diplomacy

US stock market valuations have only been as high as in 2001 and 2020, market concentration is more extreme than in the late 1920’s (the top ten companies now make up 38% of the market capitalization of the S&P 500 index), and money manager surveys show US households to be the most bullish on future returns from equities since the survey began in the early 1980’s.

So, given this precarious euphoria, when is the crash?

My response is that crashes come in unexpected places and times and one idea that has not had much coverage but that might become current is the idea of a ‘diplomatic crash’. By this I mean that a host of countries have invested diplomatically, or in terms of soft power, in institutions, partnerships and causes. The acceleration of a multipolar world by the second Trump presidency will crash the value of many of these diplomatic investments.

An example might be the ‘special relationship’ between the UK and the US, the seeds of which were sown by Roosevelt and Churchill during the second world war (Churchill coined the term in 1946), and later cultivated by Thatcher/Reagan and then the Bushes and Clintons with both John Major and Tony Blair. Today, it is very hard to see any personal chemistry, or philosophical common ground between Donald Trump and Sir Keir Starmer. If the ‘special relationship’ were a stock or even a crypto coin, its value would be at a historic low.

In more detail, the idea of the ‘diplomacy crash’ came to me the night before I voted in Ireland’s general election. Ireland is a very quirky, even eccentric country from a geopolitical view in that unlike many other European countries there is close to no debate in Irish politics on defence and security, and its defence capability is miniscule compared to benchmark countries like Norway and Sweden.

In that context Ireland, like many other mid-ranking developed countries, is about to suffer a diplomatic crash. It has, correctly, invested heavily in the UN and the rules-based order. Some of the pillars of this order, like the World Trade Organisation – effectively built by an Irishman (Peter Sutherland) – are in a state of dereliction. It may well be the case that the UN ceases to be effective in dispute resolution between states, world health policy and great power coordination.

In addition, together with Spain and Norway, Ireland has spent significant geopolitical capital supporting Palestine (all three countries recently recognized Palestine as a state). Here, it cannot be ruled out that a grand peace deal is made in the Middle East, between Israel, Egypt, the UAE and Saudi Arabia, whose goal is to create greater investment and commercial flows between these countries and strategically disable Iran, but whose outcome is to render the ‘two-state’ solution unachievable. This new, harsh reality would leave the humanitarian led foreign policies of many European countries well ‘off-side’, compared to the stance of the Trump administration.

Ireland is just an example here, and there are plenty of other crashes in diplomatic capital – Germany’s trade policy with China, and potentially Japan’s relationship with the USA, France’s relationship with Africa and in general the cultivation of the rules-based order by democracies.

In finance, when a market crash occurs, investors become structurally risk averse, run for safe assets and generally retract positions. This might be the same in diplomacy. The risk then is a more unsure, less engaged diplomatic world, and worryingly one where the international rule of law is ignored.

In Europe, reflecting the lessons of the euro-zone financial crisis, this may imply that EU foreign policy becomes more consistent across countries (though perhaps not yet unified) and more focused (Katja Kallas is perhaps the most forceful foreign policy chief that the EU has had). In addition, new policy coalitions and leadership groups will form, notably so in the case of the Nordic and Baltic states on defence and immigration.

The EU also needs to stop geopolitical hedging by its members. Hungary under Viktor Orban has become notoriously close to Russia, and whilst Serbia had tried to play both sides it seems more comfortable as a bona fide EU nation (it is an accession state).

Once Ireland’s election result is clear, the first task for its leaders may be to choose sides – solidarity with Europe and active participation in the EU defence effort, or a singular, eccentric relationship with the Trump administration.

Have a great week ahead,

Mike

An ambassador should be ‘an honest (wo)man sent to lie abroad for the good of his country’ according to Sir Henry Wotton, a seventeenth century British diplomat, writer and politician. It is something of a surprise then that this sage advice was unheeded by the seasoned British diplomat Sir Kim Darroch, lately UK Ambassador to the US.

His failing was to tell the truth about the court of Donald Trump, and even boringly, to be caught stating the obvious. At least, the outgoing, flamboyant French Ambassador to Washington Gerard Araud waited till he had retired to speak his mind (‘unpredictable’, ‘uninformed’, ‘America Alone’).

Darroch’s resignation, in diplomatically unusual circumstances following the President’s decision to boycott him, tells us much about the conduct of diplomacy today, the demise of Britain as a world power and importantly, America’s place in the world today.

Historically, since the foundation of nation states and the rise of the idea of the balance of power, the role of the diplomat emerged in the middle of the 17^th century, with Venice as a particular centre of power. Then, diplomats were a mixture of spies, messengers, entertainers and persuaders and many still are today. Comfortingly, commentary on Sir Kim reveals that holding decent parties is still a prerequisite for the job.

A more formal definition of the role of diplomacy comes in Sir Harold Nicholson’s book ‘Diplomacy’ where he pins responsibility for foreign policy on elected governments, and assigns ‘negotiations’ as the preserve of diplomats. In the US today, we might well hold that the foreign policy of the government is very hard to identify while the art of negotiation has become the sole preserve of the President.

In days gone by, the opposite was the case with certain diplomats setting foreign policy and negotiating it. One example that comes to mind having just read George Packer’s excellent book ‘Our Man’ is Richard Holbrooke. The book tracks Holbrooke’s career and illustrates how his ambition and intensity were both his strengths and failings. Holbrooke was far more forceful and cutting in his views than most other diplomats, but in the end his career too was cut short by a President (Obama). There are relatively few characters like Holbrooke in world diplomacy today. Financial crises, social media, cyber espionage and the cult of the political personality have made the job of the diplomat more difficult and arguably more important.

I am biased but one success story of recent years is Irish diplomacy, which was mobilized on the European and world stages in the aftermath of the global financial crisis, and then again more recently in the case of Brexit and is now adding new embassies in countries like Columbia.

The same cannot be said of the State Department which has been denuded of talent and expertise under the current administration, and its budget curtailed to such a degree that it has needed the helping fiscal hand of the Pentagon. Outside the State Department though, there are interesting developments in the ‘science of diplomacy’ notably at Harvard’s Belfer Centre where for example there is now a very interesting Economic Diplomacy Initiative spearheaded by Profs Nicholas Burns and Larry Summers.

I am not sure if ‘divorce through diplomacy’ is on the curriculum at Harvard but the UK could do with some help in the area of geopolitics. To my mind, the resignation of Sir Kim destroys once and for all the notion of the ‘special relationship’ and confirms that what ails Britain is not Brexit per se but a national identity crisis in the contest of a decline in power. Britain and its political class need to urgently open up a debate as to what its place in the world is, and how realistically it can remake and reposition itself diplomatically.

One person whose advise might be worth listening to is Henry Kissinger. At 96 he is still going strong, and while I recognize that some will object to his views, his written work is superb and a great example of pithy, thoughtful writing.

On hearing of Sir Kim’s exit I picked up Kissinger’s book ‘Diplomacy’ and found it remarkable in two respects, one for its foresight (it was written in 1992/93) in international relations, and the other, for the way the values driven American foreign policy that Kissinger described is now being undermined by the current President.

Kissinger wrote that America was the first country to adopt a values based approach to foreign policy and that in this context there were two schools of thought as to how to prosecute this – either America would simply be a beacon of democracy that would inspire others or that it would be an active crusader for democracy abroad. Sadly, that beacon is fading.

Have a great week ahead,

Mike

Tag: diplomacy

The Diplomacy Crash