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By Howard Wheeldon, Senior Strategist at BGC Partners

(The following is part of a presentation given to a Defence Breakfast Seminar held by Messrs Bird & Bird in London this morning)

16 Jun 11. For whatever reason of past failure many European governments and the people they represent are staring a period of fiscal austerity in the face. Many EU nations including those now besieged within the so-called European sovereign debt crisis are as a direct result of capitulation being ‘forced’ to adapt and change to a new economic order – one that says they must now live within there means. For others, some of whom may have slightly more time on their side to address deep-seated economic failings, the chosen way out is nothing less than a policy of pain for gain meaning concerted action to cut spending that is combined with a variety of tax raising measures. The hope is that when deficits are finally brought under control that a period of sustainable growth might follow and that would allow high and unacceptable levels of debt to begin to be scaled down. Some nations such as the US are yet to rise to the specific challenge of reducing budget deficits and understanding the need to live within their means but eventually they will.

In the meantime the ongoing shift of economic power from West to East continues apace. While western governments are busy cutting budgets including Defence others such as China, Russia and India are increasing them. This must be a worry for all of us. For most caught up in this mess the immediate future is a period of austerity. Of necessity as austerity bites further into the lives of people, as it impacts further on economies as a whole and as governments are forced to possibly seek even more unpalatable ways of rising to the challenge they face we have of inevitability accepted that defence spend must also be in the line of attack.

And yet at the same time as this political and economic minefield was to further erupt we have also needed to recognise the vital importance of proper defence and of how this plays not only in providing the very security and confidence that we all need as citizens but also of deciding what our nation wanted to be and what it now stood for. None of this should be lost in the ongoing debate over defence costs. NATO may be less than perfect today and Britain still one of its larger contributors but its importance to the security of all of us remains intact.

Despite the economic trauma that we face, despite the specific UK debate over what is needed to provide an adequate level of defence for ourselves and those others that as a correct result of history we also represent, despite the need to ensure that we have relevant defence and that to ensure this we have sufficient capability to be at a permanent state of readiness we note with caution that geopolitics have not really changed. Despite some seemingly positive events of late we need to constantly remind ourselves that the world is no safer or more secure place today that it was in 2009, in 2007 or 2002.

Later I will be talking of how the change in our different approaches to defence spending might affect the defence industrial base asking the central question whether this will maybe drive further consolidation within the European/global defence and aerospace industry or perhaps whether the future will after all be about greater collaboration and partnership not only through industrial partnerships but between governments as well. We shall be looking right across Europe for answers to these vexing questions but it is here in the UK where as a nation that pro-rata and in real terms spends more on defence within NATO than any one else within the EU that we have noted the most stringent policy regime of cuts in defence spending being seen.

If we accept the basic premise and notion that governments rarely say what they mean or even les

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