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The Turning Point of 2008

At first glance, the Georgian war ten years ago this month and the global financial crisis that erupted the following month seem unrelated. But this is to neglect the deeper currents driving the confrontation in the Caucasus.

NEW YORK – Ten years ago this week, Russian tanks halted a few hours’ march short of Tbilisi, the capital of Georgia. That short war in the Caucasus brought down the curtain on nearly two decades of post-Cold War Western hegemony in Europe. Encouraged by US President George W. Bush’s administration, Georgia had initiated NATO membership talks, impelling Russian President Vladimir Putin to defend the red line he had drawn the previous year. Russia, Putin announced at the Munich Security Conference in February 2007, would regard any further eastward expansion of Western institutions as an act of aggression.

In August 2008, European diplomats scrambled to stop the fighting. Within weeks, however, the onset of the global financial crisis captured the world’s attention. In Washington, London, Paris, Berlin, and Moscow, preventing bank failures, not military escalation, was the most pressing problem. At first glance, the Georgian war and the global financial crisis seem unrelated. But this is to neglect the deeper currents driving the confrontation.

The absorption of post-communist Europe into the West was not simply a matter of velvet revolutions. What Bush’s defense secretary, Donald Rumsfeld, called “new Europe” – the post-communist NATO allies and European Union members – depended on hundreds of billions of dollars in investment. The loans came from the same European banks that helped fuel the US real-estate boom and inflate the even bigger housing bubbles in the United Kingdom, Ireland, and Spain. The most extreme real-estate inflation in the world between 2005 and 2007 was on NATO’s Eastern frontier in the Baltics.

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