NPA, Alm.del - 2010-11 (1. samling) - Bilag 7: Referater fra komitémøder og plenarmøde fra NPA-sessionen i Warszawa november 2010

II. Presentation by Frank Boland, Director of Force Planning Directorate, NATO Defence Policy and Planning Division,on Trends in Defence Expenditure Following the Economic Crisis2. Frank Boland began his remarks by discussing NATO’s Planning and Review Process and the ways in which member andpartner nations participate in it.3. Mr Boland then went on to review the changes of members’ defence spending from 2008 to 2010/11. On average, thedefence spending of NATO’s European members have been declining in absolute and proportional terms since the onset of thefinancial crisis. In the United States, by contrast, defence spending has been increasing year-on-year but at an admittedly muchslower pace since the financial crisis struck that country. However, it is important to note that these summary figures requiregreater analysis of the country-specific contexts. Nevertheless, as it stands now, only five of NATO’s 28 members are meetingthe collectively agreed defence-spending target of 2% of GDP.4. Mr Boland pointed to several broader trends that could be observed in the numbers. Most apparently, defence spending isfalling across the Alliance, which ultimately raises questions about member nations’ capacity to meet current and futurecommitments. Efforts are underway, however, to minimize the impact of these fiscal pressures. Procurement projects, forexample, have been postponed but relatively few projects have been cancelled outright. Because defence outlays tend to havea longer time horizon, revisions to defence expenditures often take time before their impact is made apparent. The danger, thespeaker suggested, is that the Allies may regard these new, lower levels of spending as the new normal. This could have animpact in the context of NATO’s new commitments that will come out of the forthcoming New Strategic Concept.5. Finally, spending reductions have led many to question the Alliance’s solidarity in the coming years. Specifically, there havebeen questions about whether or not the Americans will see their security investments reciprocated by other NATO members.Paraphrasing former French Minister of Defence, Hervé Morin, Mr Boland described a worst case future scenario in whichEurope becomes the equivalent of a protectorate state, effectively denying itself international influence. While this is not likely,Europeans need to understand the correlation between political influence and military capabilities.6. Committee members questioned Mr Boland on the prospect of obtaining greater efficiencies though joint procurementprocedures in Europe. The speaker noted that NATO has promoted such projects for some time; but political obstacles persist.Countries use defence procurements to bolster employment and technological development. Defence and militarybureaucracies are particularly reluctant to concede to eliminating national capabilities in order to focus on those areas in whichthey have comparative advantages. He cited Denmark’s decision to phase-out its submarine programme, which was met byheavy resistance from the Danish navy.7. The idea of reinforcing pan-European procurement efforts was also discussed. This could help reduce defence redundanciesin Europe, but Mr Boland noted that this is a matter for national legislatures to agree to. Again, the political economic benefits ofnational procurement and institutional inertia will cause problems in this field. Finally, Mr Boland noted that Europeans havecome to depend on high US defence spending, and that it will be difficult to stop receiving a free lunch after 50 years. The risk,he suggested, is that “the restaurant may not stay open.”

III. Presentation by Leszek Balcerowicz, Professor at the Warsaw School of Economics, Former Deputy Prime Ministerof Poland and Minister of Finance, and Former Governor of the National Bank of Poland, on How to Avoid AnotherSerious Financial Crisis8. Leszek Balcerowicz challenged the notion that Western financial crises are hardly the worst kind of crises that countriesmight endure. Indeed, crises in socialist countries were typically much more severe – ranging from devastating food shortagesto the outright slaughter of civilians. The real problem, he suggested is the concentration of political power. Mr Balcerowicznoted that there remain “quasi-socialist countries” such as several Arab countries or crony capitalism as in Suharto’s Indonesiawhich are more vulnerable to such profound crisis. In capitalist Europe and North America there are also “pockets of socialism”in the form of government-backed or –owned enterprises. He argued that these represent potentially risky sources of crisis, allthe more so because their reach is global. The current crisis, in fact, originated in the United States and its reach has been1/6

global.9. Mr Balcerowicz then moved on to his precise views on sources of the current crisis. The proximate causes are what havelargely been discussed in the media and by most academics, essentially the fast growth of credit followed by its rapidcontraction. While avoiding such booms is the best preventative measure, there is little agreement on what contributes to thefrequency and depth of credit booms beyond investors’ psychological proclivities. He cited the work of Calamiris who suggeststhe ultimate cause lies in poor public policy.10. Mr Balcerowicz noted that in the United States, and elsewhere, interest rates were excessively low which pushed downhousing credit to a level that created a credit bubble. Prior to this, the political pressure to extend housing credit to previouslyexcluded and marginalized people in the United States led to the extension of sub-prime loans that otherwise would not havebeen commercially feasible. Regulations were insufficient, particularly the Basel I accords, which encouraged excessivesecuritization of such loans. Similar problems were evident in other countries, but the collapse of the US financial marketscaused a global meltdown simply due to the sheer size of the US market and its myriad links to other markets.11. The new regulations that are currently under discussion appear to be focused in the right direction (i.e. greater capitalrequirements, more macro-prudential oversight, etc.) but details remain sparse – and the devil always lies in the details. MrBalcerowicz argued that other policies under consideration are less logical. He suggested that taxes on banks, for example, arepolitically popular but are in conflict with the need for banks to raise extra capital. Finally, he argued that other initiatives areneeded to stymie credit booms. In all of these areas many of the crucial details still need to be worked out.12. Finally, he noted that the boom-bust cycle reflects a spending cycle that tends to bottom out when excessive credit is wipedout. The depth of the resulting recession depends very much on market rigidities, especially those in labour markets. Whereasthe UK and Spain had very similar financial crises, only the latter has experienced very high unemployment because ofexcessive labour market rigidities. In sum, Mr Balcerowicz said that the frequency, magnitude and longevity of crises andrecessions are best explained by the very nature of public policies.13. Committee members asked what politicians could do to ensure that future crisis were avoided. Mr Balcerowicz respondedthat many of the factors mentioned (poor performance of credit rating agencies and the behaviour of hedge funds) aresymptoms rather than causes of the crisis. Indeed, credit rating agencies were systemically important because of regulatorymandates upon which financial institutions rely, and; hedge funds, in his estimation, are among the most highly regulatedfinancial sectors. Thus, greater market flexibility would lessen the risk of crises. However, when asked about the fact that largefinancial institutions have oftentimes been directly involved in the writing of their own regulations, Mr Balcerowicz simply saidthat this was indeed the case, but this was too complex a matter to discuss in this particular forum.14. The discussion then moved on to the appropriate policy responses for governments, specifically in regard to fiscal stimulus.Mr Balcerowicz was broadly in favour of stimulus measures but noted that their appropriate use was highly contingent on thecountry’s structure and situation. Moreover, if there is no room for expansionary fiscal stimulus then engaging in it can bedisastrous. To this end, he addressed concerns about the European social model, noting that it could not be sustained in itscurrent form. Raising retirement ages will be essential and it is best done now and not in response to the next crisis.

year’s two sessions had taken place in the Alliance’s best performer (Poland) and its hardest-hit member (Latvia) during thefinancial crisis. Drawing on this contrast, he suggested that the key differences between them were: their respective exchangerate policies; the magnitude of capital flows; fiscal discipline during the boom period, and; domestic market size. In three ofthese four areas Poland appears to have been better positioned that Latvia.18. The external flexibility of the Polish zloty helped limit capital inflows, and a depreciating currency during the shock helpedmaintain exports. During the crisis capital inflows slowed down, the zloty’s value fell and this accorded exports a competitiveedge. The tightly-pegged currency of Latvia meant that devaluation there was not an option. This led to an ‘internal devaluation’after credit markets collapsed. While Poland ran larger fiscal deficits than Latvia during the boom period, it enjoyed more optionsto engage in counter-cyclical stimulus than did Latvia. And while Poland and other nations still struggle with excessive deficits,these have proven to be less important than macro-prudential policies before and during the crisis. Finally, Poland was aided byits large internal market that helped it absorb some of the extra supply created when traditional, Western export marketscontracted. While there are costs and benefits to both macroeconomic approaches, it is clear that for any country ‘finance-led’growth leaves a country vulnerable to rapid changes in market sentiment.19. Mr Austrevicius concluded with a call for all countries to learn from the plight of Central and Eastern European countries.Among the lessons learned is the need to strengthen financial and prudential oversight at the national and international level; tobolster international co-ordination, and; to engage in more prudent fiscal management. He also noted that members shouldconsider the potential value of limiting capital mobility to reduce the likelihood of financial crises. Finally, he called on membersto consider ways in a more stable global monetary and exchange-rate order could be constructed.The draft Report of the Sub-Committee on East-West Economic Cooperation and Convergence on The Impact of theFinancial Crisis on Central and Eastern Europe [217 ESCEW 10 E] was adopted.

VII. Consideration of the draft Report of the Sub-Committee on Transatlantic Economic Relations Global Recession,Poverty and Insecurity in the Developing World [216 ESCTER 10 E] by Jeppe Kofod (Denmark), Rapporteur, presentedby John Sewel (United Kingdom)20. Mr Sewel updated the committee on the recent surge in commodity prices that occurred during the summer. He cautionedthat the continued price volatility in food prices has increased the risk of social instability in the developing world where peoplespend a large proportion of their incomes on basic foodstuffs. Mr Sewel noted that protectionist measures – such as Russia andUkraine’s restrictions on grain exports – only served to heighten this volatility and the attendant social risks. On this basis hemade a call for greater commitments to free trade through the framework of the WTO Doha negotiations.21. Following the committee’s discussions in Riga a section had been added on China’s development role in Africa. Mr Sewelargued that the interactions of China and African states are highly complex and represent both a challenge and an opportunityfor that continent. Indeed, during the Sub-Committee’s visit to Ethiopia members observed the Chinese construction of theAfrican Union’s new headquarters in Addis Ababa. While this is a welcome investment, many Ethiopians have criticized theproject for its excessive reliance on Chinese labourers. Moreover, the resource-for-infrastructure deals in places like theDemocratic Republic of Congo, Nigeria and Angola are not transparent. That said, there are nascent signs that China isbeginning to change some of its developmental practices in response to critiques from traditional donor organizations.22. Finally, Mr Sewel said that the report calls for Western governments to maintain their commitments to developmentassistance, including the Millennium Development Goals, the Paris Club Agreement and the G8 commitments made atGleneagles, Scotland, in 2005. He argued that even in this so-called ‘age of austerity’, fulfilling commitments made to theworld’s poorest must remain a top priority. He recognized that this is increasingly difficult for Western voters to accept, but in ahighly integrated world we cannot pretend that the fragility of other countries will not have ramifications for wealthier countries.23. During the discussion, one member took issue with the labelling of commodity prices as ‘too high’. Indeed, price rises couldbe a benefit for developing countries that have a competitive export advantage in agricultural and other commodities. Themembers noted that the real problem is price volatility, which is to no one’s benefit.24. Members were sceptical that there is any evidence of China reforming its development practices to bring them more in linewith international standards. Mr Sewel countered that this change is still emerging but it has indeed been noted by academicssuch as Oxford’s Paul Collier. All agreed that there should be greater transparency on the part of China if such concerns are tobe allayed.The draft Report of the Sub-Committee on Transatlantic Economic Relations on Global Recession, Poverty andInsecurity in the Developing World [216 ESCTER 10 E] was adopted.

power. On this basis it clear that the global financial and economic power has hastened the shift in power from West to East.This is evidenced by India and China’s return to rapid economic expansion, while the West remains mired in slow growth andhigh unemployment.26. The signs of serious economic crisis are evident across a range of economic indicators. These include large fiscal deficitsand major spending cuts in defence spending that could erode Western political and military power. Furthermore, Mr Van Drielsaid that the crisis has led to great strains in the international monetary order and political fractures. Although Westerncorporations have had a very profitable year in 2010, many are hoarding capital because of the low demand in major consumermarkets. Another area of concern is the demographic decline or weakening of many NATO countries. The increasing averageage of Western populations is putting ever-greater pressure on pension systems, leading many to question their long-termviability. All these critical economic trends must be addressed.27. On the positive side, Mr Van Driel noted that, as democratic countries, the Alliance members pose flexibility unmatched byother political systems. This can and should translate into creative ways to resolve these challenges and to engage risingpowers. There are already effective multilateral frameworks that form the basis for amicable engagement, which will helpcontinue the trend towards greater trading relations and more open societies. It is clear that the countries of the Alliance willhave to develop even deeper co-operation with rising powers such as Brazil, South Africa and India, all of which sharedemocratic values and vested interests in global stability.28. Given this new reality Mr Van Driel argued that it is essential that the Alliance not squander its resources on distractionsthat could prove costly. Moreover, he reiterated the earlier call for greater defence co-operation – especially in the area ofprocurement – in order to maximize pooled resources of the Alliance. However, co-operation should not end here. There needsto be a more integrated approach to terrorism, nuclear proliferation, climate change, overpopulation, food and water security,and in meeting the energy needs of the Alliance.29. The lively discussion amongst committee members focused on improving the comprehension and understanding ofdifferent members’ political-economic challenges. With the recent announcement of the US Federal Reserve’s second round ofquantitative easing (QE2) many were concerned that the transatlantic political fractures ahead of the G20 meeting in Seoul,South Korea were unjustified. European and American members defending the Fed’s action, noted that it was absolutelynecessary for the US to defend itself against China’s currency manipulations. Indeed, the euro zone will need to do the same, inthe view of some members, but the European Central Bank (ECB) is powerless to do so, given its mandate.30. In the areas of current account imbalances and the so-called ‘currency wars’ members called for greater solidarity inconfronting China on its economic policies. Moreover, China’s rise has been made possible by Western investments andtransfers of technology to this once endemically impoverished country. On this basis, it does not seem unreasonable to seeksome flexibility on China’s part. The members adopted a statement calling on the Political Committee to raise this issue duringits upcoming visit to China, if it has the occasion to meet the relevant authorities.The draft General Report on Longterm Economic Change and the Shifting Global Balance of Power [215 ESC 10 E] wasadopted.

IX. Presentation by EJ Hogendoorn, Horn of Africa Project Director, International Crisis Group, Nairobi, on TheEconomic Dimensions of Conflict in Somalia31. EJ Hogendoorn emphasized that it is much better to consider the Somali conflict in terms of its political economicdimensions rather than in ideological terms. Al Shabaab’s prominence in Southern and Central Somalia has little to do with itspolitical message and much more with its control over key resources. There are three Somalias: the unstable south and centralregion; and the relatively peaceful and stable northern regions of Somaliland and Puntland. In these northern regions mostpeople lead a pastoral way of life and have utilized traditional methods of conflict resolution to maintain peace and stability.These appear to have been working well.32. In Somalia money purchases arms which purchase power. Mr Hogendoorn noted that there is a vibrant arms market inSomalia, and many of these weapons are imported from Yemen. The cost of a day of fighting in Somalia is estimated to beabout US$60,000 which is no small sum in this very poor country. Mr Hogendoorn also said that negotiations have often provendifficult because of the cultural attention to relative rather than absolute gains.33. The conflict in Somalia has raged for over two decades, but its political and economic roots have shifted dramatically overthat time. When the state collapsed in the early 1990s many of the warlords gained power through asset striping and looting.Military factories were looted for arms, and power lines were torn down so that the copper could be melted for resale. During thistime the large inflows of humanitarian aid were essentially taxed by these warlords. Once these leftover resources were drained,political power was derived from those who ran their operations like successful businesses. Control and taxation oftransportation was a key source of revenue – this included ports, roads and airstrips. Overtime these warlords needed amodicum of stability and order and thus established and funded courts based on Islam’s Sharia law. Over the coming yearsthese courts gained in strength, eventually becoming the source of political power in the capital Mogadishu. The courts thenpooled their resources to create the Islamic Courts Union (ICU). They soon spread their legal power across the whole ofSomalia and for six months they brought order and stability to the country. However, the leaders of the ICU began to makepronouncements about regaining control of the Ogaden region, which Somalia lost to Ethiopia in the 1970s. This led Ethiopia toattack Somalia and occupy the country. In resistance to this external power’s occupation the Al Shabaab movement gained

prominence, funded by the huge Somali diaspora that saw Al Shabaab as an independence movement rather than as anideological one. This is the situation in which Somalia currently finds itself. Al Shabaab controls the central and southern region,while the two autonomous northern regions are largely separate from this insurgent force.34. Mr Hogendoorn then spelled out the main peacekeeping challenges in Somalia. First he noted the lack of a comprehensivestrategy of the international community, including the UN, the African Union and bilateral donors. Secondly, he pointed to theexcessive focus on the transitional government that is confined to a small area of Mogadishu. This government sees itself asmore beholden to the international community than to Somalis themselves. Thirdly Somalia’s unstable neighbourhood onlyheightens the security dilemma as the surrounding states tend to be easily threatened by rivals and are disposed to plan worstcase scenarios that can be self-fulfilling. Finally, the international community is reluctant to engage itself fully in the region. Thepolitical will is simply lacking. Mr Hogendoorn suggested that the cost of fighting for one year in Somalia is equivalent to twohours of fighting in Afghanistan. He questioned why piracy appears to be the only priority for NATO and EU.35. Mr Hogendoorn noted that the core problems of Somalia cannot be solved militarily or even through humanitarian aid.Somali piracy is a question of governance on land. Puntland and Somaliland are quite similar in socio-economic terms but theformer has produced the pirates. By contrast, the Somaliland leadership has been trying to be recognized as a sovereign stateand thus has not allowed piracy to be conducted from its territory. Puntland, on the other hand, has no such aspirations and iscontrolled by three different groups that vie for power amongst themselves and use piracy to bolster their economic positions.36. Turning to Somaliland’s bid for sovereign status, Mr Hogendoorn said that this was an unlikely prospect as the AUleadership has been wary of setting such a precedent. Committee members asked about the logic of ‘constructivedisengagement’ which seems to contributed to a modicum of stability in the northern regions. The speaker, however, wasdecidedly opposed to this approach as regional actors would not disengage – their lack of trust in one another and in Somalia’scentral government means that they have an incentive to keep the region weak and destabilized.37. Finally the committee asked Mr Hogendoorn to comment on the upcoming referendum on southern Sudan’s independence.He said that the process has not been smooth and that many difficult issues have yet to be solved. Among these are thedemarcation of a new border, a modus vivendi for sharing out oil revenues, a sharing out of the countries external debt, theissue of US sanctions on Khartoum and the outstanding ICC indictment on Sudan’s president Omar Bashir. Ostensibly, all ofthese problems should be resolved before the vote is held on 9 January 2011, but prospects for this appear rather dim.