THE IMPACT OF THE FINANCIAL AND ECONOMIC CRISIS UPON GLOBAL INSECURITY: LOOKING THROUGH THE LENS OF...

Global Insecurities Centre Visiting Speaker Series, University of Bristol

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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 KendryFormer NATO Head of

Defence and Security Economics and

Senior Defence Economist 2001-2013

[email protected]

4 December 2013

http://www.nato.int/chicago2012/index.html

THUCYDIDES AND FUNERAL ORATION FOR PERICLES (495-

429 BC)

“It is not a matter of predicting the future but of

being prepared“

4 December 2013 Global Insecurities Centre Visiting Speaker Series, University of Bristol 2



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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,

JAP, RoK, NZ, MONG, PAK)

4 December 2013



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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

4 December 2013



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NATO: THE THREE GAPS

4 December 2013


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THE PROLOGUE: NATO AND THE TALE OF THREE GAPS

• 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

4 December 2013



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GLOBAL INSECURITIES: THE PRESENT

4 December 2013



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NATO FOREIGN MINISTERIAL 3-4 DECEMBER 2013: CONFRONTING

GLOBAL REALITIES

• The NATO 2014 Summit in the UK: Afghanistan, partnerships and improving military capabilities

• Measures to strengthen NATO partnerships across the globe

4 December 2013



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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

4 December 2013



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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

4 December 2013



124 December 2013

“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

LISBON TO CHICAGO



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GLOBAL INSECURITIES: A HUNDRED YEARS OF

TURMOIL

4 December 2013



144 December 2013

ONE HUNDRED YEARS OF INSECURITY:

FROM 1913 TO 2013

• 1913: The Road to Sarajevo and World War One global conflict

• 1963: United States: assassinations, and racial insecurity



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ONE HUNDRED YEARS OF INSECUITY: 2013

• Syria: economics, religion and regional conflict

• Afghanistan, Elections and ISAF withdrawal 2014

• Iran, the Gulf and consequences of the nuclear accord

• Transatlantic economic fragility:

– January and February 2014: return of US budget and debt crisis

– Continuing frailty of the Eurozone economy

4 December 2013



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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

• 4 December 2013



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THE ECONOMIC AND SECURITY CHALLENGES FOR THE

TRANSATLANTIC PARTNERSHIP

4 December 2013



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

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• 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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• OECD high-income countries median age will rise from 37.9 years in 2010 to 42.8 years by 2030

• Increasing percentage of people aged 65 years and above— the pensions bulge

• Pressure to reduce discretionary state spending and increase the tax burden

4 December 2013

THE DEMOGRAPHIC DESTINY



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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.

4 December 2013

TRANSATLANTIC ENERGY DEPENDENCY



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NATO AND THE CONSEQUENCES OF THE

ECONOMIC AND FINANCIAL CRISIS

4 December 2013


4 December 2013 Global Insecurities Centre Visiting

Speaker Series, University of Bristol23

THE ECONOMIC CRISIS AND RISKS TO SECURITY

"I am clear that the single biggest strategic risk facing the UK today is economic rather than military“

Gen Sir David Richards, Chief of the UK Defence Staff, (RUSI 2012)



244 December 2013

• 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

NATO AND THE GLOBAL ECONOMIC AND FINANCIAL CRISIS



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



SMART BUDGETS, SMART TECHNOLOGIES, SMART DEFENCE

• Overcoming the transatlantic barriers to trade, export reform and licensing

• Integrating Europe’s competitive advantages in emerging technologies in defence transformation (cost-saving unmanned platforms)

• Avoid duplication between the EDA and NATO (Agencies and ACT)

• Increasing the effective, targeted, fully accountable and transparent use of European defence resources and procurement



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THE GLOBALISATION OF DEFENCE AND SECURITY

4 December 2013



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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.

4 December 2013

GLOBALISATION AND TRENDS IN DEFENCE SPENDING



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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

4 December 2013

DEFENCE SPENDING IN THE UNITED STATES



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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

4 December 2013

DEFENCE SPENDING IN THE USA



NATO DEFENCE SPENDING AS A PERCENTAGE OF WORLD DEFENCE

EXPENDITURES


USA AND NATO EUROPE AND CANADA SHARES OF ALLIANCE DEFENCE

EXPENDITURES



ALLIANCE DEFENCE EXPENDITURES 2007 AND 2012




344 December 2013

SHARES OF ALLIES DEFENCE EXPENDITURE 2007

USA68%

Canada1.8%

France6.6%

Germany4.7%

Italy 2.9%

UK7.3%

Others8.8%

Percentage of Alliance defence expenditures 2007



354 December 2013

SHARES OF ALLIES DEFENCE EXPENDITURE 2012

USA72%

Canada1.8%

France4.9%

Germany4.6%

Italy 2.0%

UK6.9%

Others7.5%

Percentage of Alliance defence expenditures 2012



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THE CHANGING BALANCE OF INTERNATIONAL ECONOMIC

POWER

4 December 2013


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• In a hyper-connected world, globalisation will intensify

• the global labour supply will be augmented by two billion workers from China and India

• new technologies will eliminate more jobs in the service and manufacturing sectors

• the crisis in social balance sheets will mirror the growing pool of the long-term unemployed

• advanced economies are increasingly in debt while emerging economies have become creditors

• Pensions and health care will be strained by the inability of governments to afford commitments to future generations.

4 December 2013

LONG-TERM GLOBAL ECONOMIC TRENDS 2020 AND BEYOND (IMF)



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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 “

GLOBAL TRENDS 2030: ALTERNATIVE WORLDS”



394 December 2013

THE GLOBAL DISTRIBUTION OF POWER



404 December 2013

By 2050 the Working Age Population will:

Rise by 40% in Emerging Economies Fall by 0.5% in Non-European Developed

Economies Fall by 20% in Europe

1 Uri Dadush and William Shaw Juggernaut: How Emerging Markets are Reshaping Globalisation, Carnegie Endowment for International Peace

THE CHANGING BALANCE OF INTERNATIONAL ECONOMIC

POWER1


WEST AND EAST: PER CAPITA INCOME PROJECTIONS

• 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

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Speaker Series, University of Bristol41



424 December 2013

NATO AND THE STRATEGIC GLOBAL ENVIRONMENT

• Post 2014 Afghanistan and engagement with Global Partners

• The economics and security of the Emerging Powers: Competition for Resources and Defence and Security Spending

• Reaching out to the emerging powers: Global governance and ambitions of BRICS, regional security, regional arms races

• Mutual benefits from cooperation?


NATO AND COOPERATION WITH ASIA

• At the end of the Afghan Mission, NATO and global partnerships in Asia

• Fostering long-term stability with the emerging powers through the sharing of core values and initiatives (such as training and education)

• Enhanced dialogue on the global financial and economic crisis; and disaster relief, humanitarian aid and maritime and cyber security



THE IMPACT OF THE FINANCIAL AND ECONOMIC CRISIS UPON GLOBAL INSECURITY: LOOKING THROUGH THE LENS OF...

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