orthodoxy. They could treat it all as a technocratic exercise because they could not even imagine Orbanism as a possibility. Living in the self-assured teleological universe that saw Europe as “the paragon of virtues,” a hostile, defiant, illiberal, Hungary was inconceivable to them. The only future they could imagine was peopled by leaders like Mario Monti, the Brussels backed technocratic Italian ex-prime minister. Not Matteo Salvini.
But in 2008, as I finally left Tbilisi, all this lay ahead. The banking crisis was so severe even Moscow had abruptly moved on from the conflict. “It might be tempting to conclude,” writes Tooze, “that by taming Russia, the effect of the crisis was to calm international relations. And in the short run this was surely true.” But like the Euro crisis it was never resolved: and the unipolar order that once seemed inevitable kept deteriorating. “The comprehensive economic, political and diplomatic clash between the West and Russia that had been foreshadowed in the proxy war” in 2008 writes Tooze, “was unleashed in Ukraine.”
With hindsight this deterioration was sudden. Late at night in March 2014, I walked through the remains of Maidan, as militias patrolled, drunks sobbed, and Kiev prepared for war. On a giant screen the face of the trembling prime minister shimmered: They were no longer pretending anymore. In Crimea, the annexation was certain.
Within days the European Union confronted Russia with sanctions. But this time the bloc, wounded by its inability to answer its fundamental questions, would face the Kremlin as a severely weakened power. With Moscow working to crack the European Union—electoral interference, hacking, disinformation, corruption, hybrid war—something had become clear. The continent’s geopolitics are now closer to the fears of Mitterrand and Gorbachev than the hopes of Bush and Kohl.
But something, for me, remains obscure: What has letting go of our illusions about Europe really taught us? Does power throw up contradictions that are ultimately insurmountable? No matter how clever the design? Is this the tragedy of great power politics? I don’t know.
“Putin’s line had always been that geoeconomics were geopolitics,” writes Tooze. We are left thinking that this brilliant historian agrees.