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The Impact of the Financial and Economic Crisis on Global Insecurity: NATO's Perspective to 2020 and Beyond

This presentation by Adrian Kendry, former NATO Head of Defence and Security Economics, explores the consequences of the financial and economic crisis on global insecurity, with a focus on NATO's role and future challenges. It analyzes the three gaps that NATO faces, the present state of global insecurities, and the importance of economic security in addressing emerging security challenges. The presentation also highlights the discussions and decisions made at the NATO Foreign Ministerial in December 2013 and the post-Afghanistan agenda for NATO.

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The Impact of the Financial and Economic Crisis on Global Insecurity: NATO's Perspective to 2020 and Beyond

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  1. 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 adriankendry@hotmail.com Global Insecurities Centre Visiting Speaker Series, University of Bristol

  2. THUCYDIDES AND FUNERAL ORATION FOR PERICLES (495-429 BC) “It is not a matter of predicting the future but of being prepared“ Global Insecurities Centre Visiting Speaker Series, University of Bristol

  3. 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) Global Insecurities Centre Visiting Speaker Series, University of Bristol

  4. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  5. NATO: THE THREE GAPS Global Insecurities Centre Visiting Speaker Series, University of Bristol

  6. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  7. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  8. GLOBAL INSECURITIES: THE PRESENT Global Insecurities Centre Visiting Speaker Series, University of Bristol

  9. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  10. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  11. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  12. 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” Global Insecurities Centre Visiting Speaker Series, University of Bristol

  13. GLOBAL INSECURITIES: A HUNDRED YEARS OF TURMOIL Global Insecurities Centre Visiting Speaker Series, University of Bristol

  14. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  15. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  16. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  17. THE ECONOMIC AND SECURITY CHALLENGES FOR THE TRANSATLANTIC PARTNERSHIP Global Insecurities Centre Visiting Speaker Series, University of Bristol

  18. THE FUTURE OF THE TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIP 18 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  19. 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) Global Insecurities Centre Visiting Speaker Series, University of Bristol

  20. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  21. 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. Global Insecurities Centre Visiting Speaker Series, University of Bristol

  22. NATO AND THE CONSEQUENCES OF THE ECONOMIC AND FINANCIAL CRISIS Global Insecurities Centre Visiting Speaker Series, University of Bristol

  23. 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) Global Insecurities Centre Visiting Speaker Series, University of Bristol

  24. NATO AND THE GLOBAL ECONOMIC AND FINANCIAL CRISIS • 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  25. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  26. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  27. THE GLOBALISATION OF DEFENCE AND SECURITY Global Insecurities Centre Visiting Speaker Series, University of Bristol

  28. 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 Series, University of Bristol

  29. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  30. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  31. NATO DEFENCE SPENDING AS A PERCENTAGE OF WORLD DEFENCE EXPENDITURES Global Insecurities Centre Visiting Speaker Series, University of Bristol

  32. USA AND NATO EUROPE AND CANADA SHARES OF ALLIANCE DEFENCE EXPENDITURES Global Insecurities Centre Visiting Speaker Series, University of Bristol

  33. ALLIANCE DEFENCE EXPENDITURES 2007 AND 2012 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  34. SHARES OF ALLIES DEFENCE EXPENDITURE 2007 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  35. SHARES OF ALLIES DEFENCE EXPENDITURE 2012 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  36. THE CHANGING BALANCE OF INTERNATIONAL ECONOMIC POWER Global Insecurities Centre Visiting Speaker Series, University of Bristol

  37. 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. Global Insecurities Centre Visiting Speaker Series, University of Bristol

  38. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  39. THE GLOBAL DISTRIBUTION OF POWER Global Insecurities Centre Visiting Speaker Series, University of Bristol

  40. 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 • 1 Uri Dadush and William Shaw Juggernaut: How Emerging Markets are Reshaping Globalisation, Carnegie Endowment for International Peace Global Insecurities Centre Visiting Speaker Series, University of Bristol

  41. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

  42. 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? Global Insecurities Centre Visiting Speaker Series, University of Bristol

  43. 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 Global Insecurities Centre Visiting Speaker Series, University of Bristol

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