Europe: Armageddon's Powder Keg

Jonathan Krause has a silly little piece up today forecasting the imminent, and literal mind you, "debt wars" or a series of armed conflicts started by sovereign debt crises. If this does happen it will be the first time in human history nations have gone to war over something like one country owing another a great deal of money. Usually nations default and essentially liquidate themselves before armed aggression ever becomes possible.

Here's Krause's ridiculous doom and gloom prophesy:

[I]t's beginning to look like the new source of international tension will be debt.  More specifically, sovereign debt owed between countries.  Like World Wars I and II, the seeds of this battle have already been sown in Europe.  Nations freed from the burden of self-defense by NATO and the US, embarked on unsustainable financial policies funded during the economic growth of the last three decades by borrowing money from their neighbors.  

What Krause is forgetting is that recovering huge debts from the Weimar Republic in the form of war reparations is what eventually lead to the rise of the Third Reich. This lesson was so acutely learned by the victors of WWII that the United States did the exact opposite following the war when it instituted the Marshall Plan. Just a reminder, under the Plan the U.S. gave -- let me reiterate that, gave -- Europe a little over 1% of it's GDP every year for four years. In 2010, total U.S. foreign aide was 0.19% of GDP.

Nations know that letting one country fall into economic collapse in bad for their own economies, especially in an interconnected, globalized world. Most governments understand this is the price of globalization. Shortly after NAFTA was codified, the U.S. bailed out Mexico in a move that was tremendously unpopular north of the border, but eventually made the U.S. a tidy $500 million profit once the loans were repaid. Countries just don't go to war over debt. I can't find one historical example of a conflict where debt was a direct casus belli (granted, there have been a lot of wars and I'm likely to have missed a few).

I also want to point out that the current crises in Europe is taking place among countries that Krause himself says are "freed from the burden of self-defense by NATO and the US." Most of Europe does not maintain an aggressive war machine. Germany's constitution is fairly constrictive as to where the Bundeswher is allowed to fight and the armed forces has had it's own readiness issues in the recent past. The story isn't much different in other European countries who have largely let defense spending slide since the end of the Cold War. Now Krause thinks these countries are going to wake from their years of relative peace and start fighting each other? The idea is laughable.

The seeds of that discontent are about to get watered and fertilized by the measures agreed to in the Eurozone summit last week--as those profligate nations agreed to the debtor nations' demands to get their financial houses in order--even if that means budgetary oversight from outside agencies.  If there is one thing we have learned over the centuries, people don't like having other nations telling them what to do--especially when those demands mean they might have to work harder and longer.  The public unrest aimed at the debtor governments will soon turn against the lenders--and the drums of war will begin to beat.

There is a degree of truth to this, a very small one, but one that ignores the fact that the debtor relationships between countries were codified by treaties almost a decade ago. There are many legal obstacles preventing war. Besides, the typical Greek is not going to be so angry at Germany because they no longer enjoy some pretty sweet retirement benefits, he's going to get angry at his own government first. 

Just like in the 1900's the dominoes are lined up to take the regional conflict global.  

One assumes that Krause is referring to the World Wars here but the most recent example of armed conflict in Europe, the Balkin Wars in the former Yugoslavia during the 1990s seem to refute that premise. There were many people in the foreign policy establishment that worried those wars would ignite an entire continent wide conflict, but that never happened. Indeed, depending on how you look at beginning of hostilities of WWII, one could argue that there was no "domino effect"that plunged the continent into war, but rather an aggressive push made by a single actor.

Since WWII, regional conflicts have stayed regional, even when they were essentially proxy fights conducts by Superpowers. The only organizations that have taken their wars globally have been terrorist groups, whose asymmetrical allow them to move freely and with flexibility, especially through open societies, but whose ability to wage war if frequently hindered by the success of a few notable actions. (This is a huge problem in the "business model" of terrorism. In conventional war, success on the battlefield gives the victor more ability to conduct further operations because of new strategic positioning and diminished capacities of the opponent. In the case of terrorism, it's just the opposite.)

The oil producing nations of the Middle East will have to choose sides--likely joining the countries that actually have money to pay for that precious crude.  And then there is China--who has become the 21st Century superpower by buying up everyone's debt.  Who do they align with in the Debt Wars?  And will it be on the same side as the United States?  I tend to doubt they are going to keep loaning us money to do battle against them.

The one positive thing is that barren, radioactive wastelands tend not to repay their debts--so we probably won't have to worry about WW3 being a nuclear conflict.  Now we can just concern ourselves with learning the Mandarin language of our future masters. 

Krause is promoting a misconception about Chinese ownership of US debt that does little good for the conversation. Here's a quick look at just whom holds U.S. debt:

China owns about 10%. That's nothing to scoff at, to be sure, but it's hardly reason to begin stockpiling Rosetta Stone CDs, as Krause suggests. Japan owes almost as much debt as China does, but we never hear much about them. That's largely because China's big, scary and ascendant and Japan's, well, not.

These days, wars create debt, debt that is almost never repaid in an economically beneficial way to the aggressor. That has a lot to do with the much smaller scale on which war is presently conducted when compared to WWII. Lots of debt is less preferable to no debt at all, but Krause's apocalyptic fever dream has little grounding in any understanding of the global economy or the reasons why international conflicts begin.