The defeat in Afghanistan of the liberal democrat West and the victory of an authoritarian Islamic fundamentalist Taliban has worldwide geopolitical consequences.
It has called into the question America’s commitment to its allies; provided political ammunition to China and Russia; emboldened fundamentalists in Iran and elsewhere in the Middle East and Africa; increased the threat to Israel; weakened NATO; prompted a re-think in India; and, encouraged many in the Far East.
Governments around the world heaved a collective sigh of relief when Joe Biden replaced Donald Trump in the White House. Trump’s “America First” policy tinged with isolationism and a shoot-from-the hip unilateralist foreign policy was a serious concern in capitals across the globe. They welcomed the statement from foreign affairs expert Biden that “America is back.”
But Biden’s refusal to listen to the concerns of NATO allies and order a precipitate withdrawal has led many to think that Trump’s unilateralist America First programme has become bipartisan. European NATO has long accepted US dominance of the alliance as essential to their survival. But it refuses to become an unconsulted-taken-for-granted adjunct of US foreign and defence policy. Especially when that policy runs counter to Europe’s interests.
And the Afghan debacle is just that. If Afghanistan again becomes a base for terrorist organisations then it will be Europe—not America—that will be the primary target. The Taliban has promised it won’t happen. And they need aid and expertise to reconstruct their war-ravaged country. But one of the Taliban’s first acts upon entering Kabul was to release thousands of hardened Jihadists from Pul-e-charkhi Prison. Al Qaeeda is reported to have bases in at least 15 of Afghanistan’s 34 provinces and rival ISIS is believed to have up to 10,000 members in the country.
Even America’s closest ally is questioning their relationship with Washington. Former Prime Minister Theresa May asked the House of Commons: “What does it say about NATO if we are entirely dependent on a unilateral decision taken by the US.” In an impassioned address before a silent Commons, Tom Tugendhat, chairman of the Foreign Affairs Committee, called on Britain to set out “a vision for reinvigorating our European NATO partners to make sure that we are not dependent on a single ally, or the decision of a single leader.”
In Germany, Norbert Roettgen, chairman of the Bundestag’s Foreign Affairs Committee, said that European NATO should consider a re-intervention in Afghanistan. This suggested was quickly shouted down by his colleagues.
The fact is that European NATO without the US does not have the means to protect itself, let alone to intervene in a distant country without American support or the assistance of a major power in that region. Boris Johnson did, in fact, sound out Europeans on the possibility of remaining in Afghanistan in the months preceding the US withdrawal. But the suggestion was quickly dismissed as unsustainable.
The Russians are, of course, delighted with the turn of events. Anything that makes Washington look foolish and weakens the Western Alliance creates opportunities for Moscow. The Vietnam debacle was quickly followed by a spurt in Soviet adventures in Africa, the Middle East, South America, and eventually its own disastrous intervention in Afghanistan.
But Russia is not the Soviet Union. It is a financial shadow of its former self and its corrupt kleptocratic autocracy will keep it so for the foreseeable future. But it is still the owner of the world’s largest nuclear arsenal which makes it the single biggest threat to democratic Europe.
Successive US administrations have for decades pressured European allies to increase military spending and take more responsibility for their defence and for operations in the Middle East and Africa. Afghanistan may be the required spur, although exactly where the money will come from in the wake of the costly coronavirus pandemic is a mystery waiting to be solved.
One of the main reasons for the withdrawal of Afghanistan and the pressure on Europeans is America’s Asia pivot. Russia is no longer regarded as the main threat. It is China. Russia remains a major military power but a diminishing economic and political menace. China, on the other hand, has already far surpassed the old Soviet Union in every field except the military. In a worst case scenario, Washington does not want to fight on two fronts.
Beijing is cock-a-hoop at American failure and telling the world that this is yet another example of the superiority of China’s one-party communist rule. As far as Afghanistan is concerned, the Chinese have three objectives. The first is to prevent the Taliban from supplying weaponry to Muslim Uighurs in Xinjiang. The second is to create another spur to its growing Belt/Road Initiative to either its port in Baluchistan or directly through Afghanistan and Iran to a base on the Persian Gulf.
The final objective is to weaken American interests generally, but especially among East Asian and Pacific countries, the main target being Taiwan. The ever-belligerent Chinese paper “The Global Times” has already said that America’s defeat is “an omen of Taiwan’s future.” Andrew Yang, the Taiwanese Defence Minister said that his country should “depend on its own self-defence instead of US support.”
Other countries in the region are more sanguine. They see the withdrawal from Afghanistan as a step towards a more complete realisation of the Asia Pivot. A Japanese spokesperson said simply: “Afghanistan is Afghanistan. Japan is Japan.” Australian Foreign Minister Marise Paine said that the Afghan debacle “does not change the calculus for Australia, the Pacific or Asia.”
Australia and Japan are both key members of an alliance which the US is constructing to counter the growing Chinese threat. Another country is India which is doubly troubled by the US withdrawal from Afghanistan. Delhi developed good relations with the US-supported government of Ashraf Ghani in order to sandwich arch enemy Pakistan between two opposing powers. The Pashtun-dominated Taliban, on the other hand has close tribal links with Pakistan’s Pashtuns, and Pakistan was used as a base for Taliban fighters and political leaders. Pakistan Prime Minister Imran Khan declared that the people of Afghanistan “have broken the chains of slavery.”
Afghanistan’s southern neighbour—Iran—is also ecstatic and has sent fulsome congratulations to the Taliban leadership now ensconced in Kabul. Tehran’s fundamentalist wing has been substantially strengthened which will make it more difficult to revive the Iran Nuclear Accord or curb Iranian adventures in Iraq, Syria and Yemen.
Washington is a brake on Israel as well as its chief supporter. It kept out of both Gulf Wars and has reluctantly refrained from bombing Iranian nuclear facilities (although there was a suspicious fire at Iran’s Natanz nuclear facility earlier this year). If Israel starts to doubt America’s commitment then it will act to protect what it regards as its vital interests, using its normal sledge hammer tactics. This could have consequences which make Afghanistan look like a walk in the park.
* Tom Arms is foreign editor of Liberal Democrat Voice and author of “The Encyclopaedia of the Cold War” and “America Made in Britain". To subscribe to his email alerts on world affairs click here.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Did The Archers get George Grundy's sentence right?
The attitudes of Britain's ethnic minority population - The Week in Polls
Alex Salmond 1954-2024
Where's the Labour candidate?
Labour's first 100 days - unravelling the spin
A West End Halloween event! #dundeewestend
Michael BG
Martin Gray
Hywel
Peter Martin
Steve Trevethan
27 Comments
“European NATO has long accepted US dominance of the alliance as essential to their survival…..”
Europe, largely the EU countries, has been happy to accept US dominance because the US is doing the paying, and the govt deficits to go with the expenditure, and they aren’t. They’ve preferred economic austerity and balanced budgets.
“……But it refuses to become an unconsulted-taken-for-granted adjunct of US foreign and defence policy. Especially when that policy runs counter to Europe’s interests.”
There’s only one solution to this. Europe/EU needs to start paying its way. Alternatively accept that if they aren’t paying the piper they can’t call the tune.
https://www.politico.eu/article/germany-nato-defense-spending-criticism/
Is the ‘American Century’ finally coming to an end? (Well, considering that the USA emerged from WW1 as a major power, let’s make it a century +). The country is still (just) the Number One superpower, and they just managed to stay one gold medal ahead of China on the Olympic Gold Medal Table. However China is breathing down her neck. Watch out in Paris, Uncle Sam!
The Soviet Union, despite Khrushchev’s boasting in the early 1960s, was never really an economic challenger. In fact, with so much of the state’s GDP going to the military and a collection of sophisticated states on its western borders, perhaps we should not have been that surprised that the communist edifice crumbled, although, rather like what has happened in the past few weeks in Afghanistan, perhaps our all too willingness to believe the propaganda had much to with this mistaken attitude.
The new China (to paraphrase the 1968 Prague Spring “Communism with a capitalist face”) is a wholly different challenger. Militarily strong and economically omnipotent, with a world plan and the means of delivering it, the People’s’ Republic must be rubbing its hands with glee as it reckons that yet another one of its ducks is in that row. The so called moral superiority of the West is seriously in doubt. We are paying the price for taking our democracy for granted, and I don’t just mean on these islands. It’s time to wake up and smell the coffee!
In the meantime, what do we do about Afghanistan? As I wrote elsewhere, we in the west have got to talk to the Taliban. If we don’t, China and Russia surely will. At the same time we have to address the faults in the North Atlantic Alliance. Forget about the UK’s ‘special relationship’ with the USA. Did it really exist anyway? Leaving the EU makes it more difficult to work with some of our NATO partners; but should not be impossible, especially it they ALL cough up the cash they promised (about the only thing I agree with Trump over). Finally, the USA has got to decide whether it can remain the ‘world’s policeman’, retreat again into isolation or find a compromise between the two.
Thank you for your article.
In which ways are China and Russia a military threat?
The USA tops the military spenders coming in at 39% of global spending.
China comes second with 13%.
Russia comes second at 3.1%
The UK comes fifth at 3%.
The US tops the top of the “cash” spenders at $738 billion
China second at $139 billion
U.K. fourth at $61.5 billion
Russia fifth at $60.6 billion
Apologies!
Russia comes fourth.
The US spent 2.2 trillion dollars on Afghanistan over the 20 years, which can be broken down as
1500 bn spent on war
500 bn on interest
87 bn to train Afghan military and police
24 bn on economic development
10 bn on counternarcotics
(https://www.nakedcapitalism.com/2021/08/the-war-nerd-was-there-a-plan-in-afghanistan.html)
We need to distinguish between military spending that keeps us safe from real threats, or that actually builds democracy, from spending that just keeps the military industry in business
Hi All, great to be back and thanks for the interesting comments. A few replies:
Peter Martin– You are absolutely right about increased European defence spending. But as usual the devil is in the detail. Where is the money coming from, especially in the wake of a costly pandemic and pandemic? And will Europe now accept a re-armed Germany. Will the German people accept a diversion of financial resources from social services to guns. Angela Merkel had enough problems convincing them to prop up Greece.
John Marriott– Of course, we need to talk to the Taliban. We should also supply them with aid. Afghanistan’s economy is 85 percent dependent on foreign aid. The governments who provide that aid give themselves political leverage in Afghanistan. That is why the British government is increasing its aid to Afghanistan by ten percent. What is not clear is the base figure being used by Raab. Is it the 2020-21 budget of £135 million or (after the cuts) the roughly £35 million budget for 2021-22?
Steve Trevethan– It is not necessarily the size of your defence budget as what the money is spent on and how the weaponry is used. Russia is spending money on destabilising Ukraine, propping up the Assad regime in Syria, supporting Maduro in Venezuela and building intermediate range nuclear weapons that are a direct threat to Europe. China is suppressing Uighurs in Xinjiang, democracy in Hong Kong, reinforcing its border with India, threatening Taiwan and building bases as part of a false claim on the South China Sea.
Dennis Mollison– the United States has long had a problem with what Eisenhower dubbed the “Military-Industrial Complex”. To be blunt, the relationship between the defence industry and the US military smacks of corruption. It is a serious problem and one which costs American taxpayers billions. It is also endemic and I certainly don’t have a solution. I am sure Biden would appreciate any suggestions on the back of a postcard.
Paul Kennedy published his book “The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000” in 1987, His thesis was that Great Power ascendancy (over the long term or in specific conflicts) correlates strongly to available resources and economic durability; military overstretch and a concomitant relative decline are the consistent threats facing powers whose ambitions and security requirements are greater than their resource base can provide for.
British and France had the economic resources to maintain far flung empires in the 18th and 19th centuries. That came to an end in the 20th century with the rise of the United States as a superpower.
In comparing the great powers at the close of the 20th century he predicted the decline of the Soviet Union, the rise of China and Japan, the struggles and potential for the EU, and the relative decline of the United States. He highlights the precedent of the “Four Modernizations” in Deng Xiaoping’s plans for China—agriculture, industry, science and military—de-emphasizing military, while the United States and Soviet Union are emphasizing it. He predicted that continued deficit spending, especially on military build-up, will be the single most important reason for decline of any great power. As military expenses grow, this reduces investments in economic growth, which eventually “leads to the downward spiral of slower growth, heavier taxes, deepening domestic splits over spending priorities, and weakening capacity to bear the burdens of defense.Kennedy’s concluding advice is as follows:
“The task facing American statesmen over the next decades, therefore, is to recognize that broad trends are under way, and that there is a need to “manage” affairs so that the relative erosion of the United States’ position takes place slowly and smoothly, and is not accelerated by policies which bring merely short-term advantage but longer-term disadvantage.”
Leaving Afghanistan has opened a hornet’s nest where regional rivalries surface just at the time when the world needs to come together. We need a strengthened UN that focuses on the challenges we all face. Diplomacy must be invigorated by all countries dedicated to preserving a useful life on earth strengthened by more commitment to the rule of law.
@ Tom Arms,
“You are absolutely right about increased European defence spending…… Where is the money coming from, especially in the wake of a costly pandemic and pandemic?”
Where does the money come from in the USA and the UK? Taxes are lower in these countries than they are in Germany. You’ve framed your question in ‘household economics’ terms but the answer can only be understood if you consider that money spent into the economy by Govt always comes back as taxes sooner or later. If it is saved , and the Germans are good at that, it comes back slower and the Govt is then in deficit.
So the German govt needs to be more like the USA, and the UK, and be prepared to run budget deficits. The limitation is not a lack of money, per se, but the tendency to create inflation if there is insufficient resources available in the EU economy. The Covid crisis hasn’t changed the situation much at all in this respect. There is still a high level of slack in the EU and eurozone generally. IF inflation starts to be a problem then tax rises will be in order. Not to ‘provide the spending money’ but to reduce aggregate demand and so dampen down inflation.
Having said this, it could well be argued that the EU and the EU countries have better things to do with their spare capacity than use it on their armed forces. This is a political decision to be made. Not an economic one in the sense that there is “no money”.
JM Keynes understood all this very well when he wrote his short book ” How to Pay for the War”. If the British bean counters had been listened to in 1939, the only option would have been to surrender. They had no answer to the same question of “where the money was going to come from”.
https://en.wikipedia.org/wiki/How_to_Pay_for_the_War
Conflicts and power plays certainly involve many more modes of power seeking than armed conflict. Finances, sanctions and military bases are but three.
Has the « West » and the USA caused significant problems for countries which presented no existential threat such as Libya, Cuba and Grenada?
Might overseas bases be an indicator of the desire of a nation’s elite to interfere with the affairs of other countries?
How many US foreign bases?
Ditto China?
Ditto Russia?
Ditto the UK?
And now a certain Antony Leo Blair tells us that Biden, by association at least, is an imbecile for pulling out of Afghanistan too quickly. So, what does that make Trump, who set the ball rolling in the first place, without consulting either his NATO partners or tge legitimate Afghan government and, indeed, the British Prime Minister, who invaded that country with Dubya after 9/11?
Keynes prescription for paying for WW2 was wage and price controls. Taxes were increased for everyone and forced savings were introduced from 1941 to further divert spending from consumption to production. The forced savings, in the form of tax credit vouchers, were still being repaid 30 years after the war. The Lendlease program with the USA provided for necessary food, oil, and materiel that included warships and warplanes. Canada operated a similar smaller program called Mutual Aid. At the end of the war a 50 year loan, equivalent to double the size of the UK economy, was arranged with the USA by Keynes http://workers.org.uk/features/feat_1213/loan.html. As Keynes noted at the time, “…the American loan was primarily required to meet UK political and military expenditure overseas.” Repayments were deferred for a couple of years in the 1950s and 1960s and again in the mid 1970s. The loan was finally repaid in 2006.
A large element of the wealth and dominance of overseas export markets accumulated by the UK over the century of what came to be called the Pax Brittanica from 1815 to 1914 was depleted as a consequence of WW1 and WW2, as noted by Thomas Piketty.
Kenndedy noted by 1945 the U.S. both enjoyed high productivity and was the only major industrialized nation intact after World War II. He notes that from the 1960s onward, the U.S. saw a relative decline in its share of world production and trade. By the 1980s, the U.S. experienced declining exports of agricultural and manufactured goods. In the space of a few years, the U.S. went from being the largest creditor to the largest debtor nation. At the same time, the federal debt was growing at an increasing pace. This situation is typical of declining hegemons.
The United States has the typical problems of a great power, which include balancing guns and butter and investments for economic growth. The U.S.’ growing military commitment to every continent and the growing cost of military hardware severely limit available options. Kennedy compares the U.S.’ situation to Great Britain’s prior to World War I. He comments that the map of U.S. bases is similar to Great Britain’s before World War I.
@ John Marriott Actually, it’s Anthony Charles Linton Blair, formerly of Fettes, Durham Choir School and Oxford (and occasionally, but no longer, Sedgefield), John.
As for the current mess, I wonder if you can remember the old song, “‘Tain’t What You Do (It’s the Way That You Do It)” by “Sy” Oliver and “Trummy” Young – first recorded in 1939 by Jimmie Lunceford, Harry James, and Ella Fitzgerald ?
What it tells me is how unprepared and useless Johnson, Raab & Co are and how little the so called ‘Special Relationship’ means in the Biden White House. For me it’s been a Damascene revelation about Biden. So much for ‘Global Britain’.
John Marriott,
Tony Blair has published an article on his website https://institute.global/tony-blair/tony-blair-why-we-must-not-abandon-people-afghanistan-their-sakes-and-ours in which he writes “The world is now uncertain of where the West stands because it is so obvious that the decision to withdraw from Afghanistan in this way was driven not by grand strategy but by politics.”
David Petraeus also has an insightful article in the New Yorker https://www.newyorker.com/news/q-and-a/david-petraeus-on-american-mistakes-in-afghanistanhttps://www.newyorker.com/news/q-and-a/david-petraeus-on-american-mistakes-in-afghanistan in wchich he notes the dramatic impact of the departure of some eighteen thousand contractors who maintain the U.S.-provided Afghan air force and also manage the maintenance system.
@David Raw
Sorry, David. I need to check my facts. Leo was his dad, wasn’t he – and his youngest son? In addition, the word our Blair used was ‘imbecilic’ with reference to the policy of withdrawal.
I’ve just read a very interesting article about Afghanistan in today’s Sunday Times by Matthew Syed about Afghanistan and its ‘tribes’. It further confirms what I have felt for a long time, namely that we in the west should have got out of the region years ago. Certainly we should never have assumed that our version of democracy, itself far from the finished article, was capable of transplantation into this alien soil.
As for your song, I do recall it being resurrected by Bananarama and Fun Boy in 1982. As for that ‘Special Relationship’ it was more or less dead and buried by the time of the Teheran Conference of late 1943, when FDR preferred by bypass Churchill and deal directly with Uncle Joe.
As far SLEEPY Joe, don’t forget the hand he was dealt by Trump, who appears to have got away with the opprobrium so far. However, Biden is probably only reflecting the majority view back home. As I said on another thread, and on my first post on this one, we just have to talk to the Taliban. If we don’t it’s sure as hell the Russians and the Chinese will be wanting to. A song for this encounter? How about “It’s now or never” by Elvis?
Whilst the short and medium term consequences of what has happened in Afghanistan do not look to be positive, at least the Taliban will discourage the practice of Bacha Bazi, which was not only tolerated but supported by the outgoing Afghan regime and disgustingly, with few notable exceptions, ignored by the allied forces and western media.
Justin 23rd Aug ’21 – 8:36am:
…at least the Taliban will discourage the practice of Bacha Bazi, which was not only tolerated but supported by the outgoing Afghan regime and disgustingly, with few notable exceptions, ignored by the allied forces and western media.
It’s long been discouraged, but to little effect…
‘‘Bacha Bazi’: Abuse of Afghanistan’s dancing boys persists despite ban’ [July 2017]:
https://renegadeinc.com/bacha-bazi/
Jeff, there are reports that some members of the military raised concerns that their Afghan allies were involved in this and were told by superiors not to take any action, because as you rightly say, this behaviour is embedded in some parts of Afghan culture, and whilst perhaps not celebrated, tacitly accepted by those in authority, except not generally in the case of the Taliban hence the reason, some have argued, that not everyone in Afghanistan is entirely sorry to see their return.
@ Joe,
Wage and price controls were a part of Keynes’ plan to pay for the war. But controlling wages and prices doesn’t actually create any extra money in the economy. This was not an answer to those, like Tom Arms, who, a the time would have asked the same question of “where will the money come from”.
Keynes always knew, just as Rishi Sunak knew recently, exactly where the money was going to come from. In an extreme emergency like WW2 the percentage of GDP going on the war effort was huge and the control of prices and wages was essential to prevent high inflation.
We aren’t talking about quite the same problem now. It’s more like how to persuade the Germans to spend 2% of their GDP instead of 1% on defence. Now if the Germans had the courage of their convictions they could say that 1% was quite enough and they weren’t prepared to spend any more. Instead they sort-of-promise to increase it but never quite get around to doing it.
Peter Martin,
financing WW2 was a precarious effort that required the implementation of a command economy https://www.nationalarchives.gov.uk/cabinetpapers/themes/finance-labour-control.htm
As the article notes:” Initially, the government sought to finance the war with foreign exchange reserves, a drive on exports, and the sale of gold. The futility of this policy was soon revealed as the financial demands of the war effort rapidly increased throughout 1940. By early 1941, the government had drained its foreign reserves and saleable overseas assets were exhausted. The situation was saved by the American Lend-Lease programme, which enabled the British government to receive American imports but defer payment until after the war.”
international trade before 1945 looked different from today. You simply could not just go to a bank and exchange large sums of British pounds with US Dollars. One major reason for this was the 1934 WW1 European debt-defaults/write-offs and that most European countries left the gold standard during the thirties. If the European countries had not defaulted during the thirties, perhaps the whole Lend-lease problem could have been solved the way it was done during WWI, with “normal” loans.
BY 1944, UK exports were only 1/3 of the 1938 level, whereas imports were 50% higher. In addition to this enormous trade gap, large sums of overseas capital assets (a major source of income before the war) had been sold. Britain’s overseas debts had risen five-fold , the largest in the world. Britain was even in debt to parts of the Empire, such as India, Egypt, and Iraq.
The UK did not have enough Dollars to pay for her orders with US Dollars or for other purchases outside of the Sterling/commonwealth area.
The UK’s financial resources were insufficient to procure the extra war material needed for its defense or contain Japanese forces in South-east Asia.
In 1940, Chuchill wrote a letter to Roosevelt stating that Britain had come to the end of her rope in the matter of ships, planes, materials, and dollars; and he asked the President to “find ways and means” to help Britain in the common cause. The US lend-lease program became a critical element in filling those gaps.
The financing of WW2 by Germany and Japan provides some insights into monetary operations. This BBC history article https://www.historyextra.com/period/second-world-war/qa-how-was-germany-able-to-%e2%80%a8afford-the-astronomical-cost-%e2%80%a8of-rearmament-in-the-1930s/
“Nazi policies of autarky (self-sufficiency), deficit financing and creative accounting caused huge inflationary pressures, which by early 1939 had provoked a crisis, with the Reichsbank frantically borrowing and printing hundreds of millions of Reichmarks to try and balance its books.
It has been suggested that this inflationary crisis was one of the factors that drove Hitler into war in the autumn of 1939. Whatever the truth of that assertion, it certainly forced the Nazis into a strict micro-management of the German economy, through measures that included wage freezes and price controls, which in turn would be politically facilitated by the advent of war.”
Germany heavily relied on various forms of forced labour not only of conquered peoples but also of the domestic population. For example any worker knew that once he is fired, he would be sent to the front. Once you rely on forced labour, you do not need to care so much about money any more. Germany was really short only of foreign currency for buying materials abroad but maintained extensive exports to neutral countries.
Also many categories of workers and farmers were paid with pseudo-money (occupation marks, ghetto money, camp money, “Ukrainian” and “Polish” money, Soviet banknotes) to minimize the need to use Reichsmark. These “currencies” could not be used outside of certain areas and only could be used to buy basic things. –
Japan, like Germany used forced labour in occupied territories and seizure of raw materials to maintain its military operations in WW2 https://economiclogic.blogspot.com/2012/12/how-japan-financed-wwii.html
@ Joe,
This discussion arose to answer Tom Arm’s question of where the money is going to come from to be able to increase Germany’s military spending. The plan which has supposedly been agreed by all is an increase from 1% of GDP to 2% of GDP. We aren’t talking about what it takes to run another war economy. It’s a silly question from Tom, tbh. If he is as familiar with America, and the US economy, as he claims, he should already know the answer.
Peter Martin,
The proposed increase in European defense budgets is a permanent increase in the proportion of government spending allocated to military spending. Tom Arms ask “Will the German people accept a diversion of financial resources from social services to guns.” If not a reallocation of spending within the current state budget, will taxes or deficit financing be increased to meet the ongoing annual commitments by the deadline of 2024? If the latter, is that an a good use of public debt financing in a fast recovering economy (with unemployment of 3.7%) during peacetime?
The US might be paying a higher proportion of the Nato budget than European allies, but they are borrowing German savings to finance part of that spending.
Germans might do more for world peace by taking a long breal from work with extended holidays in Greece, Italy, Spain and Portugal to spend their savings with their neighbours, rather than accumulating yet more US treasuries.
@Joe Bourke
In his seminal biography of Hitler, published in the early 1970s, German historian, Joachim Fest, quotes the Führer back in 1939, when told by the Wehrmacht that Germany wouldn’t be ready for war until 1943, as saying that, because he was concerned about his own longevity, it was better to go to war now than wait. Perhaps his health problems were starting to manifest themselves far earlier than many would have had us believe. Financial considerations, as you suggest, while a valid reason, may not have been the real motivating factor behind Hitler’s decision to gamble all on an early war. Trust an accountant to assume it was only really about money😀😀!
@ Joe,
“The US might be paying a higher proportion of the Nato budget than European allies, but they are borrowing German savings to finance part of that spending.”
You’re saying that the Americans are constrained in their spending by the amount of money they have in their coffers. If they are short they politely ask the Germans, Chinese, Dutch and others if they can see their way to lending them some to tide them over until the next payday.
Well, I’m sure you must know by now that it doesn’t work like this. This is neoliberal household economic thinking. If the Germans and other large net exporters are lending to the USA it isn’t to help them out. It’s simply that they have to do something with the surplus dollars they are earning. They have to go back to America via the US capital account.
If Germany decided to reflate its economy which it could probably do under normal circumstances without exceeding the SGP limits on deficit spending it is unlikely to cause significant inflation. It would be much more likely to attract more imports from other EU countries. The EU has a whole has considerable slack so a fiscal expansion in Germany is what is needed to take up some of that.
Whether or not this should be on a very modest increase in military spending from 1% to 2% of GDP is a political question. German citizens would barely notice the difference. Many other EU citizens would benefit. The argument that they can’t afford it or that they are somehow pulling their weight by buying US Treasury bonds is simply nonsense.
Peter Martin,
it is how the world works. The Americans are constrained in their spending not by the amount of money they have in their coffers but by the amount they can spend by not trashing the purchasing power of the dollar. That exchange value of the dollar is dependent on the demand for dollars in International markets and the willingness (or otherwise) of counterparties to hold the dollar and dollar denominated investments as a store of value.
The Bretton woods agreement broke down as countries like France were unwilling to hold dollars and exchanged their holdings for gold. After Nixon suspended convertibility Kissinger negotiated the petrodollar system.
This series of article explores the development of the petrodollar system from its inception and the threats this system now faces https://followthemoney.com/preparing-for-the-collapse-of-the-petrodollar-system-part-1/
@ Joe,
You’re being ridiculous. We’re talking about Germany increasing its NATO contribution from 1% of GDP to 2% of GDP. Even if it was 20% it still wouldn’t “trash the purchasing power of the dollar.”
If Germany wants to save some of its export surplus money in US Treasuries, or even UK gilts, then this is fine providing we all understand that this is Germany’s choice and it isn’t at all the same as the USA and the UK asking to borrow it.
In any case, and as anyone who has family members serving in the armed forces will know, the cost of military involvement can’t be measured only in terms of ££ or $$. If the worst comes to the worst and the NATO forces are seriously called on to stop an aggressor, the purchase of US Treasuries by Germany isn’t going to make much difference to the outcome.