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Economic ties among nations spur peace. Or do they?

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Economic ties among nations spur peace. Or do they?

Russia’s war in Ukraine has not only reshaped Europe’s strategic and political order, it has also upended long-standing assumptions about the intricacies of the signature global economy.

Millions of times a day, the widespread exchange of money and goods spans land borders and seas, creating vast wealth that is unevenly distributed. But these linkages also expose economies to financial instability and severe shortages when flows are disrupted.

Disruptions and shortages in supply lines caused by the pandemic have created widespread awareness of these vulnerabilities. Now, the invasion has given governments in Europe and elsewhere a new stimulus to reassess how to balance the desire for efficiency and growth with the need for self-sufficiency and national security.

And it calls into question the tenet of liberal capitalism that shared economic interests help prevent military conflict.

It’s an idea that dates back centuries and has been endorsed by romantic idealists and steely realists. Philosophers John Stuart Mill and Emmanuel Kant wrote about it in their essays. British politicians Richard Cobden and John Bright invoked it in the 19th century to repeal protectionist corn laws, tariffs and restrictions on imported grain that shielded landowners from competition and stifled free trade.

Later, Norman Angell was awarded the Nobel Peace Prize for writing that world leaders were under “a great illusion that armed conflict and conquest lead to greater wealth. During the Cold War, This was one of the reasons for détente with the Soviet Union. – As Henry Kissinger put it, “Create links that incentivize moderation.

Since the collapse of the Soviet Union 30 years ago, the idea that economic ties can help prevent conflict has guided Germany, Italy and several other European countries’ policy toward Russia in part.

Today, Russia is the world’s largest exporter of oil and wheat. The European Union is its largest trading partner, with 40 percent of its natural gas, 25 percent of its oil and a significant portion of its coal coming from Russia. Russia also supplies other countries with raw materials such as palladium, titanium, neon and aluminum, which are used in everything from semiconductors to car manufacturing.

Just last summer, Russian, British, French and German gas companies completed a 10-year, $11 billion direct pipeline Nord Stream 2 project, which is awaiting approval from German regulators. But Germany stopped certifying the pipeline after Russia recognized two separatist regions in Ukraine.

From the outset, part of Germany’s argument for the pipeline — the second one connecting Russia and Germany — was that it would align Russia’s interests more closely with those of Europe. Germany also has climate policy around Russia’s oil and gas, assuming it will provide energy as Germany develops more renewable energy and shuts down its nuclear power plants.

The benefits go both ways. Globalization rescued Russia from the 1998 financial crisis and alarming inflation — and finally paved the way for Russian President Vladimir Putin to come to power. Revenue from energy exports accounted for a quarter of Russia’s gross domestic product last year.

Critics of Nord Stream 2, especially in the U.S. and Eastern Europe, have warned that its growing reliance on Russian energy would give it too much leverage, a point President Ronald Reagan made 40 years ago Block previous pipes. Arguing that Europeans are still in a fantasy, only this time economic ties can prevent bald aggression.

More recently, though, these economic ties have raised suspicions that Russia would ignore its main trading partner and launch an all-out attack on Ukraine.

In the weeks leading up to the invasion, many European leaders objected to joining the warnings that they believed the U.S. was exaggerating. French President Emmanuel Macron, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi held talks or meetings with Putin respectively, hoping for a successful diplomatic solution.

Council on Foreign Relations Chairman Richard Haas said the EU had good reason to believe that economic ties would bring potential fighters closer together. The proof is the EU itself. The group’s roots can be traced back to the creation of the European Coal and Steel Community after World War II, an agreement between six nations to avoid conflict by centralizing control of these two basic commodities.

“The idea is that if you combine the French and German economies, they won’t be able to go to war,” Haas said. The purpose is to prevent a third world war.

Scholars have tried to prove that the theory works in the real world — studying tens of thousands of trade relationships and military conflicts over decades — and have come to mixed conclusions.

Haas argues that there are some ways in which economic interests are not mutual enough for the current crisis. “German demand for Russian gas far exceeds Russian demand for exports because they can make up for lost revenue with higher prices,” he said.

Haas added: “This is where Europe is all wrong with this relationship.” Leverage is not reciprocal.

Despite its huge land, nuclear arsenal and energy exports, Russia is otherwise relatively isolated from the global economy, accounting for 1.7% of global output. Since Russia’s invasion of Crimea in 2014, Putin has taken steps to further isolate the economy to prevent retaliation.

A willingness to impose such devastating sanctions on Russia could signal a flaw in the strategy, said Adam Posen, director of the Peterson Institute for International Economics. If Russia’s financial system is more integrated with that of its allies, they may be more hesitant to take measures that could trigger a financial crisis.

Currently, economic relations with Russia are running on parallel tracks. Countries opposed to Russia’s invasion of Ukraine have imposed a series of damaging financial and trade sanctions, but Russian oil and gas – not subject to the ban – are still flowing.

The reality is that economic interdependence breeds insecurity and mutual benefit, especially when relationships are not balanced.

Philippe Martin, dean of the School of Public Affairs at Sciences Po, said the 2014 agreement between Ukraine and the European Union could mark a turning point for Russia. “This translates into more trade with the EU, not with Russia,” he said.

Martin is skeptical that economic ties promote peace, arguing that countries open to global trade need not worry about disputes with a single country because they have different trading partners.

However, in the case of Russia’s march towards Kyiv, he offered two possible explanations. One is that no one – including the European leaders who imposed them – expected sanctions of this magnitude.

“I think Putin miscalculated and was surprised by the severity of the sanctions,” Martin said. A second explanation is that Putin doesn’t care about the impact of sanctions on the welfare of most Russians.

Which does he think is correct? “I think both explanations are valid,” he said.

This article originally appeared in The New York Times.

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