Why did the conflict of World War I escalate from a terrorist action into a full-fledged world war?

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The immediate cause of this escalation was the fact that there were webs of alliances between various countries.  These alliances caused countries (some of which had worldwide empires) to jump into the war even though it did not directly affect them.  Austria-Hungary declared war on Serbia.  Serbia had an alliance with Russia, thus bringing Russia into the war.  The Austrian alliance with Germany brought Germany into the war while Russia’s alliances with France and Britain got those countries involved.  This should make us ask why the alliances existed.  There are two main reasons for that.

First, there was nationalism.  The alliance between Austria-Hungary and Germany was based on shared German ethnicity.  The alliance between Russia and Serbia was based on shared Slavic identity.  This sense of shared identity, then, caused some of the alliances to happen.

Second, there was militarism and fear.  Countries felt that military power was the source of national pride.  They admired military force.  This led them to think of the international situation in military terms.  This led to fear on both sides.   The German alliance worried about being encircled by the Russians on the East and the French on the West.  The French, Russians, and British worried about the growing strength of the Germans.  These fears helped to solidify the alliances.

Thus, Gavrilo Princip’s action led to a full-scale war because of the alliances that had been caused by nationalism, militarism, and fear.

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