…there are decades when nothing happens, and then there are weeks when decades happen… - Vladimir Ilyich Lenin
A personal geopolitical perspective
The recent shift in America’s stance on Russia and Ukraine, and seemingly towards NATO’s common defence obligations, has shocked many. I am less surprised. As someone who has observed the US since serving with the United States Marine Corps as a young Gurkha officer in the late 1980s, I have long believed that for many Americans their focus is domestic and libertarian. This was often obscured by the policies of successive Atlanticist Presidents; however, the rise of President Trump has made this position clearer, along with his instinctive and capricious approach to defence and foreign policy. Who knows how long this will last, but I suspect it is not a temporary aberration.
What has surprised me is that Europe is caught like the proverbial deer in the headlights. How could we not know that the reckoning for decades of free riding on America’s defence expenditure was imminent? We even have precedent; Great Britain only remitted its final debt repayment from the second world war to the US at the end of 2006, so a bill for the post-war period was sure to come sooner or later.
Europe urgently needs to get serious about defence. You don’t fight and win battles with veto rights and qualified majority voting. Putting aside the politics, up until now, NATO has been very credible because of American military might and their stated commitment to Article V[i], but it has always been the case that Article V is an individual obligation on each ally, and each ally is responsible for determining what they deem necessary under the circumstances. Anyone who has ever sat in the North Atlantic Council should know this. However, the simple truth is, America is uniquely placed to conduct military operations at the highest level and can do so unaided. Her resources are unmatched, and her commanders have the advantage of routinely exercising command at scale. So, absent America, what might each ally deem necessary?
Nor can European defence and security be deemed credible deterrence in its current state. For example, at current rates of procurement it would take Germany until 2038 to regain the number of combat aircraft it had 20 years ago and about one hundred years to re-establish its 2004 artillery capabilities, according to Kiel Institute forecasts. The European Commission’s proposed joint borrowing of €150 billion as part of an €800 billion plan to increase the region’s defence capability is a start, and should also provide opportunities for companies and investors, but more is needed.
While I find it hard to see a quick and easy pan-European solution to this strategic challenge, closer regional cooperation can play a vital role in fostering faster and better decision-making. Existing formations like the UK-led Joint Expeditionary Force[ii] (JEF), a Northern European multi-national military partnership designed for rapid response and expeditionary operations, might offer suitable and more immediate models for such closer (and easier) regional cooperation, especially if accompanied by defence industry cooperation. Within the European NATO orbit, interoperability is well rehearsed, and we can build on that. There is no shortage of opportunity ahead despite the present risks.
Investing in periods of uncertainty
As investors, we must hold to the long-term perspective. Of course, there is an instinct to react to the immediate, but by taking risk over the longer-term we create the opportunity to secure the greatest returns. This needs nerve; the nerve to accept uncertainty, to pause, consider, seek advice, and only then to act if it makes sense given our personal circumstances.
For anyone with a keyboard, the wisdom of markets should be readily apparent. Markets are remarkably resilient, even during time of conflict. It helps not to lose, but war and the threat of war are notable more for the volatility that they cause than their value destruction when it comes to stock prices. Nor is gold always the reliable alternative; the price of gold remained artificially stable during WW2 due to government controls, whereas allied stock markets rose. And crypto is untested in such a scenario.
Like it or not, there is invariably substantial opportunity in periods of stress or crisis. This may even extend to addressing some of the structural challenges that we face as societies; challenges like weak productivity and an unaffordable welfare state. I believe we are at our best in difficult and uncertain times, and it is important, therefore, to remain invested during these periods of volatility. The market is even harder to time and missing the upswings can be very costly. Our task is to separate signal from noise and to think long-term.
Good advice at the right time can be priceless, and advice is for free in SKAGEN – please use it.
Prior to joining SKAGEN in 2007, the author was a military officer for over two decades, including positions as the aide de camp to the Commander-in-Chief Allied Forces Northern Europe, based at Kolsås, and as the military advisor to the 14th Supreme Allied Commander Europe (the operational military head of NATO), who later became the 21st US National Security Advisor.
Footnotes
[i] The NATO Treaty Article V clause states:
“The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognized by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.
Any such armed attack and all measures taken as a result thereof shall immediately be reported to the Security Council. Such measures shall be terminated when the Security Council has taken the measures necessary to restore and maintain international peace and security.”
[ii] The Joint Expeditionary Force (JEF) is a United Kingdom-led Northern European multi-national military partnership designed for rapid response and expeditionary operations. It consists of the United Kingdom, the Nordic countries (Denmark, Finland, Iceland, Norway, Sweden), the Baltic states (Estonia, Latvia, Lithuania), and the Netherlands. The JEF has been fully operational since June 2018. It can act independently in its own right, but it can also be deployed in support of NATO or other cooperative ventures, for example as part of a United Nations peacekeeping force.