The crisis that started with the spread of the Coronavirus in China and that is unfolding these days around the world is unprecedented in modern history. It covers three elements: the epidemic, the recession, and the strategic conflict. We have to go back to the great plague of the early 17th century in Milan, which occurred at a crucial time in the Thirty Years War, to find something similar. But even then, there was not the global contagion that we are witnessing now. The next days and weeks will tell us whether these three elements will just sum up or multiply with one another.
A cold war virus
In one week, the American stock exchange recorded its worst loss since the 2008 financial crisis, 10% of its value. Nor will the collapse very likely stop this week. This element – by itself, without thinking of the Coronavirus that is spreading at great speed everywhere – drags down markets all over. It is the onset of a long-expected recession, which was triggered by the halt in production ordered in China to try to contain the spread of the disease but had reasons of its own.
Then there is the virus, and also the geopolitical and strategic tension between the United States and China. It is the backdrop of the perfect clash.
In fact, beyond the confusion in these hours in Washington, rightly frightened by the unimaginable consequences of the spread of the infection in the country, there are various strategic advantages for the US from the ongoing epidemic.
The falling oil price puts Russia in difficulty because its economy revolves around the sale of energy. Without oil revenues, there are less funds to finance Moscow’s ambitions in Syria, for example, where in the past few days Turkey is putting direct pressure on the pro-Russian government in Damascus.
Moreover, the Chinese and global economy is coming to a stop. Beijing has been “earmarked” as the main strategic opponent of the United States for some years now. Washington had already begun to press for the relocation of industrial enterprises from China. Now the spread of the virus objectively helps the process. In a few months, an important part of industrial production from China could migrate to other countries.
Plus, the United States could set in motion a plan for an “official” new Cold War against China and Russia.
A Viral politics
In the latest issue of Foreign Affairs, Graham Allison, who had already warned five years ago that a clash between the US and China was inevitable, explains that the US must move from a latent and undeclared Cold War to an open Cold War recognizing each other sphere of influence, like the West did with the USSR. All countries in the world must be called on to take sides openly, whether with the US or China, creating a perimeter around China and perhaps also around Russia, argues Allison.
The virus may not help incumbent President Donald Trump and his chances of reelection in November. If America moves into a recession, voters could turn against the standing president. But at the moment, this is a different matter, because everything is on the move. Between now and November, when the vote will occur, many things could change. But certainly, a new important actor came unexpectedly into the election scene – the virus and the economic slowdown. It is unclear what the voters will think of it.
Then we have an economic crisis similar to that of 2008, plus a geopolitical crisis. One feeds the other in a spiral.
Furthermore, even outside the US-China-Russia strategic tensions, in the West there are two more sets of problems compared to the 2008 crisis. The Fed and the other central banks have very limited margins to intervene to push an economic recovery, given that interest rates are already close to zero, and there is also a profound political and economic fragility in the eurozone.
The EU has not yet digested Britain’s ongoing exit from the union, which has not been finalized, and there are deep divisions about the near future of the union. These divisions are currently dormant, but they could be exacerbated if there is no common line in Brussels. There is also the need for a positive Atlantic dialogue, given that America is still the EU’s most important political and economic partner. After the 2008 Greek crisis, Brussels struggled for years. Today the scenarios could be worse.
The whole picture is moving fast before our eyes and there could be many different directions where all of this could be going just a few days from now. Certainly, European politics and economy changed forever after the plague and the Thirty Years War. This time something similar could be also expected, and perhaps someone somewhere is already thinking about it.