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December 21, 2012 |  3 comments |  Print  Your Opinion  

Editorial Team

NATO's Senior Defense Economist on Security Despite Austerity - Part 2

Editorial Team: Adrian Kendry responds to member questions about NATO capabilities, specialization, and other aspects of smart defense. He also explains NATO’s commitment to energy efficiency and talks about resource wars and terrorist financing.

NATO's Senior Defense Economist Adrian Kendry has responded to ten questions from members about the interaction of economic and security challenges. In the first part, Mr. Kendry explained potential threats to the stability of the Alliance, terrorist recruitment and defense spending levels: NATO's Senior Defense Economist on Security Despite Austerity - Part 1

Following are his responses to six more questions. You can also watch Adrian Kendry's exclusive video statement, which launched this Q&A.

Hristijan Ivanovski, Research Associate, Centre for Defense and Security Studies, University of Manitoba, Canada: Which current or planned NATO capability projects are most affected by the continuing drop in national defense budgets? Is there any indication of pursuing new common capabilities (other than the existing AWACS or AGS) despite the financial crisis?

Adrian Kendry: At the Lisbon Summit in 2010, NATO Allies endorsed decisions to rectify the Alliance's most critical deficiencies in defence capabilities, including the availability of heavy-lift helicopters, enhanced medical and logistical support, countering improvised explosive devices and improved air and sea-lift capabilities. In addition, the Lisbon Summit stressed the importance of providing the capabilities that will protect NATO member states from various emerging security challenges and enable an appropriate response. These include ballistic missiles, cyber attacks and the need for a sustainable capability in joint intelligence, surveillance and reconnaissance. As the question implies, progress in the development of these capabilities has often been slower than intended as NATO member states wrestle with the acute defence budgetary challenges arising from the financial and economic crisis. However, there are some highly important multinational and complementary initiatives in developing a Strategic Airlift Interim Solution (chartering Antonov An-124-100 transport aircraft) prior to the operational service of the Airbus A400M transport aircraft, together with the Strategic Airlift Capability that has been secured with ten Allies and two partner nations buying three C-17 Globemaster III transport aircraft. This acquisition provides a heavy airlift capability that has supported enormously diverse missions such as assistance to Poland following the air disaster in Russia; African peacekeeping; humanitarian relief in Pakistan and Haiti; and the ISAF operation in Afghanistan. Undoubtedly, the financial crisis continues to pose considerable problems for Allies and Partners in the development of capabilities; but in the financially frugal conditions, nations are committed to doing the best they can.

Alyson JK Bailes, Visiting Professor, University of Iceland, Reykjavik - Former Director of the Stockholm International Peace Research Institute - United Kingdom: One of the best ways to get more bangs for fewer bucks is for nations to specialize further in their defense roles on a basis of comparative advantage. I have described this and the obstacles in an article for What is NATO doing to overcome these problems and encourage member states to specialize more?

Adrian Kendry: The economic and fiscal crisis on both sides of the Atlantic makes it imperative that NATO's historic mandate to promote multinational defence cooperation and capabilities must be renewed as imaginatively and energetically as possible. As Ambassador Bailes correctly notes, NATO is seeking to renew the spirit and purpose of its multinational defence cooperative initiatives by encouraging Allies to engage in "Smart Defence" projects and the "Connected Forces Initiative". "Smart Defence" embraces the call for nations to deepen and widen multinational defence cooperation (described by the European Union as "pooling and sharing" arrangements) by specialising and prioritising in order to get the greatest "bangs for bucks". The economics of austerity dictates that new and dynamic cooperative arrangements in the research, concept development, production and acquisition of defence capabilities (for example, in the field of ballistic missile defence) must satisfy the scrutiny of Finance Ministries and others that such cooperation will create genuine synergies and the potential for significant economies of scale. Together with the related "Connected Forces Initiative", directed at promoting greater interoperability through education and training among the NATO armed forces, these innovations have the capacity to transform the mentality and practices of Allied nations in their pursuit of greater efficiencies and better management of increasingly scarce defence resources. However, Allies must not neglect other important steps to be taken in enhancing defence reform and greater cooperation. Inefficiency through unintended or intended misuse or corruption of budgets also constitutes a serious obstacle to the greater transparency and accountability of defence spending. The NATO Building Integrity Initiative is a complementary programme to the other efforts outlined to extract the best quality, and not just quantity, of defence output as NATO prepares to meet further challenges at the end of its present mission in Afghanistan in 2014.

Rhys A. Merrett, PhD Candidate at the Australian National University, Canberra - Australia: Negotiations over a proposed merger between two of Europe's largest defense contracting firms -- British Aerospace Engineering (BAE Systems) and European Aeronautic Defense and Space Company (EADS) -- were recently abandoned. The proposed merger would have created Europe's single largest defense contracting firm. To what extent does effective defense integration amongst NATO's European member states (i.e. smart defense) rely upon the initiatives of non-Government owned corporations and private industry, such as the proposed BAE-EADS merger?

Adrian Kendry: Almost twenty years ago, the United States experienced a profound metamorphosis in its defense industrial base (the so-called "Secretary of Defense William Perry Last Supper") directed at reducing the number of prime contractors during a period of shrinking demand while preserving the industrial and technological capabilities within the defense industrial base. In Europe in late 2012, BAE Systems plc represents the sole European prime and system contractor in the military aerospace and defense sectors, competing (and collaborating) with the United States' largest aerospace and defense corporations (Lockheed Martin; Boeing; Raytheon; General Dynamics; Northrop Grumman; United Technologies; L-3). The proposed BAE merger with EADS would have strengthened the European capability in the military and commercial aerospace sector and created a "super-prime" whose assets and market shares would have rivalled Boeing and Lockheed Martin.

Of itself, such a merger would not address the substantial over-capacity and inefficiency that has long resided throughout the European defense and aerospace industrial base. "Smart Defence" proposals are designed to strengthen Allied (and potentially partner) cooperation in a range of logistics, situational awareness and other support projects. The question posed addresses more fundamental defence integration in Europe with industrial and technological collaboration among primes and sub-contractors that would strengthen the multinational cooperation (taking the Eurofighter Typhoon four-nation consortium as a reference point) that already exists. Reshaping the European defence industrial and technological base requires both reform initiatives from the demand side (nations must agree on common requirements for proposed equipment platforms) and the supply side (the measures to consolidate and improve the industrial and technological base). Such measures must take note of the many tiers of sub-contractors across Europe; and the degree of cooperation and collaboration that takes place between suppliers not only on both sides of the Atlantic but also with firms with growing aerospace and defence capabilities in the Asia-Pacific, Middle East and South America regions

Alex Battaglia, US citizen living in Berlin, Germany: How do NATO countries counteract illicit or illegal/terrorist activities through non-transparent private sector banking or internet money transfer? For example: the proverbial use of Swiss Bank Accounts or the newer more easily attained internet money transfers (Paypal, webmoney, etc.) to fund some nefarious activities. And furthermore, how could NATO countries go about this without stepping on individual privacy rights or established "internet freedoms"?

Adrian Kendry: NATO itself is not a law enforcement agency and the measures to counteract illicit terrorist activities through non-transparent banking or money transfer are under the responsibility of Justice, Law Enforcement and Treasury ministries and agencies. The question underlines the reports that the volume of illegal financial flows in a number of countries is estimated to be several times larger than their annual government budgets. This huge imbalance between funds available to criminal networks and those at the disposal of the state reinforces a culture of corruption and economic distortion. The adaptive and evolutionary nature of such illegal funding flows through the exploitation of other vulnerabilities (notably remittances from radicalised Diasporas, informal money transfers corrupting the vitally important hawala system of trust in trade and the network of hawaladalars, informal money operators, who facilitate trade in the absence of more formal banking and financial arrangements. As Mr. Battaglia correctly notes, modern internet payment methods provide encouragement to those that wish to pervert the proliferation of financial methods and activities in pursuit of criminal and terrorist objectives. NATO countries rely on the broad framework and conduct of financial regulation and the dedicated agencies directed to combating and countering serious fraud, organised crime and terrorist financing. The global financial and economic crisis poses a serious challenge to such scrutiny since the focus of intervention has been so strongly on stabilising the international financial system. Furthermore, balancing cyber freedom, security and regulation without eroding individual civil liberties will require increasingly close cooperation and exchange of information across national borders (as, for example, embodied in the United Nations Counter-Terrorism Committee, the inter-governmental Financial Action Task Force or the informal Egmont Group of financial intelligence units) to address this growing threat.

Oleg A. Khlopov, Associate Professor at the Department of World Politics and international Relations, Russian State University for the Humanities, Moscow - Russia: In case of new growing demand for energy and other strategic resources what could NATO do to avoid new kinds of possible resource wars and conflicts?

Adrian Kendry: NATO member states comprise energy consumers, producers and transit countries. The dialogue among Allies with Partner countries that also represent energy consumers, producers and transit countries, is of vital importance in a world where, as noted by the International Energy Agency (IEA) in its 2012 World Energy Outlook report, the global energy landscape is changing with potentially great implications for energy markets, trade and dependency. According to the IEA, global energy demand is projected to grow more than 33% until 2035 with consumption in China, India and the Middle East responsible for 3/5 of this increase. In these circumstances, and given the growing implications of energy demand for water and food consumption, Mr. Khlopov is correct in identifying the potential for energy and related economic and social instability provoking conflicts. NATO provides an important forum for Allies and Partners who wish to discuss and consult on energy security and energy infrastructure security concerns. NATO is not an energy security organisation but NATO possesses a unique capability to engage with its Allies and Partners and offers a confidence-enhancing framework in which to prevent strategic resource competition either spilling over into conflict or being disrupted by acts of piracy or terrorism.

Costinel Anuta, graduate in Advanced Security Studies at the George C. Marshall Center for Security Studies - Romania: In the last few years, energy security has been labeled as the main challenge for NATO stemming from the economic sphere. How did the financial crisis shape NATO's concerns within the economic field and what other economic domains are to be tackled by the Allies in the near future? Moreover, what would be the impact of the financial crisis on the global competition for energy resources and in particular on NATO's energy security, taking into account that the deployment of the Allied military units is largely dependent on fossil fuels?

Adrian Kendry: The 2010 NATO Strategic Concept outlined the challenge posed by the question in a clear and forthright manner. In Paragraph 13, it is recognised that:

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. Some NATO countries will become more dependent on foreign energy suppliers and in some cases, on foreign energy supply and distribution networks for their energy needs. As a larger share of world consumption is transported across the globe, energy supplies are increasingly exposed to disruption.

The financial crisis has exacerbated the energy and climate challenges confronting the world by reducing the availability of funding for investment in more sustainable energy development that would enhance energy efficiency and reduce energy intensity in consumption. New technologies are creating new and potentially substantial energy resources (for example, natural gas and liquefied natural gas) but the challenge for the member states of NATO and other countries is to secure the investment into greater energy efficiency that will assist in the vital task of promoting greater diversity in the global mix and distribution of energy sources and the combating of global warming (with its potentially devastating effects on human, environmental, economic and national security). Concerning the more energy efficient deployment of Allied military units, NATO has increasingly recognised the need for its own energy costs and environmental impact to be properly understood and evaluated in the planning and decision-making processes.

The editorial team would like to thank all participants in this Q&A and especially Mr. Kendry for taking the time to answer them in such detail.

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Tags: | smart defense | NATO |
Unregistered User

December 20, 2012

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Joerg, thanks and Merry Christmas to colleagues!

On the report of "questions and answers", the editorial team has done a fine work and NATO's Senior Defence Economist also has indeed provided cogent answers to be expected for the selected questions. It has been swift and smooth to read and enjoy. Allow me briefly and integratively join you making it swift to target selected highlights. Doing so does not need to mean raising supplementary questions. Both parts are well connected. There is interesting thread running through the answers for the first four set of questions more directly relevant for the theme "Security Despite Austerity". For that, the question "...When can we say that a critical point has been reached in an economic crisis for it to be considered a security threat?.... Unfortunately, only Spain was perhaps a representative? focus here. However, directly and indirectly the answer is just what would be expected: explained by (i) NATO's collective defense rationality; (ii) its crisis-management mechanisms, and (iii) continuous improved approaches to the culture of cooperation and partnership .... (all in the interest of both international organizations and security). In economic terms and its bearing on security, the debt crisis, partly underlying US fiscal cliff policy-endeavours and the European debt and Euro-zone currency crisis are of immediate NATO hence transatlantic interest. Between both, issolationism would not pay, not unfortunately at the EU level either. Security thus, as it has been coined out implies relatively well disciplined adherence to positive economic measures and will to grow.

The Defence Economist is articulate concerning the link between security and the economy, hence the texture of conequence, to the point of clarity worth recalling:
"The fiscal policies that have been, and are being, implemented to bring under control the large budget deficits and increasing national debts in the .......are very controversial. Even though the stance of monetary policy is very permissive, with low interest rates and central bank interventions (to ease by injecting liquidity) into the economy, fiscal austerity inevitably adds to the slow and in some cases declining economic output in NATO European states, with persistent and high unemployment - among young people and wage freezes or reductions, creating considerable economic and social misery". This is the challenge!

There are various ways to interpret and apply these, but the consequences are clear: it rocks the boat of security and incites terrorism - works of criminals intensify in proportion to how worse things get? The question is how suitable or unsuitable it is to call for Defense Budget Cuts or Control----what we have seen across NATO member states and affiliates. The fear about its consequence in ideological and rightwing inductrination circles itself is a threat to be kept in mind. That defence spendings under these conditions compete with the development of other sectors is nothing to hide but speak out for, so that policy makers and people know. The case of tax hikes for the wealthiest hangs here too with all its controversies!

Summing up all, how these in turn play out on the 2nd part of the questions and answers become the problem of how the first range of questions is comprehended. NATO has embarked on reforms and for that capabilities, technical requirements of various kinds, and logistical supports are all seen interwoven into the concept "Smart Defence, connected force initiatiaves, and cooperation. These are no less bolstered by effective investment and research and development approaches. They make-up the arms of the business dimension with business ethics: competition and democratic economic policy approach and management. In it the front-line countries tow the less developed, plan missile systems, pooling resources and sharing. All these require funds and in my mind leave us on this theme to lift out two competing alternative theses: can NATO work with separate goals and achieve simmultaneously the mutual benefits wanted, or will it have to work with separate approaches for the mutual benefits. Economic structures decide this and with austerity still in stronghold economic arguments above tend to impose rationality of balance and caution with promises of growth thin as they are and environmental challenges many as they are. How can peace management not be the only way out? whatever that means for the theme?
Darrell Calvin Brown

December 21, 2012

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Does NATO communicate with NGO's , like the AGU( American Geophysical Union), on a regular basis?
Oleg  Khlopov

December 26, 2012

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Mr A. Kendry gave a very clear and coherent answers to the questions. His informative comments reflect the diversity of NATO security approach. Modern urgent socio-economic and climate change issues along with classical geopolitical ones are in the focus of NATO smart defense. It was interesting to know that the alliance pay a special role in research on global financial and economic problems that evoke response in security concerns and NATO stands on cooperative and collaborative platform in solving the new challengers.
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