The current geopolitical risks have never been as high in the last 70 years. The war in Ukraine continues to rage on while the Middle East is again on fire. When a nuclear power is the aggressor, the threat of international escalation is substantial. The winds of the Cold War are again blowing, and the risks of a global socio-economic Armageddon cannot be ignored.
Generations born since the middle of the last century benefitted immensely from the peace dividend of the last seven decades. With an apparent end to this peace dividend that has long helped finance higher social expenditure, rebalancing fiscal priorities could prove challenging even in advanced economies.
The Ukraine war has exacerbated several pre-existing adverse global economic trends, including high inflation, extreme poverty, increasing food insecurity, deglobalisation and worsening environmental degradation.
Already, parts of Europe are in a state of severe economic distress. Ukraine has seen massive destruction of physical capital. Millions have fled the country while countless thousands have been killed or maimed. Western leaders decided not to engage directly in the war and instead provided military support to Ukraine and imposed unprecedented economic sanctions on Russia to end the aggression.
The era of détente is over. There are now concerns that Russia might be prepared to abandon the Outer Space Treaty that was signed in 1967 that bans all orbital nuclear weapons.
Our modern way of living depends heavily on satellite technology. Satellites provide a broad range of capabilities to military and civilian consumers, so the risks of the militarisation of space is worrying Western political leaders. US satellites provide a broad spectrum of military capabilities, including communications, navigation and intelligence. The satellite constellation is vulnerable to rogue attacks and needs a better protection shield.
Sean Bell is a military analyst. He recently told Sky News that the US presidential campaign is generating debate about national spending priorities, such as whether to support Ukraine or a US-first focus.
The winds of the Cold War are again blowing, and the risks of a global socio-economic Armageddon cannot be ignored
Former president Donald Trump has broken ranks with the US partners and declared that he does not care if NATO countries who do not spend enough on military investment face foreign aggression. Still, Bell is optimistic, arguing that even senior US politicians have stated that despite Russia presenting a “significant” threat, this is “not a cause for panic”.
One thing is sure: the risks of deglobalisation are increasing. After the pandemic’s start, there was much political discussion about making supply chains more resilient and relying less on imports for public health necessities such as vaccine and antibiotic production, not to mention semiconductors, which are the foundation of the digital economy.
The total effect of increasing deglobalisation will be felt if trade between advanced economies and China also drops, which is not impossible. A major realignment of the global economy can hardly be good for geopolitical stability.
Mario Draghi, the former Italian prime minister, and former president of the European Central Bank, recently spoke at the 40th annual conference of the National Association for Business Economics. He argued: “the phase of profound change that is characterising the global economic order due to conflicts, the pandemic and climate change brings with it profound challenges in terms of economic policy.”
Draghi added, “the nature of the shocks our economies face will change: more frequent irregular and large negative supply shocks are likely to arise, emerging not only from new frictions in the global economy but even more so from the economic policies we put in place to mitigate these frictions”.
The long shadow of war potentially poses even more significant risks for Europe. Draghi warned that no single European country can effectively deal with massive aggression from a neighbouring state. Will a common defence strategy for Europe become inevitable, especially if the US abandons its commitment to supporting all its NATO allies?
Draghi remains a firm supporter of more integration in the EU. He argues: “The war in Ukraine has highlighted the dangers of over reliance on large unreliable trading partners for essential inputs that threaten our jobs. The war of aggression has caused us to rethink where we buy goods and from whom. People are asking for a more equitable distribution of the benefits of globalisation and a greater focus on economic growth, and to achieve these results, they expect a more active use of government practice.”
War is cruel, deadly, divisive, impoverishing and destabilising. While political leaders keep hoping for the best, they must also be prepared for the worst as the shadow of war gets longer.