Henry Farrell: prediction

Transcript context

…How and when will European nations be able to bypass SWIFT as a payments network? That’s a very good and very interesting question because SWIFT, as it stands at the moment, is nominally a European organization. It is a nonprofit organization, a nonprofit consortium which is based in Belgium. There are ways in which, I think, if the European Union were to get serious in this, it would probably be less about trying to create an alternative system to SWIFT than trying to bring SWIFT more under its own command. At the moment, SWIFT is nominally European but in fact has a lot of influence from the United States. The United States has provided many of its senior decision makers, including people like Lenny Schrank. And it has also provided a large number of board members. The European path forward, I think, if Europe wanted to try and minimize its exposure, would be to start to impose a much clearer and more substantial mandate upon SWIFT to effectively force SWIFT — under circumstances where the United States tells it to do one thing and Europe tells it to do another — SWIFT would effectively have much stronger reasons than it does at the moment to comply with the European threats. Now, the problem without, from Europe’s point of view, is that that involves creating much, much heavier institutional paraphernalia at the EU level, which is going to be something that is going to be problematic for a number of the member states who don’t like to see the European Commission and European institutions taking up that level of power. But at the same time, there is, I think, a much, much clearer case being made. And if one looks, for example, at the comments that have been made in the run-up to the new commission, it’s very, very clear from Josep Borrell and other people that they’re looking to really create the European Union as an economic power in a way that hasn’t been true in the past. To the extent that member states begin to buy into that kind of agenda, they probably are going to have to buy into much, much heavier regulatory cloud at the EU level, including the kinds of things that could be used to bring SWIFT to heel. But take, say, New York as a banking center. Maybe half of Deutsche Bank’s business is in New York. Assume the US often cares about foreign policy issues more than Europe does, and we have a potential first-mover advantage if we choose to use it. So if we say to European companies, banks, whatever, “If you do business with the US financial system, you must adhere to some long list of restrictions that may be as simple as Iranian sanctions,” what does the equilibrium actually look like where they can just say, “No, we’re going to go ahead and trade with Iran”? Isn’t that really quite distant, given the importance of New York as a banking center?…

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