18 May 2018

Financial Times: Global banking is not an American fiefdom

Fighting with the EU over the Swift payments system will erode US power, according to the FT's analysis on the US administration plans to shut Iran out of that system as part of a re-imposed sanctions regime.

[...]Perhaps the fastest way to do so would be to end Iranian access to Swift — the Society for Worldwide Interbank Financial Telecommunication — a near-universal secure messaging system which supports cross-border payments. But the Belgium-based utility is under European jurisdiction, and says it only takes direction from Brussels, which wants the international nuclear deal to remain in place.

The present divergence does not mean that European leaders, keen to protect the nuclear deal, will keep Iran in Swift or, for that matter, keep it open for business with the world outside of America. If the US wants to force the issue, it could bring pressure to bear on Swift. It could declare that unless Swift’s board shuts Iran out, its board members (several of them American) will be in violation of US sanctions.

Europe’s current response to US pressure is updating a two-decade-old “blocking statute” designed to protect European companies from earlier US sanctions. This is a gesture. If Mr Trump is absolutely set on bullying Europe and shutting Iran out of global finance, he will succeed.

This does not imply that global banking is a US fiefdom that Mr Trump can control without incurring significant costs. Imposing his will on Swift will increase the chances that alternative communication systems will gather support around the world. Such a shift might extend to other parts of the dollar-based global payments system. US rivals China and Russia are open in their desire to see this system fracture. The US, by bulldozing its allies, will have weakened a key element in its own strategic arsenal.

The widening transatlantic divisions are ominous. In less than two months, the US-led Nato alliance will hold its annual meeting in Brussels. Mr Trump is rediscovering his old habit of openly questioning the value of the alliance. Mr Tusk says “we have got rid of all illusions” about US support. Mr Trump may be right about the allies needing to spend more on defence. But he is wrong to assume that friendships are purely transactional. [...]

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