NATO in the spotlight

The North Atlantic Treaty organization, better known as NATO, was having a bit of an identity crisis when Russia invaded Ukraine in 2022. That seismic event made membership in the 74-year-old alliance a hot ticket.

NATO's 31 member states and candidate country Sweden are meeting in Vilnius, Lithuania, July 11-12. Their agenda is packed.

Here are some insights on the NATO summit from our recent podcast episode featuring Lindsay Newman, head of geopolitical thought leadership at S&P Global Market Intelligence, and Alex Kokcharov, associate director for country risk for Europe and CIS:

Q: What is the big picture view of NATO today?

Lindsay Newman: To contextualize the summit, it's useful to look back to the turn of this decade, to 2019. We were hearing a lot of debate about the future of NATO. There was a series of US administrations calling on Europe to contribute its fair share to defense spending and NATO contributions.

And there was this famous, perhaps infamous, statement by French President Emmanuel Macron that we are currently experiencing the brain death of NATO. NATO was lumbering along 30 years after the Cold War, without a clear rationale, without a clear strategic vision. Was it cybersecurity? They thought maybe, yes. Was it space? They also thought maybe, yes. Could it still be Russia?

And then Feb. 24, 2022, came along and NATO suddenly found itself quite re-energized. At the NATO summit in Madrid last year, members adopted a new Strategic Concept organized around three core principles of deterrence and defense, crisis prevention and cooperative security.

Since Russia's invasion ofUkraine, what has come into view is a NATO organization for the years ahead. It's a united NATO relying on a reinvigorated transatlantic relationship working in tandem with the European Union. It's also a newly popular NATO with a number of countries knocking on the door to join.

Q: As you noted with Russia's invasion of Ukraine, NATO has a war happening on its doorstep for the first time in over 70 years. What role has NATO been playing in the conflict, and how has that impacted the trajectory of the war?

Alex Kokcharov: Overall, we've seen a very strong commitment to Ukraine provided by the majority of NATO member states. They have committed to support it with military training and with military supplies so that the Ukrainian armed forces are able to defend their country.

Q: Ukraine is going to be a top agenda item for the summit. What else is on the agenda?

Lindsay Newman: There's the open question around the timing and process for Sweden to join. The Prime Minister of Sweden is meeting with President Biden in the US to discuss that process. According to the 2022 Strategic Concept that was agreed to in Madrid, enlargement is seen by NATO as a historic success and its doors remain open.

And the question of NATO's footprint ties into a range of topics that tend to be on NATO Summit agenda year on year, and that includes what the organization can do to enhance its deterrence and defense posture, what to do about NATO's Eastern Flank, how to tackle the shared challenges ahead.

And then of course, the all-important question about how to pay for all of these ambitions.

Q: Since the Cold War ended, defense spending and industrial infrastructure have gotten anemic, perhaps. What is happening, or what do you expect to happen, with respect to defense spending and the defense industry in the near or medium term?

Alex Kokcharov: The end of the Cold War has resulted in a peace dividend with a lot of countries, particularly in Europe, reducing their defense spending and closing some of their defense manufacturing industry.

The start of large scale warfare within Europe obviously changed this. It started to actually change from 2014 and 2015, when we saw an increase in both the defense spending and in the share of defense spending allocated to equipment expenditure. And we've seen that across the board.

There has been an increase in both defense spending and the share of it which goes into building equipment and replacing older equipment. The countries on the eastern flank such as Poland, Lithuania, Latvia, Estonia are even setting their own objectives to spend more on defense than the NATO guideline because they understand the importance of maintaining their military capabilities amid ongoing external risks, which originate from Russia. The fact that they border on Russia, they're geographically close to Ukraine, where the war is still ongoing 16 months on, makes them very aware of the risks. For instance, countries such as Estonia plan to increase their defense spending to 3% of GDP, and that's a very significant increase from where it was in 2014.

Listen to the full episode here

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.