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International Economics: The Disorder of the World

2022-05-15T16:19:37.028Z

The outlines of a global multi-crisis are emerging: war, hunger, energy shortages, inflation. The West is struggling to maintain control - with an uncertain outcome.



Enlarge image

"What is scandalous about Russia's war is not only the destruction of human life, cities and countryside, but also the total disregard for any limits set by international law."

Photo: Christian Ohde / IMAGO

A robust international regulatory framework is needed for the economy to flourish.

Without reliable political conditions, the foundations on which stable business models can thrive are lacking.

We are witnessing what happens when an international order is in the process of dissolving.

From an economic point of view, we are faced with a bad scenario: food shortages, energy bottlenecks, inflation, weak economic momentum, debt crises, plus the increasingly noticeable consequences of climate change - the outlines of a global multi-crisis are emerging.

It hits poor developing countries particularly hard.

But even in prosperous western economies, the risk of a recession is growing while prices are rushing away.

(

Monday

the EU Commission will present its new economic forecast,

Tuesday

there will be new figures on the latest economic development,

Wednesday

on inflation.)

The immediate trigger of this crisis is the Russian attack on Ukraine.

But the fact that Vladimir Putin dared this war at all is the result of an unstable international order.

He obviously judged her to be so weak that he didn't expect much resistance.

Cut gas supplies, oil boycotts, missing grain exports and severed supply chains are now affecting the well-being of citizens.

An end to the impositions is not in sight for the time being.

Still, the West is making every effort to keep the situation under control.

Under the German presidency, the governments of the G-7 countries will meet in various constellations in the coming week:

the finance ministers and heads of the central banks as well as the development aid ministers will meet on

Wednesdays

, and the health ministers on

Fridays .

There really is enough to talk about.

Among other things, the seven large western states want to provide Ukraine with enough money so that it does not go bankrupt in the middle of the war.

Like the sleepwalkers

What is deceptive about an international order is that you hardly notice it as long as it is stable.

Things are going their usual way.

Citizens go about their lives.

The economy goes about its business.

Sure, there are crises and minor conflicts from time to time, but on the whole a reliable framework protects against a slide into chaos.

Five decades of prosperity and security preceded the outbreak of World War I.

A handful of major European powers had agreed on principles of balance.

Otherwise, the focus was on industrial development, open borders and stable state finances, underpinned by the universally accepted gold standard.

On the eve of the outbreak of war in 1914, it was inconceivable to many that this system could perish in a murderous and senseless confrontation.

Accordingly, the states of Europe drifted like "sleepwalkers" into the military catastrophe, as the historian Christopher Clark put it in his book of the same name.

When the war ended, the British economist John Maynard Keynes clairvoyantly described how his contemporaries lived through an epochal break.

His essay The Economic Consequences of Peace, published in 1919, begins with a melancholic look back at the period between 1870 and 1914, the era that historians of today describe as the first globalization.

Keynes knew that this "extraordinary epoch of economic progress" was over and that nothing like it would come any time soon.

The main reason for Keynes' pessimism was the realization that the international political order of the pre-war period had finally ceased to exist.

And that a new order was not in sight.

Under these conditions, the instability of the 1920s and 1930s produced a global economic crisis that culminated in international economic disputes, severe social tensions and political radicalization, especially in Germany.

It was the prelude to World War II.

Getting used to international stability as the norm

After the war, the USA took on the role of international regulatory power for the western part of the world.

They created a network of institutions that endured for a long time and continued to exist after the Iron Curtain went up in 1989/90.

As the sole remaining world power, America—and to a lesser extent—its Western allies, now acted as the pillars of the international political framework within which the second globalization could thrive.

In 2001, China became a member of the World Trade Organization (WTO), with massive support from Washington, as did Russia in 2011.

Getting used to international stability as the norm began.

Setbacks, such as Russia's annexation of Crimea in 2014, were not interpreted as signs of the dissolution of the regulatory framework, but as slips.

Most European countries, especially the Federal Republic of Germany, reduced their defense spending, while economic relations with problematic countries such as China and Russia continued to expand without much awareness of the problem.

Once Davos and back

Because the international order was taken for granted, globalization produced a primacy of the economy.

Corporations have grown into powerful global players, some of whom employ more people than some EU countries have residents.

The fact that states and international institutions ultimately formed the foundation on which economic exchange could flourish receded into the background.

It was the heyday of the World Economic Forum in Davos.

(Achten Sie auf das diesjährige Treffen ab

Sonntag

.) Hinter den Events, bei denen einmal im Jahr in den Schweizer Alpen Topmanager, Staatenlenker, Wissenschaftler, Aktivisten und Celebritys ohne protokollarische Zwänge und große Entourage zusammenkommen, stand letztlich der Glaube, dass sich die Probleme of the world could be alleviated by the direct exchange of the powerful, rich and influential.

Fruitful informal networks between great personalities should develop, beyond states and institutions.

That wasn't wrong.

But the reality we now live in is different.

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It's all about raw, raw power again.

The main players have long been the states again.

Russia is brutally breaking international law.

Many other states on the other side of the West, including the billion-euro nations China and India, are not willing to make a clear distinction or even promise support.

The USA, the G7 and the West as a whole may no longer be powerful enough to guarantee the current international order.

If the remaining remnants of this order perish, then the political foundation on which the economy was able to flourish in the past decades will also be history.

It therefore seems completely out of time when a top manager like VW boss Herbert Diess demands at an event of the "Financial Times" these days that the EU must do everything possible to end the Ukraine war quickly through negotiations, so that one can return to a world of open markets and free trade.

Back to business as usual?

What is scandalous about Russia's war is not only the destruction of human life, cities and countryside, but also the total disregard for any limits set by international law.

When such behavior leads to success, the world becomes even more uncertain.

The foundation on which the economy stands would finally crumble.

For the economy, this means that it will hardly be able to avoid following the primacy of politics, and not the other way around, as has been the case in German foreign policy in recent decades.

Law and freedom are higher values ​​than sales and profits.

And yet: Large corporations are decisive players in the concert of powers.

This not only gives rise to social but also political responsibility.

You will have to see them - the West cannot do without this support.

The most important dates of the coming week

Expand areaMonday

Brussels –

Europe's economy

– The EU Commission presents its spring forecast.

Potsdam -

salary issues

- continuation of collective bargaining for employees in day care centers and social work.

Beijing -

China's Economy

- Statistics Bureau reports on economic development in April.

Group Results

I

– Ryanair Financials.

ExpandareaTuesday

Luxembourg -

Burdens of war

- The EU statistical authority Eurostat publishes an initial estimate of economic development and employment in the first quarter of 2022.

Group results

II

– Business figures from Daimler Truck, Euronext, Vodafone, Home Depot, Walmart.

ExpandareaWednesday

Bonn –

International

monetary issues

– Meeting of G7 finance ministers and central bank governors under the German G7 presidency (until Friday).

Berlin –

Global Famine

– G7 Development Ministers Meeting.

Luxembourg -

European inflation

- Eurostat releases new figures on price developments.

Group results

III

– Business figures from ABN Amro, Ströer, Target, Cisco.

Expand areaThursday

Berlin -

Corona and no end

- Meeting of the G7 health ministers (until Friday).

Group Results

IV

– business figures from Vallourec, Südzucker, Generali, Easyjet.

ExpandareaFriday

Group Results

V

– Deere Financial Results, Richemont.

Expand areaSunday

Davos -

Davos Men in action

- Start of the annual meeting of the World Economic Forum (WEF).

Source: spiegel

All business articles on 2022-05-15

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