2014-1914 - A century on, there are uncomfortable parallels with the era that led to the outbreak of the first world war. Mistakes were in part down to assumptions about how others would behave

The Economist warns 2014 similar to 1914

An editorial in British news periodical The Economist draws uncomfortable parallels between the world of today and that of 100 years ago.  As the Centenary of World War I approaches, the newspaper suggests that as 1913 came to a close most people in the West looked forward to the new year with a degree of optimism.

It reports: ‘John Maynard Keynes has a wonderful image of a Londoner of the time, “sipping his morning tea in bed” and ordering “the various products of the earth” to his door, much as he might today from Amazon – and regarding this state of affairs as “normal, certain and permanent, except in the direction of improvement.’

Darker parallels

More alarming similarities can be drawn between the nations of 1913 and those of today. The US can be compared to the UK – a superpower on the wane. Germany becomes China, a rising nation ‘bristling with nationalism’. France’s role goes to Japan, an ally of the declining superpower and of decreasing importance in its regional sphere.

Meanwhile, cautions the newspaper, business people turn a blind eye to the language of aggression and distrust in the quest for money and politicians whip up nationalist emotions for their own gains. Then there is a basket-case state in the shape of North Korea, capable of an act of madness.

The solution, suggests The Economist, may be a more active foreign policy from the US.

‘Unless America behaves as a leader and the guarantor of the world order,’ it adds, ‘it will be inviting regional powers to test their strength by bullying neighbouring countries.’

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Read more: 1914centenary.com

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The first world war - Look back with angst

A century on, there are uncomfortable parallels with the era that led to the outbreak of the first world war

As new year approached a century ago, most people in the West looked forward to 1914 with optimism.

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Read more: www.economist.com

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War parallels

by Buttonwood

With the centenary of the First World War fast approaching, the bookshelves are groaning with accounts of its origins. For history buffs like your blogger, this provides plenty of fascinating material, as well as some interesting parallels with the present day. Christopher Clark's excellent "Sleepwalkers" convincingly casts doubt on the German "war guilt" clause that has dogged this issue ever since the Versailles treaty. He focuses, much more than usual accounts, on the turbulent nature of the Serbian state and its fraught relations with Austria-Hungary, and also on the way that France encouraged Russia to take a firm line during the crisis.

Where Mr Clark excels is in explaining how the pre-war diplomatic manouvres resembled a giant exercise in game theory, in which the various governments made decisions on the basis of their assumptions about the motives of the other governments. The Serbs were committed to intriguing against the Austrian state, which they saw as the main obstacle to the creation of a "greater Serbia", a state that would include many people who would not have considered themselves Serbs at the time. The Austrians were alarmed at the rise of nationalist pressures within their own borders, and at the rising power of Serbia that had been demonstrated in two short Balkan wars of 1912 and 1913.

The Russians had been humiliated by the Japanese in the 1905 war and by the Ausrtrian annexation of Bosnia-Herzegovina in 1908; they cast their lot with the unstable Serbian regime. The French were desperate to hang on to the Russian alliance as a counterpoint to Germany, especially as they were unsure about the strength of the British commitment. The Germans were frightened by the Russian military build-up and believed that the balance of power was moving against them. The British were concerned, not just about the German naval race, but about Russia's activity in central Asia, and the potential threat to India.

There was a strong belief in many capitals that firmness would lead to the avoidance of war; that the Austrians would surely back down if the Russians backed Serbia; and that the Russians would back down if the Germans backed Austria. Previous crises in the 1905-1913 period had been averted without resulting in a Europe-wide war. Oddly enough, this confidence in a diplomatic outcome was offset by a feeling that war might be inevitable in the medium term; the disintegration of the Ottoman empire in Europe had already altered the balance of power and there was a chance that Austria-Hungary might go the same way. If France need to confront Germany, it needed a battle in which the Russians were willing partners, so the French agenda was in a sense subservient to Russian aims; if Germany need to confront Russia, it was better to do it sooner rather than later.

Furthermore, each nation's policy was driven, not just by external forces, but by internal constraints. In Germany, Austria and Russia, rival officials vied for the ear of their respective emperors; in France, President Poincare took the lead in foreign policy rather than leaving events to the foreign ministry; in Britain Sir Edward Grey committed the navy to protect the French northern coasts without the agreement of his cabinet. All the politicians had to deal with the demands of the military, who insisted that the key was early mobilisation so their forces were not overwhelmed (recall the great AJP Taylor's dictum that the war was driven by railway timetables).

So what are the modern parallels? Mr Clark sees similarities with the euro crisis of 2010/2011 but I think you can also see links with the financial crisis of 2007-2008. In particular, the decision to let Lehman Read more: http://www.economist.comBrothers go under - the "guns of August" moment - was clearly influenced by the J P Morgan/Bear Stearns rescue, which had required official support. Clearly, the authorities did not think that Lehman's collapse would lead to financial armageddon; on the contrary, they thought it was time for a hint of firmness so that moral hazard would be returned to the system. By contrast, investors thought that Lehman would be rescued until the last moment, just as Europeans in 1914 may have believed that other countries would back down in time.

More generally, the pre-1914 period showed how false beliefs could lead nations to catastrophe. And there were plenty of false beliefs in the pre-2007 period. The central banks, led by Alan Greenspan, thought that markets were efficient and that commercial banks knew what they were doing; the bankers thought they could handle risk and that their high pay was down to their own brilliance and not the Greenspan put; individual home buyers thought that house prices could never go down; the rating agencies thought that the securitiesed mortgage pools were safe and so on. In each case, mistakes were in part down to assumptions about how others would behave; that central banks would always ride to the rescue, that bank executives would not bet the future of their firms on rising asset prices etc.


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Read more: www.economist.com