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23 August 2016 · 5 min read

What does the future hold for NATO?

Trump and Corbyn refuse to support Article 5

9/11 was the first time that NATO’s article five – an attack on one member state is an attack all – had been invoked. It sent a powerful message about the strength of the alliance. Every member of NATO, no matter how small, provided assistance to the United States during the campaign in Afghanistan.  Fifteen years on and the alliance is arguably in its weakest position since its formation in 1949. Politicians in six major member nations have questioned the point of NATO and only five of the twenty-eight states spent the guideline 2% of GDP on defence. Could this be ‘make or break’ for NATO? And if so what could this mean for the defence industry?

The last few months have seen the political criticism of NATO crescendo. At last week’s Labour leadership debate, Jeremy Corbyn said “he would want to avoid us getting involved militarily” if another NATO country were attacked.  His comments follow Donald Trump saying last month that the US could refuse to help a NATO country that had not spent 2% of its GDP on defence. In addition, Marine Le Pen (President of French National Front) and Beppe Grillo (founder of Italian Five Star Movement) have called for withdrawal from NATO and the Alternative for Germany (AfD) party has said German troops should not be expected to act outside the country’s borders. The Spanish populist party has wanted Spain to leave NATO since the party’s inception in 2014 and wants Spain to hold a referendum on the issue. 

This uprising against NATO is set against the backdrop of Russia seizing Crimea from the Ukraine in 2014, annexing the territory of a European country for the first time since 1945. In addition, NATO’s latest data released last month (see chart below), which shows that in 2016 only five member states; US, Greece, UK, Estonia and Poland, are projected to spend the guideline 2% of GDP on defence. Critics also highlight that some nations, including the UK, inflate their overall defence spending number by including different budget lines.

Defence Expenditure as a share (%) of Gross Domestic Product based on 2010 prices and exchange rates (source: NATO)

However, the figure of 2% is only a guideline – no sanctions are imposed against those that do not meet it. At the 2014 summit in Wales all the members reaffirmed their commitment to work towards reaching the benchmark figure because for the five years prior spending levels had been declining year on year. Since then the NATO total defence expenditure for Canada and European NATO countries has gone up $3bn, a 1.5% real increase, and in 2015 19 members halted their defence cuts. NATO members also commit to spending 20% of their defence budget on equipment and research, development, test and evaluation (RDT&E).  10 countries are expected to meet this benchmark in 2016 (see chart below), but there has been a lack of European investment in equipment for the past five years which will take time to recover from.

Equipment as share (%) of Defence Budget based on 2010 prices and exchange rates (source: NATO)

So what are the options? The CEO of Saab, Håkan Buskhe, put forward one at company’s first half results in July:

“If NATO is to remain, everyone has to spend 2% of GDP on defence. This would lead to huge demand for equipment in those countries.” (Saab 1H2016 conference call)

I agree with his logic that NATO would be stronger, and better able to rebut its critics if all members met the spending benchmark. Clearly this would be hugely beneficial for the defence industry. Mr Buskhe even noted that the industry would probably have a shortage of capacity in the short term which would take us back to the heady early days of the conflict in Afghanistan when the DoD and MOD needed large amounts of equipment, and quickly. However, in the current economic climate it feels unlikely we will see a sudden surge in spending.

The number of significant security threats, most notably terrorism, Russian expansionism and insecurity along NATO’s southern border from Syria to North Africa give to my mind, a genuine purpose to the collective security provided by NATO. Reports from the 2016 NATO summit which took place last month suggest that NATO may be entering a new era. One in which Europe’s collective security and territorial defence are once again NATO’s core mission, and with new resources to fulful it. President Putin has been provocative in exercising his troops in Crimea, but NATO has answered with a show of strength by exercising troops in Eastern Europe. If NATO does push forward with new found vigour, the upward trend in European defence spending is likely to continue and questions are likely to emerge about interoperable equipment for NATO nations. Common equipment is less important for conventional military hardware such as vehicles and ships, however, it is vital when it comes to software which enables communications and equipment sharing. A lack of a common intelligence database was one of the biggest problems during the Afghanistan campaign. The US and the UK particularly will be keen to ensure this does not happen again.

The third option of course is the disbandment of NATO. Any suggestion of which is likely to embolden President Putin and send the defence industry into a tailspin. It is notable though that the politicians criticising NATO are not actually in power, and therefore not charged with protecting their national security. If they were I cannot help thinking they might have more interest in protecting the alliance.

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