This article was
first published on the Stratfor website.
 
The author,
George Friedman, is chairman and CEO of Stratfor, the world’s
leading online publisher of geopolitical intelligence. 

In 1989, the global system pivoted when the Soviet Union retreated
from Eastern Europe and began the process of disintegration that
culminated in its collapse. In 2001, the system pivoted again when al
Qaeda attacked targets in the United States on Sept. 11, triggering a
conflict that defined the international system until the summer of
2008. The pivot of 2008 turned on two dates, Aug. 7 and Oct. 11.

On Aug. 7, Georgian troops attacked the country’s breakaway region of South Ossetia. On Aug. 8, Russian troops responded by invading Georgia. The Western response was primarily rhetorical. On the weekend of Oct. 11, the G-7 met in Washington to plan a joint response to the global financial crisis.
Rather than defining a joint plan, the decision — by default — was that
each nation would act to save its own financial system with a series of
broadly agreed upon guidelines.

The Aug. 7 and Oct. 11 events are connected only in their
consequences. Each showed the weakness of international institutions
and confirmed the primacy of the nation-state, or more precisely, the
nation and the state. (A nation is a collection of people who share an
ethnicity. A state is the entity that rules a piece of land. A
nation-state — the foundation of the modern international order — is
what is formed when the nation and state overlap.) Together, the two
events posed challenges that overwhelmed the global significance of the
Iraqi and Afghan wars.

The Conflict in Georgia

In and of itself, Russia’s attack on Georgia
was not globally significant. Georgia is a small country in the
Caucasus, and its fate ultimately does not affect the world. But
Georgia was aligned with the United States and with Europe, and it had
been seen by some as a candidate for membership in NATO. Thus, what was
important about the Russian attack was that it occurred at all, and
that the West did not respond to it beyond rhetoric.

Part of the problem was that the countries that could have
intervened on Georgia’s behalf lacked the ability to do so. The
Americans were bogged down in the Islamic world, and the Europeans had
let their military forces atrophy. But even if military force had been
available, it is clear that NATO, as the military expression of the
Western alliance, was incapable of any unified action.
There was no unified understanding of NATO’s obligation and, more
importantly, no collective understanding of what a unified strategy
might be.

The tension was not only between the United States and Europe, but
also among the European countries. This was particularly pronounced in
the different view of the situation Germany took compared to that of
the United States and many other countries. Very soon after the
Russo-Georgian war had ended, the Germans made clear that they opposed
the expansion of NATO to Georgia and Ukraine. A major reason for this
is Germany’s heavy dependence on Russian natural gas, which means
Berlin cannot afford to alienate Moscow. But there was a deeper reason:
Germany had been in the front line of the first Cold War and had no
desire to participate in a second.

The range of European responses to Russia was fascinating. The
British were livid. The French were livid but wanted to mediate. The
Germans were cautious, and Chancellor Angela Merkel traveled to St. Petersburg
to hold a joint press conference with Russian President Dmitri
Medvedev, aligning Germany with Russia — for all practical purposes —
on the Georgian and Ukrainian issues.

The single most important effect of Russia’s attack on Georgia was
that it showed clearly how deeply divided — and for that matter, how
weak — NATO is in general and the Europeans are in particular. Had they
been united, they would not have been able to do much. But they avoided
that challenge by being utterly fragmented. NATO can only work when
there is a consensus, and the war revealed how far from consensus NATO
was. It can’t be said that NATO collapsed after Georgia. It is still
there, and NATO officials hold meetings and press conferences. But the
alliance is devoid of both common purpose and resources, except in very
specific and limited areas. Some Europeans are working through NATO in
Afghanistan, for example, but not most, and not in a decisive fashion.

The Russo-Georgian war raised profound questions about the future of
the multinational military alliance. Each member consulted its own
national interest and conducted its own foreign policy. At this point,
splits between the Europeans and Americans are taken for granted, but
the splits among the Europeans are profound. If it was no longer
possible to say that NATO functioned, it was also unclear after Aug. 8 in what sense the Europeans existed, except as individual nation-states.

The Global Financial Crisis

What was demonstrated in politico-military terms in Georgia was then
demonstrated in economic terms in the financial crisis. All of the
multinational systems created after World War II failed during the
crisis — or more precisely, the crisis went well beyond their briefs
and resources. None of the systems could cope, and many broke down. On
Oct. 11, it became clear that the G-7 could cooperate,
but not through unified action. On Oct. 12, when the Europeans held
their eurozone summit, it became clear that they would only act as
individual nations.

As with the aftermath of the Georgian war, the most significant
developments after Oct. 11 happened in Europe. The European Union is
first and foremost an arrangement for managing Europe’s economy. Its
bureaucracy in Brussels has increased its authority and effectiveness
throughout the last decade. The problem with the European Union is that
it was an institution designed to manage prosperity. When it confronted
serious adversity, however, it froze, devolving power to the component
states.

Consider the European Central Bank (ECB), an institution created for
managing the euro. Its primary charge — and only real authority — is to
work to limit inflation. But limiting inflation is a problem that needs
to be addressed when economies are otherwise functioning well. The
financial crisis is a case where the European system is malfunctioning.
The ECB was not created to deal with that. It has managed, with the
agreement of member governments, to expand its function beyond
inflation control, but it ultimately lacks the staff or the mindset to
do all the things that other central banks were doing. To be more
precise, it is a central bank without a single finance ministry to work
with. Unlike other central banks, whose authority coincides with the
nations they serve, the ECB serves multiple nations with multiple
interests and finance ministries. By its nature, its power is limited.

In the end, power did not reside with Europe, but rather with its
individual countries. It wasn’t Brussels that was implementing
decisions made in Strasbourg; the centers of power were in Paris,
London, Rome, Berlin and the other capitals of Europe and the world.
Power devolved back to the states that governed nations. Or, to be more
precise, the twin crises revealed that power had never left there.

Between the events in Georgia and the financial crisis, what we saw
was the breakdown of multinational entities. This was particularly
marked in Europe, in large part because the Europeans were the most
invested in multilateralism and because they were in the crosshairs of
both crises. The Russian resurgence
affected them the most, and the fallout of the U.S. financial crisis
hit them the hardest. They had to improvise the most, being
multilateral but imperfectly developed, to say the least. In a sense,
the Europeans were the laboratory of multilateralism and its
intersection with crisis.

But it was not a European problem in the end. What we saw was a
global phenomenon in which individual nations struggled to cope with
the effects of the financial crisis and of Russia. Since the fall of
the Soviet Union, there has been a tendency to view the world in terms
of global institutions, from the United Nations to the World Trade
Organization. In the summer of 2008, none of these functioned. The only
things that did function effectively were national institutions.

Since 2001, the assumption has been that subnational groups like al Qaeda
would define the politico-military environment. In U.S. Defense
Department jargon, the assumption was that peer-to-peer conflict was no
longer an issue and that it was all about small terrorist groups. The
summer of 2008 demonstrated that while terrorism by subnational groups
is not insignificant by any means, the dynamics of nation-states have
hardly become archaic.

The Importance of the State

Clearly, the world has pivoted toward the nation-state as the prime actor and away from transnational and subnational groups. The financial crisis
could be solved by monetizing the net assets of societies to correct
financial imbalances. The only institution that could do that was the
state, which could use its sovereign power and credibility, based on
its ability to tax the economy, to underwrite the financial system.

Around the world, states did just that. They did it in very national
ways. Many European states did it primarily by guaranteeing interbank
loans, thereby essentially nationalizing the heart of the financial
system. If states guarantee loans, the risk declines to near zero. In
that case, the rationing of money through market mechanisms collapses.
The state must take over rationing. This massively increases the power
of the state — and raises questions about how the Europeans back out of
this position.

The Americans took a different approach,
less focused on interbank guarantees than on reshaping the balance
sheets of financial institutions by investing in them. It was a more
indirect approach and less efficient in the short run, but the
Americans were more interested than the Europeans in trying to create
mechanisms that would allow the state to back out of control of the
financial system.

But what is most important is to see the manner in which state power
surged in the summer and fall of 2008. The balance of power between
business and the state, always dynamic, underwent a profound change,
with the power of the state surging and the power of business
contracting. Power was not in the hands of Lehman Brothers or Barclays.
It was in the hands of Washington and London. At the same time, the
power of the nation surged as the importance of multilateral
organizations and subnational groups declined. The nation-state roared
back to life after it had seemed to be drifting into irrelevance.

The year 1989 did not quite end the Cold War, but it created a world
that bypassed it. The year 2001 did not end the post-Cold War world,
but it overlaid it with an additional and overwhelming dynamic: that of
the U.S.-jihadist war. The year 2008 did not end the U.S.-jihadist war,
but it overlaid it with far more immediate and urgent issues. The
financial crisis, of course, was one. The future of Russian power was
another. We should point out that the importance of Russian power is
this: As soon as Russia dominates the center of the Eurasian land mass,
its force intrudes on Europe. Russia united with the rest of Europe is
an overwhelming global force. Europe resisting Russia defines the
global system. Russia fragmented opens the door for other geopolitical
issues. Russia united and powerful usurps the global stage.

The year 2008 has therefore seen two things. First, and probably
most important, it resurrected the nation-state and shifted the global
balance between the state and business. Second, it redefined the global
geopolitical system, opening the door to a resurgence of Russian power and revealing the underlying fragmentation of Europe and weaknesses of NATO.

The most important manifestation of this is Europe. In the face of
Russian power, there is no united European position. In the face of the
financial crisis, the Europeans coordinate, but they do not act as one.
After the summer of 2008, it is no longer fair to talk about Europe as
a single entity, about NATO as a fully functioning alliance, or about a
world in which the nation-state is obsolete. The nation-state was the
only institution that worked.

This is far more important than either of the immediate issues. The
fate of Georgia is of minor consequence to the world. The financial
crisis will pass into history, joining Brady bonds, the Resolution
Trust Corp. and the bailout of New York City as a historical oddity.
What will remain is a new international system in which the Russian question — followed by the German question
— is once again at the center of things, and in which states act with
confidence in shaping the economic and business environment for better
or worse.

The world is a very different place from what it was in the spring
of 2008. Or, to be more precise, it is a much more traditional place
than many thought. It is a world of nations pursuing their own
interests and collaborating where they choose. Those interests are
economic, political and military, and they are part of a single fabric.
The illusion of multilateralism was not put to rest — it will never die
— but it was certainly put to bed. It is a world we can readily
recognize from history.

George Friedman is chief executive officer of Stratfor, the world’s leading online publisher of geopolitical intelligence. He is a widely recognized international affairs expert and author of numerous...