Dodgy Democracy, The Fiscal Double Standard, And The Application Of The Domino Theory To Ukraine

Tuesday, 11 March 2025, 12:12 pm
Opinion: Keith Rankin

This story, Germany to ease government debt limits in major step aimed at boosting economy, defense spending, AP, 6 March 2015, reflects my comments in Germany's Election 2025. (And note Reforming the debt brake: Now or never! Landesbank Baden-Württemberg, 28 Feb 2025. And Germany’s election victor must ditch its debt rules—immediately, The Economist 24 Feb 2025. These are gung-ho stories.)

The plan in Germany is to use the 'lame-duck' Parliament that was voted out on 23 February 2025 to alter that country's constitution. To do this, a two-thirds majority is required in Parliament, and the Chancellor-elect (Friedrich Merz) believes he will not be able to get such a majority in the new parliament, which convenes at the end of March.

To achieve this change in Germany's constitution, the provisional coalition (CDU/CSU/SPD) will need the support of either the Green Party (in the new parliament) or the 'liberal' (ie like New Zealand's ACT) Free Democratic Party (who will not feature in the new parliament). Hitherto – before 2025 – the CDU, the FDP, and the SPD, were the main supporters of the debt brake. They understood it – in 2009, when it was added to the Constitution – as a means of hobbling any future government which might oppose fiscal austerity; as a means of baking-in, for all foreseeable time, their particular macroeconomic philosophy.

(New Zealand, though with a less formal constitution, has the 1989 Reserve Bank Act and the 1994 Fiscal Responsibility Act effectively baked in. And for similar reasons; to make it extremely difficult for a future government to undertake reforms similar to the very popular macroeconomic policies that were implemented, and successful, in the late 1930s.)

Germany has less than two weeks to break its self-imposed shackle. If they miss that deadline, if they have to use the new parliament, they will have to do something like what Adolf Hitler did in 1933 with the Enabling Act. The irony is that the parties expected to vote against the emergency measure will be the parties – strong in Eastern Germany – who, if in power, would benefit most from a general release of the debt brake.

For the Green Party it will be a case of 'Which side are you on?'; the Establishment or the Anti-Establishment? This vote may be 'make or break' for the German Greens. Historically, the Greens have been opposed to the use of the debt brake to hobble progressive domestic policies. Will they now favour a piece of unprincipled political manoeuvring so that Germany can put itself in a position to make war on Russia or in support of Israel?

A Case for Comparison: New Zealand's 'Constitutional Crisis' of 1984

Robert Muldoon was New Zealand's caretaker Prime Minister in the week of so after his political defeat in the 14 July 1984 election. The constitutional crisis unfolded the following Monday.

Before and during the election campaign, the Labour Party's 'Finance Minister in Waiting' Roger Douglas had indicated a desire to devalue the New Zealand Dollar by around twenty percent. This set up a 'one-way-bet' within the monied community; sell New Zealand dollars for another currency, wait for the election, then buy-back New Zealand dollars. At best there would be windfall capital-gains of 20%; at worst there would be no losses.

So, in the weeks leading up to the election, a financial crisis took place on account of the dramatic rundown of foreign exchange reserves. After the election, Douglas and Prime Minister elect David Lange wanted Robert Muldoon to immediately devalue the New Zealand dollar by twenty percent. Muldoon was reluctant to grant the one-way-speculators their maximum windfall profits; he favoured a much smaller five-percent devaluation.

This reluctance was presented as a constitutional crisis, because the 'lame duck' Prime Minister (and Finance Minister) disagreed with the incoming administration. Though eventually Muldoon conceded. Subsequently, the foreign exchange crisis has always been dubbed a constitutional crisis – a crisis of democracy – because the outvoted 'lame-duck' government was reluctant to give way to the government-elect. On the matter of the best policy, Muldoon was correct; a 5% devaluation would have been optimal. But nobody seemed to care about that; the barely contested narrative was that in a proper democracy the incoming parliament is always right, even when it's wrong!

On this basis, what Friedrich Merz is planning to do should be a political scandal. But it probably won't be. In the end, its all about who's pushing the narratives, and whose interest it is to buy into which narrative.

Friedrich Merz's double narrative

In Merz's first narrative, public debt is bad, so bad that it must be curtailed through a country's constitution. In his second narrative, Russia is worse; and the United States has become an unreliable ally. Merz still wants to have it both ways. He wants Germany (and the European Union) to continue to be self-hobbled on social spending, including those automatic stabilisers that prevent recessions turning into depressions. He wants to have access to unlimited public debt only for a limited purpose; freedom to wage war, to pursue military spending (despite his country not being under military threat). Mainly as a concession to his putative coalition partner, Merz will agree to use public debt (beyond that presently allowed for) to provide some improvements in public capital infrastructure. He continues to promulgate both an anti-public-debt narrative and an anti-Russia narrative. He wants to perpetuate a forever stalemate in the Russia-Ukraine war, and to promote a baseless domino theory narrative about Russia's global military ambitions. Germany borders neither Russia nor Ukraine.

Certainly, there is an argument for Germany to have a defence force in balance with the totality of the public sphere, especially in a liberal democracy which sets its own foreign policy. In that context, any German government should be able to persuade the entire parliament (not just two-thirds) to proceed by removing the debt brake without privileging military spending. The recently elected German government should be able to do this with the Bundestag-elect. But in the present context, the constitutionally dubious proposal is not about self-defence, but in about the pursuit of a geopolitical narrative which posits an urgent need for Western Europe to escalate the Russia-Ukraine War.

Historical Military Conflicts between Russia and Foreign Powers since Tsar Peter the Great

While Russia expanded eastwards in much the same way as the United States expanded westward, there has never been anything like evidence that Russia would like to become a global hegemon. As such, Russia has never attacked German territory with expansion in mind. Russia did 'liberate' Eastern Europe at the end of World War Two, and continued to control most of Eastern Europe (including a portion of Germany). But that was the end of a vicious conflict in which Germany coveted much of Russia's territory. Russia (or Soviet Union as the Russian Empire was then) never sought to extend its living space into Germany, though it did inadvertently in 1945 (in the former East Prussia, the Kaliningrad enclave today).

World War One started on 1 August 1914, when Germany declared war on Russia. And the Soviet Union's 'Great Patriotic War' began when Germany invaded the Soviet Union on 22 June 1941.

Other great power military invasions of the Russian Empire included that by Sweden in the 1700s (Sweden was a 'great power' then), repelled by Tsar Peter the Great. Then there was Napoleon's invasion by France in 1812, the subject of Tolstoy's novel War and Peace. Then there was the conflict in the 1850s in Crimea, involving United Kingdom and France and Florence Nightingale (Crimean War); and an abortive invasion by United Kingdom and United States on the incipient Soviet Union in August 1918 (at Archangel and at Vladivostok). (In addition, Russia fought Japan in Manchuria in 1905; Japan opened hostilities. Both Russia and Japan were emulating the prior European powers' aggression towards China.)

The Domino Theory as applied to Russia

We should mention the Soviet Invasion of its neighbour, Afghanistan, in 1979. This serves as an analogue for the present Russia-Ukraine war. It this stage we should note several things: that Afghanistan was the neighbour of the Soviet Union, the Soviet Union had genuine concerns about western-power game-playing in Afghanistan, that Afghanistan was not intended by Soviet Russia as the first domino of a global military campaign, and that the world is still dealing with the unforeseen consequences of post-1976 foreign-power-meddling in Afghanistan. The 1989 outcome, a withdrawal of the Soviet Union from Afghanistan, should not be seen as a credible template for an end to the present war. ('Game playing', for the West, is a semi-formal process, representing an application of game theory, a branch of economics.)

Despite the historical record being one of Western European aggression towards Russia – and not vice versa – the present conflict in Ukraine is being increasingly framed (without evidence) as Russia waging a 'domino war', meaning that once the Ukrainian domino is knocked over, there will be no halting Russia's alleged ambitions to control the western world. (Indeed, in the White House rhetorical fracas on 28 February, the comment by Ukraine's Volodymyr Zelenskyy that set off Donald Trump was the suggestion that Trump might "think differently" when Russia had secured territory on the Atlantic coast of Europe.)

In three years, Russia has not had sufficient military power to fully appropriate the Oblast of Donetsk, in Ukraine. Under what conceivable scenario might the Putin military machine have the capacity or competence to threaten Germany or indeed any part of the European Union?

This is not the first time of course that the domino theory has been applied to Russia. Many of us will remember how North Vietnam was portrayed as a 'Communist' stooge – a Soviet Union proxy – and that if the Communists won in Vietnam they would be all around the Pacific Rim next.

1885 and all that

Going further back into history, there was the Russian Scare, which peaked in New Zealand in 1885. New Zealand's major cities still have the gun emplacements constructed in 1885, to protect the colony from the Russians! Near the albatross colony at Taiaroa Head, Otago, there is a disappearing gun that's still in pristine condition. And the similar gun at Auckland's North Head is also a major tourist attraction.

(New Zealand references include the 'fake news' article: War with Russia. A Calamity for Auckland. Hostile Visit of Russian Ironclad. Seizure of Gold and Hostages, Daily Southern Cross, 19 February 1873. And: The Russians are here! New Zealand Geographic 2015; The Russians are coming! NZ History; The Enemy that never was: the New Zealand 'Russian scare' of 1870-1885, 1976, by Glynn Barratt.)

It's worth noting that the 1880s was in New Zealand a period of fiscal austerity – the global Long Depression, and in New Zealand – in which defence spending was being pushed despite what was, for all practical purposes, a public sector debt brake.

What was happening in and around 1885 was conflict in Afghanistan between the United Kingdom and the Russian Empire; conflict in which the United Kingdom was portraying Russia as a domino-style aggressor. (Refer the Panjdeh Incident. This period in British military history was sometimes known as the Great Game, and it includes the Crimean War.)

The Russians never came. (Though 101 years later a Russian ship was sunk through misadventure in New Zealand waters.)

Who's Threatening Who in the Former Soviet Union?

Russia has always seen Ukraine as being part of Greater Russia. Indeed, Kyiv was Russia's foundation city. In 2022, Russia's Plan A was to do to Ukraine exactly what the United States did to Iraq in 2003; use military force to bring about regime change through conquest. Aggression, indeed. That war was apparently within the 'international rules'; or was an 'acceptable' departure from those rules. (And, as of now, civilian casualties in Ukraine have been fewer than those of Iraq in the Iraq War.)

Russia's Plan B has been to redraw the former provincial boundary between Russia and Ukraine, as Russia did in Georgia in 2008 with the effective incorporation of South Ossetia into Russia. (In 2008, there was no subsequent domino invasion of the wider world, and the West was not as invested in Georgia as it came to be in Ukraine.) These border disputes reflect that the former Soviet Union provincial boundaries might not have been optimised for a world in which former republics have become nation states.

From 1999, the United States has overseen the process in which a new state, Kosovo, has been created through a split that Serbia was forced to accept; it was a commonsense rationalisation arising from the breakup of the former Yugoslavia, despite the supposed sanctity of international borders.

None of these issues warranted escalation into a world war. Nor does the present Ukraine dispute. Nor did the Third Balkan War (1914); a war that did (but needn't have) become World War One.

The irony is that Plan B, the plan Russia is following, is the lesser plan; a partial military conquest is always lesser than a full conquest such as the 2003 Iraq War. And a second irony is that, if hostilities do not end this or next month, then Russia (which seems to have settled for some form of Plan B) may end up achieving its original Plan A goal.

War is a nasty business. There should always be alternatives to war, so that conflicting security concerns can be understood and managed peacefully. It requires international 'players' seeking mutual optimisation rather than 'victory' for one party over another.

What has been the game of the United States and its European proxies?

Three Well-Informed Realists

John Mearsheimer is an American international relations scholar and practitioner who distinguishes between the 'liberals' and the 'realists' in places like Washington. He's firmly in the realist camp. And he's able to evaluate the debates between the two groups. This short clip on YouTube is an interview with John Anderson, former Deputy Prime Minister of Australia (under John Howard). He traces how, from the time of Bill Clinton's presidency, the liberal foreign policy hawks have always pushed for the ongoing eastward expansion of Nato after the fall of the Soviet Union in 1991. And how realists (including former senior European political leaders Nicolas Sarkozy and Angela Merkel) opposed this, especially the push to get Nato into Ukraine and Georgia; but were outmanoeuvred by the 'liberals'. Journalist Peter Hitchens echoes this realist view, also in an interview with Anderson, noting how democracies will get into wars on the basis of overhyped narratives, and on account of those same narratives find it almost impossible to get out of these wars.

Jeffrey Sachs is an esteemed Harvard and Columbia University development economist, who's been a consultant on global economic development and has been a first-hand witness to much geopolitical policymaking over the last four decades. You can see and hear Sachs in this long clip; in an address/discussion to the European Parliament in late February 2025. He connects the 1990s' United States expansionist project to the philosophy of Zbigniew Brzezinski, for example outlined here in A Geostrategy for Eurasia, Foreign Affairs 1997; though noting that American unipolar hegemony builds on British Empire principles that go back to Lord Palmerston in the 1850s, and to the early twentieth century theories of Halford Mackinder. Brzezinski was an important figure, United States' rival foreign policy guru to the pragmatic realist Henry Kissinger in the 1970s. It was under Brzezinski's period in power as National Security Adviser, in the late 1970s under Jimmy Carter, that the Cold War – dampened in the early 1970s under Richard Nixon's presidency – reheated; and that the United States started meddling in Afghanistan.

Peter Turchin is the Russian-born American cliodynamicist (scholar of long period history with the use of long-period statistics) who wrote in End Times (2023) and a number of other important books in the last quarter-century. He has substantial insights into the political and business dynamics of the United States, and of Russia along with its historical satellites such as Belarus and Ukraine. Turchin sees – for the 1990s – the United States, Russia, and Ukraine as true plutocracies (or 'oligarchies'), subject to the power and foibles of the very rich. For the United States, that influence has waxed and waned throughout its history, but has always been there. Russia, Turchin observes, ceased to be a plutocracy after what was effectively a coup in the late 1990s on the part of the former military/bureaucratic establishment. Belarus never got started as an oligarchy. But Ukraine continues as a true plutocracy, and the United States liberal establishment invested heavily into ensuring that Ukraine would remain so. He says in End Times "By 2014, American 'proconsuls', such as veteran diplomat Victoria Nuland, had acquired a large degree of power over the Ukrainian plutocrats." On this basis, it would seem to be true that the American Lobby in Ukraine operated much as the Israel Lobby operates in the United States. (And we sort-of know the stories of the Bidens' interest [Joe and Hunter] in Ukraine.)

Conclusion

Germany is dowsing the embers of a twice-vibrant democracy. A war that might have been a small regional war threatens to become a world war, as big liberal-mercantilist (money-focused 'economically conservative' and 'socially liberal' political classes who are indifferent to unselected genocides and mass-suffering-events) economic powers such as Germany (and the United Kingdom) become less democratic and more bellicose. If we treasure our democratic principles, we should at least take notice.

The Russia-Ukraine War is a mucky border conflict between two countries with a long and intertwined shared history, and with more than enough 'stirring of the pot' from outside to convert a regional security dispute into an existential global security threat. It can be settled with a deal that reflects the military situation, rather than by democratically compromised sabre-rattling from Western Europe. After a fluid war in 1950 followed by an extended bloody stalemate – and a change of government in Washington – the 1953 Korean War cease-fire enabled the Republic of Korea (South Korea) to become an economic superpower. An independent capitalist Republic of Ukraine (or, if necessary, West Ukraine) might do the same.

(In that context, we note that Korea's Volodymyr Zelenskyy, Syngman Rhee, "refused to sign the armistice agreement that ended the [hostilities], wishing to have the peninsula reunited by force". Syngman Rhee's country was saved, though not by him.)

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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