THE IMPACT OF THE FINANCIAL AND ECONOMIC CRISIS UPON GLOBAL INSECURITY: LOOKING THROUGH THE LENS OF NATO TO 2020 AND BEYOND Adrian Kendry Former NATO Head of Defence and Security Economics and Senior Defence Economist 2001-2013 [email protected]4 December 2013 Global Insecurities Centre Visiting Speaker Series, University of Bristol 1
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THE IMPACT OF THE FINANCIAL AND ECONOMIC CRISIS UPON GLOBAL INSECURITY: LOOKING THROUGH THE LENS OF NATO TO 2020 AND BEYOND Adrian Kendry Former NATO Head.
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Global Insecurities Centre Visiting Speaker Series, University of Bristol
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THE IMPACT OF THE FINANCIAL AND ECONOMIC CRISIS UPON
Global Insecurities Centre Visiting Speaker Series, University of Bristol
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NATO 2001-2013: AN ALLIANCE IN EVOLUTION
• Members : • 19 nations (01) v 28 (13)• Partners: • NATO-Russia Council (2002)• NATO Ukraine Commission (1997)• Euro-Atlantic Partnership Council (28 + 21) and • Partnership for Peace Bilateral Cooperation• Mediterranean Dialogue (7)• Istanbul Cooperation Initiative (4)• Partners across the Globe (8) (AFG, AUS, IRQ,
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NATO 2001-2013: A PERSONAL HISTORY
• 2001 - 2003: 9/11, Iraq: NATO and the Transatlantic Relationship: the Economic and Financial Dimensions of Countering Terrorism
• 2004: The Istanbul Summit: The Partnership Action Plan on Defence Institution Building and the inception of the Building Integrity programme on accountability and transparency in the defence and security sector
• 2005-2009: Defining NATO’s Role in Energy Security: The Economics and Security of Energy
• 2010-2012: Afghanistan and regional economic security: Assessing Afghanistan’s economic capacity post 2014
• 2009-2013: The Financial and Economic Crisis: Understanding, measuring and assessing the impact of the crisis on NATO budgets and capabilities
• The Intra-European gap:Will NATO European Allies still be capable of operating together in international crisis management?
• The Transatlantic Gap:Will the growing imbalance in transatlantic defence spending undermine US support for NATO?
• The Global Gap:Will the emerging economic powers increase their capacity for regional action and international influence at a time when NATO’s capacities could diminish
4 December 2013 Global Insecurities Centre Visiting Speaker Series, University of Bristol
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THE PROLOGUE: NATO AND THE TALE OF THREE GAPS
• Disproportionate defence cuts are likely to weaken NATO military forces and the industries that support them, and also undermine innovation, exports, and employment
• Additionally, inadequate defence spending and investment will exacerbate economic insecurity linked to emerging security challenges
• The Emerging Security Challenges Division came into being in 2010 and is increasingly pre-occupied with cyber security and NATO’s contribution to national cyber security efforts
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NATO FOREIGN MINISTERIAL 3-4 DECEMBER 2013: CONFRONTING
GLOBAL REALITIES
• The NATO Russia Council and closing the disagreement on Syria, Afghanistan, Missile Defence and Transparency
• Afghanistan 2014 and the end of ISAF: NATO will work closely with the Afghan government in the weeks ahead to put in place the necessary legal framework for the deployment of the NATO-led mission to train, advise and assist the Afghan security forces after 2014
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NATO POST-AFGHANISTAN
• In 2015 NATO will no longer have a combat operation and will shift from being “Operationally Engaged” to being “Operationally Prepared”
• NATO will need to maintain effective capabilities through reinforcing the three pillars of collective defence, cooperative security and crisis response operations
• Measuring the costs of investing in security and insecurity
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“All countries are increasingly reliant on the vital communication, transport and transit routes on which international trade, energy security and prosperity depend. They require greater international efforts to ensure their resilience against attack or disruption”
NATO’S STRATEGIC CONCEPT, EMERGING SECURITY CHALLENGES AND ECONOMIC SECURITY: FROM
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ONE HUNDRED YEARS OF INSECURITY: 2013
• The East China Sea: China, Japan, the Diaoyou and Senkaku Islands: Strategic competition and growing tensions
• Caught in the Middle: the conflicting ambitions of Ukraine, the EU Eastern Partnership and Russia
• The Central African Republic: resources, but political fragility, weak infrastructure and business insecurity equal feeble growth and poverty reduction
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THE FUTURE OF THE TRANSATLANTIC TRADE AND INVESTMENT
PARTNERSHIP
• The transatlantic economy is the largest and wealthiest market in the world
• 54% of world GDP in terms of value and 40% in terms of purchasing power
• Even with the financial crisis, US and EU financial markets continue to account for more than 66% of global banking assets and 75% of global financial services
• The Demographic Time bomb: the declining working-age population, the growing implicit debt on pensions and medical care
• The Widening Economic Capability Gap between the USA and Europe
• The United States Fiscal Cliff and the impact of Fiscal Impasse and Sequestration on federal budget deficits, federal debt
• Energy Independence and Dependence: Europe’s growing import dependency and the US growing self-sufficiency (but the continuing importance of the Gulf of Guinea)
THE ECONOMIC AND SECURITY CHALLENGES FOR THE
TRANSATLANTIC PARTNERSHIP
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• Natural gas prices have fallen sharply in the US with the prospects of becoming a major energy exporter in the 2020s
• The European Union’s foreign energy dependency is expected to rise to 70% in the next 20-30 years and higher prices will undermine European economic competitiveness
• European increasing dependency will clash with the emerging economic powers in pursuing energy and other scarce resources.
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• Article 2 of the 1949 North Atlantic Treaty (“eliminate conflict in international economic policies....”)
• Impact of crisis on Alliance and Partners:
– DIRECT negative consequences (Common Funding, defence expenditure, capabilities, multinational weapons projects, missions and operations)
– INDIRECT negative consequences: failed states, international economic aid, shifts in global balance of economic power, climate change, energy security, scarcity of water and food, migration, poverty and extremism
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SMART DEFENCE AND ECONOMIC AUSTERITY
• Most European defence budgets experienced smaller reductions than other sectors of government 2010-2011(Alliance commitments, contractual obligations, industrial concerns)
• Unsustainable defence spending projections 2011-2016: fiscal deficits and debts imply deep cuts in force levels, capabilities, readiness and delayed procurement
• UK, France and Germany are crucial for NATO Europe: 65% of all NATO Europe Defence Expenditure, 88% of Research and Technology
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• From 2020, the G-7 will account for a falling share of total global military spending.
• In 2012, Asian defence spending exceeded NATO Europe spending
• In 2021, Asian defence spending is projected to outstrip NATO
• The US will still be the leading military power in 2030 but the gap with the rest of the world will have shrunk and it is likely to rely less on its European partners.
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• The US devoted some 7% of GDP on average to national defence during the Cold War period
• This percentage fell below 5% during the past decade, taking account of spending on Iraq and Afghanistan
• Federal spending for major entitlement programmes (particularly Social Security, Medicare, and Medicaid) has grown rapidly over the past several decades
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• With an aging population and the prospect of higher interest rates in the future, the rising entitlement costs will consume an increasing proportion of the Federal budget
• Without major reform of the programs or substantially increased tax revenues.
• An affordable long-term level for national defence could be 1.6 - 2.6 percent of GDP
• This is substantially below the current 4.2% and the projection through 2020, even taking account of the Panetta cuts and the BCA Sequestration reductions
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By 2030, Asia as a whole will have surpassed North America and Europe combined in terms of economic power, largely reversing the historic rise of the West since 1750.
China itself is projected to surpass the overall economic size (GDP) of the United States later in the 2020s 4 December 2013
THE UNITED STATES NATIONAL INTELLIGENCE COUNCIL REPORT “
• By 2030 , using current exchange rates, the total GDP of the Emerging 7 (China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will exceed the G7 (US, Canada, UK, France, Germany, Italy, Japan)
• However, in 2050, per capita income (ppp) for China will be < 50% of USA
• In 2050, India will have total economic output larger than either Japan or EU (ppp) but per capita income (ppp) only 30% of Japan
4 December 2013 Global Insecurities Centre Visiting