Banking and commerce rely on contracts and rules being adhered to. International agreements between nations – the highest order of this rules-based system – are under pressure. Should bankers be worried?
The breaking of international agreements appears to be on the rise. China's recent actions over Hong Kong have been interpreted by many observers as breaking the treaty it had with the UK on preserving the territory's autonomy and the one country, two systems formula.
Following this, the UK government proposed its own piece of treaty violation by announcing that it would introduce a new law overturning part of the EU Withdrawal Agreement it had signed just months previously.
Rather less well publicised, back in May, Germany’s constitutional court opposed a ruling by the European Court of Justice on the legality of the ECB’s bond buying scheme that is central to eurozone monetary policy. In theory, this opens the way for the 26 other EU members to also refuse to accept ECJ law. If that happened, the EU would disintegrate.
Should bankers be alarmed by this spate of treaty breaking? The answer is 'yes' but with the caveat that things may not be as critical as they first appear. Even in liberal democracies with their rule of law tradition, sovereign concerns may triumph over international ones on occasion, leading to a breach of agreements. It is not that uncommon but it doesn't always make the news.
Even in liberal democracies with their rule of law tradition, sovereign concerns may triumph over international ones on occasion
China for its part has a completely different political system but, leaving the Hong Kong issue aside, it has frequently reiterated its commitment to the rules-based trading system as governed by the World Trade Organisation. In fact, it is the US under president Donald Trump which has become more sceptical about the WTO and the rules-based system. But this policy may change if a new US administration is elected in November.
The reality is that while headlines are about tussles at the top, trade is between companies and countries. As long as both sides agree that trade is worthwhile it can go ahead regardless.
The world economy is in a very poor place at the moment and a restructuring in response to the Covid 19 pandemic is already underway. But too much is at stake in the successful future of commerce for it to be blown off course by arguments over international agreements. Trade has even continued between nations at war. Bankers should ignore the headlines and get on with business.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
Register to receive my blog and in-depth coverage from the banking industry through the weekly e-newsletter.
