Italy is back in recession and approaching deflation; Germany’s economy has shrunk and France stagnates. In Britain, we have a record number of jobs but plummeting real wages. Only the US – which borrowed massively, restructured its banks and printed money on a historic scale – enjoys anything like a sustainable recovery, and even that’s being sustained only by the promise that quantitative easing will go on ad infinitum.
Although its social impact has been milder than that of the 1930s, the crisis that began in 2008 has been longer and by some measures deeper. As a result, we have quietly entered the “exit” phase economic historians warned about: a competitive dash for safety driven by economic nationalism. The first moves are being made by proxy and centre around the diplomatic conflict over Ukraine.
Capital flight from Russia is real and massive: the $150bn or so that has left Russia this year – combined with the complete dry-up of inward investment – will permanently alter Russia’s position in the financial system.
Russia’s agricultural trade embargo with the EU is also real. Like all disruptions to global free trade, these moves will create, almost immediately, new patterns that will be hard to break.
For example, Greek peach farmers face ruin as their produce rots at the roadside. The Turkish government, meanwhile, has enraged Greeks by pledging to step up exports to Russia to fill the gap. Greek politicians are under pressure from the leftwing opposition party Syriza to defy the EU sanctions on Russia; in reply, they have pointed out to voters not only that the EU holds their country’s debt, but also that, if they recognise Russia’s hold on Crimea, they might as well recognise Turkey’s hold on northern Cyprus. Thus do peaches and nectarines turn into issues involving debt mountains, military no-go zones and historic ethnic rivalries.