National Security Strategy (Joint Committee)

Monday 22nd June 2026

(began 1 month, 2 weeks ago)

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16:18
None Portrait Speaker 1
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Yeah. Thank you very much. I mean, my thoughts don't differ much from Professor Menon's. I think the key thing is thinking about here, maybe just to add on this. So so the way that EU has kind of got involved in foreign security and defence policy cooperation comes many decades after its foundation on the basis of a division of labour between NATO and the then EC, where the EC was essentially the provided for economic integration. Whereas defence and security took place through NATO structures.

And that's left a very lengthy shadow. And what the EU does. And it's true that since the late 1990s, the European Union has become more involved in security and defence policy. And that was part of essentially an Anglo-French bargain. Um, one is essentially that it was it was always a bargain between different views of how European security should be organised, whereas the French preferred a more kind of European bulwark against what was seen as American dominance, whereas the British preferred essentially this idea that you would keep the transatlantic relationship and NATO alive by allowing for burden sharing so that the Europeans weren't dragged essentially, that it was it was always a bargain between different views of how European security should be organised, whereas the French preferred a more kind of European bulwark against what was seen as American dominance, whereas the British preferred essentially this idea that you would keep the transatlantic relationship and NATO alive by allowing for burden sharing so that the Europeans weren't dragging the Americans into every conflict available.
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None Portrait Speaker 3
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No, since before then, I think it's been, uh. Uh, something to do with the van der Leyen presidency, but even the presidency of the commission before that, the Juncker presidency, there was a move towards increasing commission, frustration with the fact that the member states had said all the right things for decades about needing to pool their efforts and resources and cut out the waste and duplication of their procurement and collaborate more and get more bang for their euros. Um, and yet, this indeed was the premise upon which, uh, the European Defence Agency was set up in the.

Years just after the millennium. Um, but nothing much happened. Um and the commission becoming increasingly frustrated, tried to get into this territory and found a trump card in discovering a way to deploy the European Community budget, the general budget of the European Union. So they set up the European Defence Fund, um, which offers about a billion and a half a year to, uh, of money, which the Commission controls to ministries of defence to run collaborative projects together. And since then, of course, since the Ukraine war, they've got into the business.

The other card they've played is the borrowing power of the EU, with the 150 billion safe programme of cheap loans. So the member states react in a very human way. Um, they, uh, they're very keen on the free money. Um, it's, it's free money as seen from ministries of defence. Anyway. Um, but they at the same time resent commission intrusion and the idea that the free money should have conditions attached to it, that they should collaborate more, that they should pay attention to the lessons coming out of Ukraine, that the Commission should presume to name a few capability priorities, like pointing attention to the yawning gap in air and missile defence that we suffer from across the Western European continent at the moment.

Frustratingly, of course, the member states know that the Commission is right in this. But that doesn't doesn't doesn't stop them resenting commission interference. So it's a bit like, um, Japanese knotweed getting into a. A walled garden which has been the Commission's reserve on on defence. Um the member States don't like it and and uh wish to adhere to their sovereign prerogatives to collaborate or not as they see fit and to um spend their money, even this borrowed money on the capabilities that they regard as the most important.
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None Portrait Speaker 2
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Okay. And perhaps just. Yes, professor Menon, can I just come to you because the this, uh. Whether it was professor van der Leyen or who. But this, this centralisation of the EU, uh, power and and funding, what has that meant, really for the UK's involvement?Because because of where we now find ourselves this last ten years. But our attempts really to work with the EU to participate through various programmes, uh, because. The EU wants us certain nations in the EU want us to to be within that.

I mean, I think firstly, just to sort of extend Nick's metaphor a little bit, the knotweed grows faster if you lose your weedkiller. And we were the weedkiller. I think a lot of the things you've seen over the last decade that have happened in European integration, we wouldn't have allowed to happen. I mean, I cannot imagine any British government not vetoing the creation of a commissioner for defence, for instance. So I think one of the reasons why the EU has changed so dramatically since we've left is because we left.

We weren't we weren't able to influence it as we were when we were inside on the commission. I mean, what I would say is you're absolutely right. There is clearly some sort of power battle going on inside the European Union for control over foreign policy at the moment. The problem, I think, is that von der Leyen isn't really very good at this, in the sense that all the. Signs are that she was quite keen on UK participation in safe. She went on record at the summit in May last year to say we'll have a deal signed on this in the next few weeks.

She met the Prime Minister in the margins of the G20 2 or 3 weeks before the negotiations collapsed, and I think a good commission president is able not only just to lead the commission, but to corral the leading member states into a position where they're all roughly facing the same way. And my sense about her is that this commission is not able to do that as effectively as the best commissions of the past have been able to do it. So member states sort of slip out of line.

And I think that's what happened over safe. I mean, member states are arguing amongst themselves still over what happened about safe, but that seemed to be a failure of internal EU politics, because the commission was fairly clear they wanted us in and they thought it was to everyone's benefit that we were in Nick.
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None Portrait Speaker 4
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Whitney.
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None Portrait Speaker 3
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Um.
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None Portrait Speaker 5
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You're on mute.
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None Portrait Speaker 4
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Yes, doctor Martin.
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None Portrait Speaker 5
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Has anything been.
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None Portrait Speaker 1
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I think I think the conversations are really important and the dialogues are really important. And that was what we that was when we kind of dropped out of the system. And don't forget that EU foreign policy cooperation has always been much more intergovernmental. So what really was about having those conversations and finding out what was going on?And we dropped out of that system and we couldn't replace it through bilateral ties, because not only is that more complicated, but the External Action Service was well aware that we were trying to do that.

And so essentially engaged with the member states to make sure that we didn't undercut, which is probably a good thing as well, right?Because we don't want to weaken the European Union. At the same time as we're also dealing with a more difficult environment, I think. So my point is those conversations help the existing bilateral relationships, and they help the relationship with NATO. And one of the problems is even if we find ourselves dealing with some trade offs between Pro-nato and pro-EU versions, actually, at the end of the day, the organisations work closely together and a lot of these relationships are quite positive.

And so being present in the room at different times within the organisations can actually be really helpful. I think. I share, um, Professor Mellon's skepticism about some parts of the document. When you read it, it can, it can feel like quite a hollow document in two ways. So one would be a lot of the stuff that's listed was cooperation, which took place under the Johnson and Truss and Sunak governments, and was perfectly possible to do informally. In the sense the first part is a list of things that have been done already without the formal security and defence partnerships, which sounds good, but of course it's been done.

The second way it's slightly hollow is it's pointing towards potential agreements that you might have in terms of an administration agreement with the EDA or a framework participation agreement to engage in Csdp. So in terms of the dialogues are the main part of it, I guess. And there's a lot of other stuff which has either been done or is to be done.
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None Portrait Speaker 3
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Well, that's um, that's a difficult question. I mean, the big prize is meant to be entry into safe and this we've already discussed that went wrong. I hope we'll try again. Um, and, uh, I hope with a different result beyond that. I think we. Actually probably have to think about selling ourselves a bit harder to Europeans. I mean, the hard truth is that at the end of the last millennium, when we set up European defence with with the French, we were understood to be an indispensable factor in any European effort to create some defence identity.

Uh, that was not um that was not NATO. And we weren't willing. And so the, the effort languished essentially. Nowadays, I think, uh, the view from the continent is much less, um, admiring of what the Brits have to offer. I think there are a lot of people who think that we still remain too wedded to our ideas of the special relationship, and they see the failures of our of our military capabilities. They, you know, the Germans chortle away at our inability to deploy a type 45 destroyer to the Mediterranean in under two weeks.

Um, there is the. Sense that we are not the power we were. And I think we need to think about, you know, trying to trying to emphasize not necessarily to the Commission in the context of these negotiations, but to project ourselves a little bit more as an indispensable partner across Europe. Perhaps we can make something out of the ruins of the Franco-German um, failed cooperation on the next generation of fast jets. I do wish we'd play the nuclear card. I mean, we watched Macron make a very significant and important speech on how the French deterrent would be available to allies.

And, um, you know, half a dozen or a dozen European states responded very positively to that and recognised that this was a big shift of French policy. I'm not sure we said anything about it at all, did we?We we probably said what we've said for 40 years, which is that our nuclear weapons are available to NATO and that's it. But it's years since any British prime minister or British defense secretary has given a serious, detailed account of what our what our nuclear doctrine is, what our nuclear capabilities are, how we would respond, for example, to, uh, renewed Russian aggression, which involved, um, involve going nuclear.

So I think we need to be more conscious of, of, of, we have an audience out there to convince that we're still worthwhile.
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None Portrait Speaker 1
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Yeah, I think I mean, I don't want to pass the buck, but I imagine Whitney knows far more than I do. But just to say, I think the difficulties of, of re-engaging kind of with sort of defence industrial side goes back to what we talked about earlier with the the role of the commission, how close that takes us to the single market. And so I think that very much the view in the UK has been when it comes to sort of post-Brexit developments, actually, we can identify areas where there is a lot that we could add to what the to what the Europeans are doing.

And I think it's probably true to say that any, any version of an autonomous, a strategically autonomous Europe, not EU, would necessarily depend on the capabilities of the UK for its credibility. That said, we've sort of boxed ourselves into a corner with a more distant relationship from the single market. So it's becoming increasingly difficult in two respects. Firstly, because we're outside the single market and that limits what we can do. Secondly, because we have, as you can see with, say, for sort of more competitive relationship with France in terms of, you know, I think them seeing us as something of a Trojan horse and a potential spoiler for the idea of a European defence, technological industrial base.

So I think that's very difficult. And I think that the way that it's it's often been framed, including by the current government, has been you can build back the relationship through defence, and then maybe you can unlock forms of economic cooperation. I think it's the other way around. Right. I think you have to start looking at the red lines in relation to the single market, and then that would enable greater engagement in defence.
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None Portrait Speaker 3
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I think the second part of that question is, in my view, rather rather easier to answer. I mean, I think the Ukraine war has simply introduced a new era of warfare, one in which military power is no longer denominated in those Cold War capabilities, which we're all very familiar with of, of tanks and ships and combat aircraft, and is now denominated. Well, we're all very familiar with the idea of drones, but but the use of technology and modern warfare goes so much deeper than that. It's drones and missiles.

Uh, it's, uh, sensors and communications. It's the sharing of intelligence. And above all, the AI assisted battle management, um, systems, which the Ukrainians have done an extraordinary job in developing largely for themselves, which enable them to, to hold back the might of the, of the entire Russian army. And it's also, incidentally, um, forced the Russian air force to simply skulk in Russian airspace, offloading glide bombs towards Ukraine. And as for the Russian navy, well, as you know, half of it is is holed up in harbor in the Black Sea, and the other half is, um, swimming with the fishes and the bottom of the Black Sea.

So, um. Um. These transitions of course can't be, can't be done overnight. But um it is this business of, of accepting the new high tech nature of warfare for the next decade. It may not last forever, but it's, it's a, we're at a time when defence has the whip hand over offense. Um, so the more we can shift ourselves into, into recognizing that and putting the investment in those places, I think the more welcome we will be as partners to other European countries who I it's more evident to me that they've got the message than we necessarily have in Britain.

I mean, the um but typically all going off in different directions. I mean, the Italians have the thing called the Michelangelo Dome, which is meant to provide one of these all singing, all dancing, high tech battle management systems for controlling air defence and so on. The Germans have their their version. The French are going very, very heavily in all these directions. And we, we um well we're buying more F-35s from the Americans to drop American bombs. This um uh.

That's not your question. So I'm straying off piste here, but I do wish we'd cancel that project, which makes no sense at all. And, um, play to the Europeans more the things that, that they understand. And the commission evidently understand are the, the urgent capabilities of the future.
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None Portrait Speaker 8
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It could.
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None Portrait Speaker 1
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I wouldn't I wouldn't disagree with any of what has been said. I think in terms of things like safe, there's also there's also the question of some of those post-Brexit legacies. Um, and I think in a way, it's quite surprising that ten years on, we still have sort of Brexit hangovers. But if you think about some of the, some of the arguments coming out of, of Brussels and the member states, and they're not totalizing arguments. There are a lot of there are a lot of allies who want, um, who want the UK to be involved, but I think it's very much, there's a lot of concern that the UK will end up being a spoiler or a Trojan horse.

There's a lot of concern that the UK, uh, cannot be trusted to be a reliable partner either because it hasn't shown much interest previously, or because there might be a less interested government at some point coming down the line, or a more Eurosceptic one. Um, there's perennial concern that what the UK is seeking to do constitutes some form of cherry picking, which is again quite surprising because if you go back to conversations in Europe and in the UK, even at the time of the referendum, there was this kind of idea that you could keep security and defence kind of detached from those conversations, right?That it was so clear that there wasn't that same sovereignty cost for the UK, that there wasn't, um, that there wasn't so much of a threat to kind of, um, to, to, to sovereignty, but also that the UK had so much to offer and it didn't come to pass.

Right. And we've seen previously across the course of the negotiations how time and again, conversations on security and things like Galileo very quickly became subject to the overarching dynamics of the Brexit negotiations.
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None Portrait Speaker 9
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Paul Godson.
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None Portrait Speaker 10
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Director of Policy Exchange in line with the committee protocols. Thank you. Thank you for the testimony so far. Just interested in the point you've made about two things. One, the rights of smaller member states. I think you and others have mentioned that. Second, and correlated that obviously, the needs of longer term European efficiency. I'm just interested. That presently there are two countries that are holding up the aid to Ukraine in one, perhaps not the only two, but there are two significant ones.

There's, first of all, Belgium holding up the €210 billion Russian frozen Russian assets. And that's a significant factor, as we all know. Second, there's the Republic of Ireland denying that it has any obligations under the sanctions regime to supplying the 200,000 tonnes worth of alumina to Russia as per the present point. That's been obviously noted in the Ukrainian media in the Irish Times. So I'm just interested how you think, what the incentives you use, the word someone use the word about incentives to get.

How do you create incentives to deal with that kind of parochial intransigence, if I can put it that way, and not a little provocatively. And just as a final thought in the light of this, isn't there was somebody maybe you meant was talking about cherry picking that there was fears about us cherry picking if we went back in. Isn't everyone at cherry picking?It's not just a British vice. When we were in there or thereafter, and that we sort of tend to, uh, sort of self-flagellate ourselves slightly in this department, both pre-brexit and post-Brexit.
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None Portrait Speaker 2
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On the second question, I'd say absolutely. The European Union cherry picks the sacred principle of the indivisibility of the single market isn't so sacred in the areas of agriculture or emissions trading or electricity market membership, which is all cherry picking. The fact of the matter is, the EU have concluded at the moment that we're more desperate for a deal than they are, and so that they can determine what the shape of that deal is. So that's the reality at the moment, is this government has desperately wanted to get these deals.

And so the EU feels able to say, actually, you can have this, but not that. I mean, they feel they have the whip hand, whether rightly or not, is another question on incentives. It's very, very hard. I mean, generally in the European Union, the way you get around these blockages is by signing package deals. The problem at the moment is member states are so divided over so many different things, it's virtually impossible to conceive of a package deal that holds everyone together whilst getting the concessions that you want.

So this was something the European Union was very, very good at in the 1990s. It's something that has become far more difficult now. And of course, remember the significant majority of member states are small countries. Uh, and so trying to overcome resistance by small countries by thinking about are there ways of sidestepping their vetoes is very, very unpopular with the significant majority of member states, which makes it a lot harder to do now than it used to be when the balance of member states was quite different.
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None Portrait Speaker 1
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Yeah. Thank you. Thank you for the question. So on the to deal with your second one first, I think one of one of the problems here is that we tend to think in terms of the EU's precedence and principles, rather than its identification of its interests and a high degree of unity. So I think it's very clear, looking at the withdrawal agreement, the protocol, the TCA, and a bunch of decisions that have been taken, the EU is perfectly happy to introduce elements of bespoke ness where it benefits its interests, what it isn't willing to do is to cross that line where it thinks that it's essentially offering the UK a sweet deal.

And I think that very simple formulation takes us a long way and and has been spurred on. The reason it's still exists today is that the Commission sees it as a continuing, I guess, existential threat. You might have an existential threat from Russia and from Trump, but equally, you have an existential threat of the integration project falls apart because you give out sweetheart deals and everyone else wants to leave, but also because the TCA was seen as a good deal and collective. And the EU's unity during the bargaining process was seen as working very well.

So I think that's something that we can expect to continue on. The point about, um, I mean, I guess this takes us back to the first question that essentially the EU is not the kind of actor that you would expect, want to take quick strategic decisions. And there's only so far that you can overcome that. So you have this veto based consensus system. It's especially the case and was designed into foreign security and defence policy, precisely because that cuts at the heart of national sovereignty.

I think I think there's two kind of ways around it, aside from just the bargaining, the really slow one is kind of socialisation and incremental change and things. Activities like the strategic compass to try to see if you can get the the member states on one page or agreement on shared principles. The second is occasionally deployed by the commission, which is a threat that Qmv will be introduced, which is a very first step. If you keep acting like this, at some point, you might lose that right, which I don't think is meaningless.

But neither of those are fast or particularly effective.
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None Portrait Speaker 9
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Okay.
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None Portrait Speaker 2
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I'd say two things to that. Firstly, we have examples from the recent past of how trade and defence talks can facilitate each other. If you think about Aukus, uh. We did a trade negotiation with negotiation with Australia, and the orcas deal came quite quickly after that. And the two were clearly linked in some way, shape or form. So yes, you can do that. I think the problem in the European Union is I know this is something that frustrates the British government quite a lot, is if you have conversations with individual member states.

They will say, we're very keen to have you back in the fall. We're very keen to cooperate with you very, very closely, those same member states appear to say something very differently when they're in a room in Brussels without us. Uh, and that is an ongoing frustration, which is when individual conversations with member states about geopolitics gets translated into conversations in Brussels about collaboration with the European Union, they get blown off course somehow. And we're not entirely sure whether that is, you know, the role of the commission or the constraints of EU law or the fact that actually in the council, we never managed to be a priority for their discussions.

So even the states that are friendly towards us and want to see more collaboration aren't willing to burn their scarce political capital. Arguing in our favour when, you know, they've got big budget negotiations coming up, which are really important politically for everyone. So it is it is very, very difficult to do, I think, and I think despite the fact you're absolutely right, that many member states are happy to work with us bilaterally, would like to see more security cooperation, not at not at the expense of their reputation in Brussels and not at the expense of their political capital in Brussels.
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None Portrait Speaker 4
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Tyler.
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None Portrait Speaker 1
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I mean sorry.
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None Portrait Speaker 4
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Yes.
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None Portrait Speaker 1
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Yeah. I mean some of that has been happening already through the coalition of the willing. And I think doing quite a good job to try and identify ways that ways that European countries can fill some of the gap left by the funding pulled out by the Trump administration. I think in terms of. Building, building an alternative to NATO through EU structures is not going to happen. Um, it's it's not what the organisation is designed for. The time frame is too lengthy.

By the time you got started on discussions, Trump would be out of office and there would be a different problem to consider. One thing that I think is really important here is the value of kind of signalling, um, where allegiances lie. And I think that's what the Starmer government has tried to do is essentially saying. You know, the relationship with the US and Europe kind of relied on a historical grand bargain in a way that there was dependence. Yes, but it was also tacit support for American hegemony.

And in some cases, some of America's muted support for America's wars of choice. And I think signalling essentially that what happens here is when Trump says, well, we don't need the Europeans, that the UK might be part of the European voice as saying, well, we don't need you is actually very powerful because of course, that's a big market for the US. That's an important part of that political grand bargain. And I don't think Trump wants an independent European Europe that is strategically autonomous and is peeled off the UK, which in terms of where our interests lie, it's fundamentally with Europe and not with Trump's United States.

On most issues.
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None Portrait Speaker 3
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Well, if the Russian threat of us experienced over the last four years hasn't been adequate to. Get Europeans to to do anything more than than spend a lot more money on defence, but hasn't encouraged them to collaborate more or address the the huge weaknesses that they face. It's hard to know what will. Um, I mean, the problems in Europe is they don't even have a forum to, to talk about these issues. Um, we have a cat's cradle of bilateral relationships and mini lateral agreements, uh, cascading across Europe.

Um, but, uh, and we have e numbers, you know, uh, e3 and e4 and e5, and there's now an e6 I think, but no recognised forum. We don't have the institutions in Europe or with, uh, between Europeans and ourselves for in a recognised way for, for having a go at these big strategic issues. And as for command and control, you know, we, if we find ourselves having to resist, um, uh, Russian. Air attacks, air and missile attacks. And I would not rule that out because I worry about, um, you know, where things are going in Ukraine at the moment.

I mean, Putin is is going. To be hard to persuade that his his ambitions in Ukraine have fallen flat and that he should just quietly sign a ceasefire and, and, and forget about it and tacitly admit defeat. And he's not going to send tanks across the borders into Europe any time soon, I don't believe. But the sort of, um, incidents we've seen around, um, around, uh. The borderlands of Eastern Europe recently, was it the Latvian or the, I think it was the Latvian government that collapsed after misdirected drone was um, was landed.

You don't need to do much of that. Um, if you don't have. If there isn't effective air and missile defence to counter you what to do about it. Um well, in the absence of these Central European institutions, perhaps we should be thinking a bit more of some of the regional um arrangements we have. Are we making as much as we could of the Jeff, for example, with the Nordics and the Baltics?Um might that be a place where we could um actually pioneer an experiment in getting the necessary collective multinational control over linked air defence systems in the north of Europe.

Um. Hard to know, hard to know. Um otherwise we have to wait for the commission to spend to, to secure even more money from the EU budget to spend on defence and to, uh, and to make its rich run. But that could be half a century to wait.
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None Portrait Speaker 4
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For.
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None Portrait Speaker 3
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Well, yes, in an ideal world, in the current strategic circumstances, I'd like to see, um, you know, if money was no object, I wish we would buy some of the new French cruise missiles, which are designed to, um, uh, be. Air launched, um, over whatever 1000km in range as a, as a possible underpinning to the strategic submarine deterrent. But realistically, um, I think we're, we're probably stuck with the dreadnought class and its appalling expenses. Um, but. We have always insisted and I hope to goodness it's true.

I think I believe it is that although we may be dependent on the Americans for the maintenance of our of our Trident missiles, um, the fact is that that. Dependence would could be applied by a hostile US administration only over a period of months or years. And that tomorrow, if uh. If the Prime Minister, um, chose to launch a Trident missile, that that he would be able to do it or offload an entire salvo of Trident missiles, he would be able to do it.

And as long as that's the case, um, we are able, I believe to and as long as we have the ability to launch a smaller substrategic strike before going full pelt for Armageddon, a small warhead launched from a single Trident missile, something that I don't believe the government has actually confirmed they still possess. For half a dozen years. Um, as long. As we have those capabilities, we can be shoulder to shoulder with the French in offering what increasingly Europeans see as an increasingly important part of their of their defence panoply.

It's the it's the it's the bedrock of defence at the end of the day.
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None Portrait Speaker 2
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Well, I think the attractiveness stems from the fact that there are a bunch of countries that share our geopolitical interests. And if there's one thing that the second Trump administration has made clear, it's their geopolitical interests are very different to ours. Okay. So the advantage comes from being a medium sized state that has partners on its doorstep, that share its interests, with whom it makes logical sense to work. That doesn't mean all that work has to go through the European Union.

We need to distinguish, I think, between Europe and the EU. We need to work with Europe. That might on occasion necessitate working via the EU on areas like procurement, whereas, uh, Nick has been saying the commission has built up its role. But the fact of the matter is to preserve our own security interests, we need to find ways of working with our European partners more closely. Now, one thing I would say is I don't see much in the way of evidence that there's an appetite in government for offsetting our reliance on the United States.

I think we're in a very different position to many other member states there, where if you talk to officials from most European states, they'll say, we're dependent on the Americans. We need to do something about that. I'm not sure I've heard the same from British officials. But you see that Nick talks about the F-35s earlier, the Portuguese about a year ago decided to cancel their order of F-35s. Why?Because they said we can no longer be dependent upon a United States that doesn't share our interests anymore.

What I would say is, I think our policy of playing that balancing act of not choosing between Europe and the United States is going to become more and more difficult with time. Nick was talking earlier about the role of technology. Okay, if we want to work very closely with the European Union on defence, that will involve technology. And we have made a decision in areas like AI to diverge from EU rules to attract American investment. I think there are some very, very acute choices that we've successfully avoided for quite a long time coming down the road at us, because at that point, we're going to have to decide what is our priority.

If our priority is working with our neighbours to ensure security, that's going to involve some difficult economic choices about our openness to us. Investment in areas like AI, because the EU will not simply say, okay, we'll accept you being a bit different. They will impose regulatory alignment in these areas.
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None Portrait Speaker 2
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Possibly, yes.
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None Portrait Speaker 1
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I would say, um, I mean, just to build up on the difficulty of the balancing act because I think I think the combination of Brexit and Trump has put the UK in quite a difficult position. So if you think about one of the, one of the common sort of frames of reference for UK security policy has been this idea of the concentric circles or of the UK as a kind of network power that essentially our the ways that we could cope with post-war decline was effectively being part of different memberships where we could shape the direction of travel.

And I think that's become increasingly difficult for us to do. So obviously, Brexit has sort of cut off our engagement with the European Union and with the way that we haven't been able to very easily plug into those security debates, we thought we might still be influential in that sort of made us less useful, not just for the Europeans, but also for the Americans. Right. In terms of keeping Europe as a pro Atlantic liberal market economy kind of direction. And I think Trump has challenged that kind of role the other way around as well, that the immediate fallback then is to think about the special relationship.

And now, of course, I, I don't know if Trump believes in special relationships to the same extent. Certainly he's he's been very keen not to engage on the basis of traditional US grand strategy or traditional allies. And the other thing I think, which is kind of related here is, um, is that before the invasion of Ukraine, the relationship between the EU and NATO as kind of security providers in terms of sort of regional, let's say, peacekeeping missions and sort of what was the dominant security priorities of the 1990s for the UK?It was a little bit of a choice.

So it gave us quite a bit of freedom. We could essentially say, well, this framework, we will go through NATO for this, for this particular crisis. We'll go through the EU. Um, what's happened post Ukraine is you've seen much more of a division of labour between the two. And I kind of think of it as like a dual key system where effectively, in order to credibly deter Russia, you need specific actions taking place on the EU side and on NATO side.

And that makes it costlier that we're now on the outside, I think. So I don't know if that's true or not. We'd question.
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None Portrait Speaker 8
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Thank you.
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None Portrait Speaker 15
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Um, thanks for the question. Uh, so Russia's economy is, uh, feeling, uh. Uh, experience, uh, tremendous pressure from a side of sanctions and from the side of internal imbalances. So, um, during, uh, last couple of years since the full scale invasion of Ukraine, Russia, Russia's economy passed three major studies. First was decline, uh, in. 2002, as the reaction of the economy on breaking supply chains and sanctions, which were imposed by the coalition after the full scale invasion of Ukraine, then adaptation, which was, uh, which went hand in hand with increased fiscal impulse, uh, which I can assess at 10% of GDP.

This gave economy a boost. Uh, so it grew in 2023 and 24 by 4%. And then, uh, the economy was overheated and the decline by 1% in 2025 and stagnation for 2026. That's the forecast. Uh, that's the official forecast and the forecast of international economists and myself. So, uh, the economy is not bringing on the verge of collapse as some, uh. Analysis trying to say, uh, it's stagnating, but stagnation doesn't mean a collapse. It's a slow going erosion of living standards of people, of, uh, income, of businesses, uh, in, uh, in May, Ministry of, uh, Economic Development forecast.

First time in my memory in Russia has become more pessimistic than the forecast of the central bank. So, uh, the official GDP forecast for 2026 is 0.4%. Uh, and it is down from previous assessments, which was made only six months ago. Uh, what is interesting is that the official rhetoric is trying to normalize stagnation, uh, through language, which means that officials in Russia trying to use wording like it's not a stagnation, but, uh, reconstitution, reconstruction or negative growth or changing or negative growth instead of decline, uh, the numbers saying different.

So, so the slowdown is not cyclical or temporary as officials, as official rhetoric trying to present. It's definitely a new, uh, a new stance of Russian economy. Okay. Which.
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None Portrait Speaker 8
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To.
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None Portrait Speaker 2
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Thank you.
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Well, what's.
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Oh it's okay.
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Can we.
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None Portrait Speaker 10
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Well, one of the reasons why we exist and survive as a research program is because that's a very big question, and it depends enormously on the perspective you take. So if you go back to, uh, late 2021, early 2022, there was a lot of kind of breathless rhetoric from the then prime minister and foreign secretary about what sanctions were going to do to the Russian economy, none of which, frankly, came to pass, um, decimate the Russian economy, etc., etc., were the sorts of things we we heard about. Have they placed considerable costs on the Russian economy then?Yes, absolutely.

I mean, I look forward to answering a question about the Russian frozen assets, which I heard in the previous session, that that was $300 billion taken off the table right away. That is a genuine cost. Is it costing them more to export their oil?Because now they're nervous about passing through the English Channel?Yes it is. So I mean, there are huge costs, but there is a naivety amongst those that think that sanctions are somehow a kind of nuclear economic weapon that are going to change the calculus of somebody who is hell bent on, on, on a mission, as Putin was in 2022.

So yes, it's put costs on the economy. Has it put costs that have changed his calculus?No. Would, would, would we have been better off not putting the sanctions on the Russian economy?Absolutely not. So we've done the right thing. But I think we have at times been misled as to what impact sanctions would have had.
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None Portrait Speaker 10
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But the original sin was after 2014, so after 2014, we were not serious with the way in which we implemented sanctions on Russia following the first invasion of Ukraine and the annexation of Crimea. And so if you had been a planner sitting in the Kremlin, should you have cared about this?I hasten to add, in 2021, and you'd heard the rhetoric coming from European capitals in relation to the threat of sanctions. You'd have said, really, you know, last time you talked to big game, you never followed through.

So I think that the first issue is we sowed. We sowed the seed for the underperformance of sanctions in the period following 2014. That's the first thing. I think the second thing is that and the UK, I have to say in a way, stands apart in this. But as far as Europe was concerned, there was a red line and that red line was we are not prepared to go as far as we need to on sanctions. If that is going to cause unacceptable pain on our own economies.

So put simply, we were we would rather we would rather the Ukrainians suffer than, as people used to say, you know, grandma froze to death in Germany in the winter of 2022, when the energy sanctions were first being discussed. So that was, in a way. The second sin was we were not willing to go all in. There were some steps we made on sanctions which will have will have surprised the Russians. The the immobilizing of the central bank assets, I would say chiefly amongst them, but fundamentally, although we put a lot of sanctions in place, there are steps that we could have taken on energy, for example, much, much earlier, it would have hurt us, but it would have hurt us a lot less than the Ukrainians were hurting and still are hurting every night.
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None Portrait Speaker 15
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Well, uh, speaking on sanctions, I can't agree more that sanctions put a tremendous cost on Russia. And we saw it in inflation in the way how Russia restructured its trade routes and the pivot to the to the east, uh, which sometimes Russian officials are bragging was not what volunteer what's not a voluntarily choice of the state. And it's still a matter of uncertainty among businesses. So was it a real pivot to the East, or at some point when Russia would normalize relationships, at least with the United States?Uh, they need to run back to the West.

Uh, about sanctions. I just want to add that, uh, they of course, uh, they have a tremendous also impact on Russia's elite and Russian society, but also created a secondary effect, which were on, um, unexpected, like all this infrastructure of like Russian, Russian oil trade is now operated, uh, in a shadow, uh, as a, as a shadow fleet. And the share of this shadow fleet in the global oil trade is near 10%, which is big, but this infrastructure, but the oil supply infrastructure, like traders, insurers, uh, repayments and all of this created an after full scale invasion.

It could serve to anyone. Same with the financing and financing infrastructure and banking. All this, uh, facilities created to make, uh, settlements, cross-border settlements for Russia and its partners will, will remain in place after the full scale invasion. Uh, it's cheaper and less transparent for, uh, IMF and compliance procedures, which means that, uh, for some to, to, to some extent, they can be competitors to regular, uh, financial system. I think it's, it's, I think it's essential to take into account.
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None Portrait Speaker 10
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I mean, on the sanctions side, I think certainly London and Brussels are extremely well coordinated. There's lots of kind of, you know, shuttle backwards and forwards on the the Eurostar. I think the UK plays an important role because we decide sanctions for one nation, so we can move much, much faster than the EU. So I give an example. Recently, I think the UK brought forward some very powerful sanctions, uh, in the cryptocurrency world, in particular on a crypto exchange called DT.

And demonstrated the art of the possible to the European Union. We took a group of Foreign Office people over to brief, uh, the crowd in, in Brussels. And basically the message was, you know, this is what you can do. We've demonstrated in the UK, we don't have to get 27 countries to agree. Um, you guys should follow suit in your own sweet time. So I think that kind of, that sort of relationship has, has been extremely, has been extremely effective.

And obviously prior to the Trump administration, the US, the UK and the EU were very much kind of moving in, in, in lockstep in, in that in that regard, I think where it gets more complicated and this is where I think we can and should learn from the Americans. Where it gets more complicated is when you zoom out and say, okay, but what about thinking about illicit finance as a national security issue?There is a great line in the 2025 National Security Strategy that says, whereas the effect of all elements of our of our national security, um, are supported by our ability to tackle illicit finance, that's a great statement, but actually, are we embracing that that from a national security perspective, not from a, an anti-money laundering perspective?And, you know, people investigating that sort of thing.

But actually, and I don't know the answer to this, but like, how are the agencies thinking about this topic?How are how are our security and intelligence dialogues with the Europeans embracing this topic where we are using financial intelligence as another of the tools that we engage alongside human Sigint and all the other things that you will be very familiar with more so than me. So I think that's the question that we need to answer. Like, where is our embracing of finance as a national security issue?I don't think we're there yet, and I would like us to take the learning from the Russian full scale invasion of Ukraine and the way in which we've worked on sanctions as a national security priority and mainstream that, to use a horrible phrase, across the rest of the way we think about national security.
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None Portrait Speaker 15
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Well, um, frankly speaking, it's, it's, it's a big part of Russian daily life. I mean, daily life of Russian business community and daily life of Russian economic leadership, uh, is sanctioned circumvention, uh, and creation of, uh, of, of different facilities, uh, which allows businesses, uh, uh, to, to, to, to maintain consumer abundance and maintain their, their living. So for now, the pace of this adaptation strategies is slower because the infrastructure, uh, we, we, which I mentioned previously almost built from, from scratch. I mean, before the full scale invasion, uh, before 2022, Russia was part of the global financial system and used the same toolkit as any country using in its, uh, foreign trade.

So it was normal banking, correspondence, accounts, banking, banking through bank transactions, nonfinancial, uh, facilities for settling transactions. Uh, but then something new, uh, since the global financial system, especially euro and dollar, were close to Russia. They first started to use yuan and the share of yuan. Skyrocketed from below 1% in, uh, in trade to almost half percent of foreign trade. Now, Russian exposure to China is 37% of Russian imports it's got from China. Different, uh, facilities, the different facilities, like chains of intermediaries.

So Russia become an economy of intermediaries and financial agents or, uh, facilities, which, um, including multiple banks and transaction, it's now become something common in, uh, in foreign trade. Same with, uh, getting components, uh, because Russia has a very poor, uh, industrial base, especially in terms of semiconductors. Uh, uh, high end, uh, technological stuff, different stuff for AI, uh, hardware for computing and so on and so forth. So Russia is, uh, and so. Is there is an industry, a, of, uh, of intermediaries who are getting this stuff, uh, sometimes smuggling to through the border and, or sometimes getting it legally via different, um, uh, the different chains of, uh, of, of, of proxy firms.

Third infrastructural dimension for Russia, which is essential is, uh, Russia surrounded by post-Soviet countries, Armenia, Kazakhstan, Kyrgyzstan, and Russian allies on Eurasian Economic Union became, uh, became an. Infrastructural field for this parallel import or for smuggling. It's also essential. And just one word about sanctions. And I think it's it's it's quite important in terms of wording when, uh, when you are doing sanctions by sanctions, sanctions imposed on Russia after Crimea in 2014, first type of sanctions, uh, were imposed on Crimea based entities and Crimea, based, uh, and Crimean, uh, leadership or leadership related to Russia Security Council.

So it wasn't affected Russian business community almost at all. Or Putin's inner circle. Uh, most sanctions, sanctions on banks are prohibited for, for, for forbidding. That came after a 17. And, um, um, uh, so they're, they are framed not for the Crimea, but they are framed for atrocity towards, uh, civil aircraft and, and those give Putin since Russia denying aircraft incident that its involvement in aircraft incident those give Putin an option to say that sanctions are have um have russophobic nature and has nothing in common with the with the Russian aggression towards Ukraine, with Russian actions on the foreign uh.

Uh, uh, in, in Russian actions abroad in 2022. It creates a very interesting aberration in, uh, in judging of Russian leadership. So they are fighting against sanctions, but they are not fighting against, uh, the real reason, the core reason of the sanctions, which is the war. So the war is separated from sanctions. So that's why, uh, business in Russia and economic leadership in Russia consider sanctions as something like a natural disaster thunderstorm, which came inevitably because of russophobic nature or whatever.

And this is part of the wording in which sanctions were framed. And I think it's essential when you're communicating sanctions, uh, to be very attentive in what kind of wording and framing in wording and framing.
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None Portrait Speaker 8
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Are your response.
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None Portrait Speaker 17
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So point just.
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None Portrait Speaker 8
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Mike Martin.
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None Portrait Speaker 19
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Thank you very much.
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None Portrait Speaker 13
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Okay.
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This debate has concluded
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