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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 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
THUCYDIDES AND FUNERAL
ORATION FOR PERICLES (495429 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
NATO 2001-2013: AN
ALLIANCE IN EVOLUTION
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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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
3
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
4
NATO: THE THREE GAPS
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
5
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
6
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
7
GLOBAL INSECURITIES:
THE PRESENT
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
8
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
9
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
10
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
11
NATO’S STRATEGIC CONCEPT,
EMERGING SECURITY CHALLENGES
AND ECONOMIC SECURITY: FROM
LISBON TO CHICAGO
“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”
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
12
GLOBAL INSECURITIES:
A HUNDRED YEARS OF
TURMOIL
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
13
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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
14
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
15
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
•
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
16
THE ECONOMIC AND SECURITY
CHALLENGES FOR THE
TRANSATLANTIC
PARTNERSHIP
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
17
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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
18
18
THE ECONOMIC AND SECURITY
CHALLENGES FOR THE
TRANSATLANTIC PARTNERSHIP
•
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)
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
19
THE DEMOGRAPHIC DESTINY
• 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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
20
TRANSATLANTIC ENERGY
DEPENDENCY
• 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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
21
NATO AND THE
CONSEQUENCES OF THE
ECONOMIC AND FINANCIAL
CRISIS
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
22
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)
4 December 2013
Global Insecurities Centre Visiting
Speaker Series, University of Bristol
23
• 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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
24
SMART DEFENCE AND ECONOMIC
AUSTERITY
• Most European defence budgets experienced smaller
reductions than other sectors of government 20102011(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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
25
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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
26
THE GLOBALISATION OF
DEFENCE AND SECURITY
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
27
GLOBALISATION AND TRENDS IN
DEFENCE SPENDING
• 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.
Global Insecurities Centre Visiting Speaker
4 December 2013
Series, University of Bristol
28
DEFENCE SPENDING IN THE UNITED
STATES
• 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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
29
DEFENCE SPENDING IN THE USA
•
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
30
NATO DEFENCE SPENDING AS A
PERCENTAGE OF WORLD DEFENCE
EXPENDITURES
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
31
USA AND NATO EUROPE AND CANADA
SHARES OF ALLIANCE DEFENCE
EXPENDITURES
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
32
ALLIANCE DEFENCE
EXPENDITURES 2007 AND 2012
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
33
SHARES OF ALLIES DEFENCE
EXPENDITURE 2007
Percentage of Alliance defence expenditures
2007
UK
7.3%
Italy
2.9%
Others
8.8%
USA
68%
NATO Europe + Canada
32%
Germany
4.7%
France
6.6%
Canada
1.8%
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
34
SHARES OF ALLIES DEFENCE
EXPENDITURE 2012
Percentage of Alliance defence expenditures
2012
UK
6.9%
Italy
2.0%
USA
72%
NATO Europe + Canada
28%
Germany
4.6%
France
4.9%
4 December 2013
Others
7.5%
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
Canada
1.8%
35
THE CHANGING BALANCE OF
INTERNATIONAL ECONOMIC
POWER
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
36
LONG-TERM GLOBAL ECONOMIC
TRENDS 2020 AND BEYOND (IMF)
•
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
37
THE UNITED STATES NATIONAL
INTELLIGENCE COUNCIL REPORT “
GLOBAL TRENDS 2030: ALTERNATIVE
WORLDS”
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
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
38
THE GLOBAL DISTRIBUTION OF
POWER
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
39
THE CHANGING BALANCE OF
INTERNATIONAL ECONOMIC
POWER1
 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

Uri Dadush and William Shaw Juggernaut: How Emerging
Markets are Reshaping Globalisation, Carnegie
Endowment for International Peace
1
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
40
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
4 December 2013
Global Insecurities Centre Visiting
Speaker Series, University of Bristol
41
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?
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
42
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
4 December 2013
Global Insecurities Centre Visiting Speaker
Series, University of Bristol
43