Nato’s revival: will the resolve withstand an economic crisis?

For US president Joe Biden, it was “historic”. France’s Emmanuel Macron hailed it as “unprecedented for Europe since the second world war”.

“The most important conclusion that Vladimir Putin needs to draw from what’s happened the last few days here in Nato and previously in the G7 is that we are totally united,” said Boris Johnson, Britain’s prime minister.

The hugs, handshakes and bonhomie this week at Nato’s annual summit in Madrid and a G7 meeting in Germany represented a new high-water mark of western unity against Russia in response to the war in Ukraine — the apogee of an alliance rejuvenated by conflict on its borders. There were also warnings about the growing threat represented by China.

Johnson, so often a source of irritation within the EU for his championing of Brexit, boasted of continental unity. Macron, who less than three years ago decried Nato’s “brain death”, spoke of its “necessity”. The debate on US detachment from Europe and the tussle for relevancy between Nato and the EU in defending the continent — so prominent just six months ago — were hushed.

“At every step of this trip, we set down a marker of unity, determination and deep capabilities of the democratic nations of the world to do what needs to be done,” Biden said at the conclusion of the summit on Thursday.

“Putin thought he could break the transatlantic alliance. He tried to weaken us. He expected our resolve to fracture,” he added. “But he is getting exactly what he did not want.”

But the return of cold war rhetoric, of an alliance of values standing opposed to Moscow — and Beijing — in a world riven by strategic competition, masked growing differences about how to endure the rising economic costs of the war in Ukraine. Those quarrels will test western resolve as the war’s fiscal, social and geopolitical fallouts roil global politics.

It has been more than four months since the Russian president ordered his troops into Ukraine. The war has killed tens of thousands of troops and civilians, displaced roughly a quarter of the country’s population, and plunged the world into a series of growing crises, from runaway inflation to oil and food shortages that have prompted a rising chorus of recession warnings.

In Bavaria, G7 leaders headed back down from their mountaintop retreat having failed to reach an agreement on a new sanctions mechanism to hit Russian oil revenues because they differ over how to tackle soaring inflation.

And as Biden oversaw a chorus of transatlantic cheer in Madrid from a military alliance that is more dependent on the White House’s grace than ever before, back home Washington was convulsed by lurid details of former president Donald Trump’s attempts to illegally retain power after the last election. With Trump still a potential 2024 presidential candidate, the hearings provided a technicolour depiction of the political strife and divided society that is increasingly ensnaring Biden’s presidency.

For Macron and Johnson too, the back-to-back summits offered some respite from political headaches back home — not linked to Ukraine but likely to be exacerbated by economic troubles — that could yet derail both of their governments.

“If you talk about the here and now, then the answer is yes, it’s true, we are all on the same page — amazingly enough,” says Francois Heisbourg, special adviser at the Fondation pour la Recherche Stratégique, a French think-tank.

“The sanctions system continues and is being reinforced and the G7 in that respect has been important . . . and of course Nato was a love fest,” he adds. “But that does not prejudge the future.”

In a portent of the tensions that lie beneath the west’s unity rhetoric, Turkey’s president Recep Tayyip Erdoğan used the final press conference of the Nato summit to restate his potential veto on Sweden joining the alliance — partially reversing a decision to drop his opposition to its membership on the eve of the event.

So late was Erdoğan’s threat to block a step that Nato had championed as a sign of its togetherness that Sweden’s delegation to the summit was already mid-air back to Stockholm at the time, having taken off from Madrid celebrating what they considered a job well done.

Cold War rhetoric

Nato, which billed the Madrid summit as “transformative”, says it is responding to Russia’s invasion of Ukraine by overhauling how the alliance operates.

Aside from formally inviting Sweden and Finland to join, it agreed a sweeping rethink of its defence posture, unveiling a plan to increase the number of high-alert forces ready to repel a Russian attack more than seven-fold to over 300,000. The troops are part of a new security doctrine for the coming decade that promotes defending the continent after the divisive war in Afghanistan.

China, too, was for the first time characterised as a “challenge” to Nato’s “interests and security”, with leaders agreeing on language criticising Beijing for its decision to side with Putin against western condemnation of the war. “We now face an era of strategic competition,” Nato’s secretary-general Jens Stoltenberg said after a meeting of Nato plus the leaders of Australia, Japan, South Korea, New Zealand, the EU, Sweden, Finland and Georgia where they discussed China.

“We see a deepening strategic partnership between Moscow and Beijing,” he added. “We must be clear-eyed about the serious challenges it represents.”

Politicians openly acknowledge the Cold War echoes of the new posture. “You need to think about why Nato came about. It was about the threat from the Soviet Union. So, in that sense, there is something back from the old days,” says Kajsa Ollongren, the Dutch defence minister. “The west against the Soviets . . . but now it is Russia.”

That language heavily echoed the G7 summit in the luxury resort of Schloss Elmau that immediately preceded it, where European Council president Charles Michel spoke of “unwavering unity”.

But talk of shared values could not disguise the growing tensions between the G7 members as the economic toll from the war in Ukraine becomes more apparent and pressing. Behind the scenes officials were having difficulties holding a common line on the topic of energy sanctions in particular.

The US has been privately urging the EU since the spring to consider ways of imposing a ceiling on the Russian oil price, as an alternative to the partial embargo that the union decided upon at the end of May in its sixth sanctions package.

The key US concern has been to avoid boosting oil prices further, given that year-on-year consumer price inflation is now running at more than 8 per cent in both the US and euro area, and a growing number of analysts fear a recession is around the corner. The Biden administration, meanwhile, is getting increasingly fearful of a drubbing in the midterm elections this November.

Leaders’ anxiety about high oil prices was underscored during the summit when Macron was captured on camera discussing with Biden the amount of spare production capacity that key Opec members had available.

In the lead-up to the G7 summit the US worked intensively with the European Commission and the UK on a new version of a price cap, via an incentive structure in which access for importers to western financial services would be conditional on a price ceiling being observed on Russian oil shipments.

In the event, however, G7 leaders agreed only to “explore” the notion. Germany, which holds the G7 presidency, has been notably cautious about the idea of price ceilings. Olaf Scholz, the chancellor, said the concept was “very ambitious” and that a lot would need to fall into place for it to come into force.

During the previous day’s meetings, Macron wrongfooted his counterparts by floating the idea of a cap on global oil prices — not just those of Russian crude. Other leaders were left unclear as to how such a feat could be achieved.

According to one senior EU official, the most difficult task from here is not technical but political. “We have to do our homework and convince a sufficient number of states to sign up to it,” the official says.

Given the EU’s last sanctions package took weeks of wrangling and compromise to get unanimous support, a seventh “is very unlikely at any point this summer,” says a second EU official

Window-dressing

As close to 40 prime ministers and presidents took off from Madrid on Thursday evening, they flew back to their home nations where an increasingly bleak economic picture has already pushed the war in Ukraine from newspaper front pages.

On the sidelines of the summit, ministers and senior officials privately remarked about the growing divide between eastern European states, where populations have palpable fears of a Russian invasion, and western countries, where the lower level of risk means the rising cost of food or heating bills is seen as more of a problem.

The rhetoric of unity “is a lot of window-dressing”, says Theresa Fallon, director of the Centre for Russia Europe Asia Studies in Brussels. “There are big divisions . . . everyone is kind of running in different directions.”

“Wars can be divisive, they can be very polarising events,” she adds. “Money, the oil price, inflation . . . The economic reality is going to hit.”

Mario Draghi, Italy’s prime minister, was forced to leave the Nato summit on Wednesday, a day early, to attend a crisis cabinet meeting. The next morning Italy paid the highest borrowing costs on its debt since the wake of the eurozone debt crisis.

Heisbourg says that as the various economic, social and political headwinds begin to weigh on western leaders, much will depend on both Biden’s appetite to keep rallying the Europeans to the cause and whether Putin’s generals continue to commit acts of war that western capitals see as unconscionable. The missile attack on a shopping mall in central Ukraine this week will have reinforced alliance unity, he says.

“The Americans decided [at the start of the war] to lead unequivocally, if sometimes unpredictably . . . and the Europeans have not been exactly the most fierce in terms of seeking battle,” he adds. “So American leadership is essential. On its vagaries hinge essentially the decisions of all the others.”