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The Financial March to War

Amid heightened global tensions, it is reasonable to worry that the international order is collapsing, and that other priorities have displaced the pursuit of financial stability as a global public good. Old strategies for winning a zero-sum game are re-emerging, with ominous echoes of the twentieth century.

BERLIN – Since global financial stability ought to be considered a public good, many international institutions devote themselves to establishing the conditions to sustain it. Geopolitical conflict, however, often brings a change in thinking: suddenly, instability becomes a useful tool for protecting one’s own interests in a zero-sum global competition. In our current era of trade wars, cross-border supply chains, and restrictions on access to key technologies – call it “geotechnopolitics” – a newer version of this old dynamic is emerging. If history is any guide, financial war is around the corner.

In the twentieth century, both world wars were preceded by the formation of rival blocs and an increase in targeted financial attacks. As diplomatic tensions escalated, each side tried to undermine the other’s capacities through a financial war of attrition. Hence, financial mobilization preceded military mobilization in the run-up to 1914.

For example, during the Second Moroccan Crisis of 1911, France responded to Germany’s deployment of a gunboat to the coastal city of Agadir by orchestrating a rapid selloff of German securities, triggering financial panic in Germany. At the same time, Austria-Hungary, whose businesses wanted to tap the French capital market, abandoned its German ally and lined up with Paris. As a result, Germany felt less secure about Austrian support and more determined to invent economic issues that would force the Habsburg Empire back to its side.