Adam Tooze says this month marks the tenth anniversary of the Georgian-Russian war and the eve of the global financial crisis, which was the worst the world ever saw since the 1930s. The two events – at first glance – may seem “unrelated”, if one chooses “to neglect the deeper currents driving the confrontation in the Caucasus.” But the Georgian crisis of August 2008 should explain “how dangerous the new global economic dispensation might become.”

Russia went to war with America’s ally, Georgia over South Ossetia, which – like Abkhazia – is a breakaway province in Georgia backed by Russia. Georgia offered the two provinces autonomy. But South Ossetians overwhelmingly rejected the offer in a 2006 referendum. Its NATO membership talks prompted Putin to draw a red line – he warned against “any further eastward expansion” of the EU or NATO during the Munich Security conference in February 2007.

In April 2008 NATO members at a summit in Bucharest postponed the decision to admit Georgia and Ukraine until December. Russia sent troops to Abkhazia in April and May. In August Georgia deployed troops to South Ossetia, and Russia responded by moving tanks and troops through South Ossetia into Georgia. The US, the UK and NATO urged the warring parties to stop fighting.

The five-day war ended with a cease fire agreement brokered by the then French president, Nicholas Sarkozy. The then Russian president, Dmitry Medvedev signed an order recognising the independence of Abkhazia and South Ossetia. The Bush administration condemned Russia’s decision, seeing it as a violation of Georgia’s territorial integrity, and called for humanitarian aid be sent to the region.

In 2009 the EU fact-finding mission concluded that historical tensions, provocations and overreaction on both sides contributed to the 2008 short war. Since gaining independence after the fall of the Soviet Union in 1991, Georgia had again become the arena of conflicting interests. Increasing US economic and political influence under the pro-Western leader. Mikheil Saakashvili had long been a source of concern for Russia, as have Georgia's aspirations to join NATO and the EU.

The author points out “the onset of the global financial crisis, that captured the world’s attention.” In Washington, London, Paris, Berlin, and Moscow, “preventing bank failures, not military escalation, was the most pressing problem.” As an effort to absorb former Soviet satellites into the West, hundreds of billions of dollars were poured into the region by “European banks that helped fuel the US real-estate boom and inflate the even bigger housing bubbles” in the UK, Ireland, and Spain.

“The most extreme real-estate inflation in the world between 2005 and 2007 was on NATO’s Eastern frontier.” Former Soviet satellites benefited from the debt-fueled global boom. The 2008 financial crisis, created in the West, hit hardest in ex-communist countries, which embraced capitalism. It was a rude awakening for these new democracies and they had to grapple with the deepest crisis after years of rapid growth.

Many in Eastern Europe needed bailout funds from the IMF, which were conditioned on swingeing budget cuts. Resentment towards Western banks, that stopped lending when the crisis erupted, ran deep. They helped create one of the world's biggest bubbles through profligate lending in hard currencies. When the bubble burst and property prices collapsed, the new middle class found itself in negative equity.

Putin became immensely popular thanks to the huge surge in oil prices. But Russia was one of the worst affected by the financial crisis and must confront sharply declining export revenues from its energy and mineral sectors. A chorus of “bailout appeals, a credit crunch, banking failures, a bursting real-estate bubble and mortgage defaults,” accelerated capital flight, putting pressure on the Russian currency and the stock market.

Russia “was armed with substantial dollar reserves – the third largest after China and Japan – the $600 billion enabled Putin to ride out the storm without external help.” But others could not. “No country in the region was strategically more important, more fragile politically, or worse hit economically than Ukraine.” The author says in 2008, “two pressure fronts of global capitalism were rushing toward each other across Eurasia. While Western investment drove economic growth in Central and Eastern Europe, the commodity boom sustained Russia’s geopolitical revival.”

The author comes to the conclusion that the West was wrong about market-driven economic growth being “an irrepressible force that gave the edge to the US-led West” in the post-Cold War era. He says that “extending capitalism to the post-Soviet world” did not necessarily “shift the balance of power in the West’s direction.”



The West should learn “two painful and deeply disconcerting lessons from the 2008 conflict. “First, capitalism is prone to disasters. Second, global growth did not necessarily strengthen the unipolar order. Truly comprehensive global growth breeds multipolarity, which, in the absence of an overarching diplomatic and geopolitical settlement, is a recipe for conflict.”

A decade on, if the West is “still struggling to come to terms with these disconcerting realizations” it can be explained by Russia’s annexation of Crimea in 2014. It is true that today, “all eyes are on Asia, the rise of China, and its growing influence across Eurasia, Africa, and Latin America.” But stability in many of these countries leaves much to be desired, especially when “Putin’s Russia continues to be a spoiler” and China is ruled with an iron fist.