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Follow the money: Can NATO afford another Cold War?

President Donald Trump’s NATO policy is confusing. Regardless of the administration’s evolving National Security Strategy, United States’ role in Europe is in transition. Trump’s March 17th meeting with the German Chancellor Angela Merkel reiterated his America First emphasis at home, and an insistence that other NATO members “pay their fair share” abroad. A picture a “Perfect Storm” of Russian military resurgence, European Union instability skating on thin politico-economic ice and a 20 trillion dollars US cold front. This Trans-Atlantic ice age is capable of putting the freeze on any potential “warming” of the Alliance’s regional security efforts. To make the move from a more measured Western European Allied Assurance (2014 Wales Summit) to greater Russian Deterrence (2016 Warsaw Summit) NATO will require greater operational funding. With “Great Recession” contagion and an anaemic economic growth the question we should be asking is whether NATO can afford another Cold War. Past performance is no guarantee of future results. Yet the cold, hard truth comes down to cold, hard cash.

April 18, 2017 - Scott Carlson - Articles and Commentary


Current Balance Sheets: The European Reassurance Initiative

To fund the Alliance’s mission, 28 NATO members unanimously agreed at the 2014 Wales Summit that they would “aim to move towards the 2 per cent guideline within a decade.” Three years later, only five countries are fully fulfilling this obligation. Against this backdrop, nervous EU diplomats are pushing for more US financial support to counter a Russian military now on the rebound. All Alliance members are in support of the mission, even if they do not currently meet the 2 per cent threshold. Allies have increased activities along five lines of effort (troops, training, equipment, infrastructure and building capacity) through an enhanced strategic exercise design known as the Readiness Action Plan. This strategy will train elements of the NATO response force, joint NATO elements that build capacity through stability operations.

These efforts arise from the European Reassurance Initiative (ERI), a combined effort that demonstrates a united NATO commitment designed to deter growing Russian aggression. Funded as part of the Consolidated and Further Continuing Appropriations Act of 2015, this additional military spending supplements Operation Atlantic Resolve (OAR), a multi-year US led NATO endeavour. ERI recently quadrupled, growing from  less than one billion to over 3.4 billion US dollars in fiscal year 2016. From US Air Force hangar upgrades in Iceland to US Navy Baltic, Mediterranean and Black Sea operations, Operation Atlantic Resolve demonstrates the US commitment to the security of NATO. In the US Army alone, ERI funding will bring almost 5,000 personnel, more than 2,600 vehicles and 84 aviation assets to Europe. Yet with deficit spending, overleveraged European governments and the US approaching its 20 trillion dollar debt limit, can NATO actually continue to follow the money?

Accounts Past Due

As defined by the Stockholm International Peace Research Institute (SIPRI), military expenditures include all current and capital expenditures on the armed forces, peacekeeping forces, defence ministries and other government agencies engaged in defence projects, paramilitary forces, and military space activities. Of note here is a critical point when the trend lines crossed in 2013: A 1.5 per cent GDP rise in Russian spending in comparison to a 1.5 per cent GDP decline in UK and US expenditures. The Russian Federation is now spending twice the amount of what it produces domestically on its military than the United States, Greece, the UK, Estonia and Poland.

As the Alliance’s largest contributor, the US’s GDP per capita is two times that of Russia’s GDP.  As a result, Russia’s economic ambitions for military development are not only elevated, but clearly claim a higher national priority at the expense of other Russian domestic programmes. Spending is not the only criteria for measuring military advantage, however if these trends continue Russia will be able to further leverage its regional influence through an enlarged military presence. It is already a reality.

Future Lines of Credit: How NATO Warms Up the Cold War

Not only has Russian military spending doubled from the mid-1990s, the Federation’s debt has decreased by 90 percent, from almost 100 percent to 10 percent of the GDP. Inversely, with the exception of Estonia, NATO members’ government debt increased, in some cases dramatically. Notably, US government debt has doubled in the past 15 years.

Combining the data reveals a sobering reality. In the past 15 years, Russia’s military spending has doubled while debt levels have decreased by 90 per cent. US military spending has been cut in half while debt levels have doubled. If current trends continue, US and Alliance credit lines will have to be raised. The end result is greater national debt, further deficit spending and less funding for other domestic programmes.  Although this is not optimal, the alternative is even worse.

Correlation is not necessarily causation. Factors that shape European regional security are not limited simply to straight line economic comparisons. The strategic effects of Russian and NATO funding entail more data analysis than basic correlations between military spending as a percentage of GDP and government debt. Fiscal numbers alone are not the sole indicator of military advantage. Quantitative evidence is more helpful when assessed qualitatively.

Two conclusions are offered. First, a strategic view. The US will likely continue to fund the largest portion of the NATO budget (22 per cent at the end of the Obama Administration). Yet according to the National Intelligence Council’s Global Trends 2030 report Alternate Worlds, it is highly likely that America’s global economic impact over the next decade will diminish. As “first among equals” the US will continue its role in world leadership, however, unless reversible steps are taken US debt service will continue to grow. To advance the Alliance’s mission, increased NATO monetary contributions will be required from other members. Second – a tactical view.  Anticipate Trump’s “America First” mantra to be tweeted only with regards to domestic social programmes. With a ten per cent requested increase in defence spending, expect the debt ceiling to be raised. Follow the money NATO… for as long as possible.

Scott Carlson is United States Naval Reserve Officer and Operations Officer for the US military with 25 years of Department of Defense service in training, education, critical thinking and policy formation. He holds an MA degree in National Security and Strategic Studies from the United States Naval War College. His research interests focus on European-Russian geo-political interactions.

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