**COMMONWEALTH CONFERENCE**

**NATIONAL INTELLIGENCE COUNCIL 2020 PROJECT -- SCENARIO**

**The views expressed in this and other papers associated with the NIC
2020 project**

**are those of individual participants. They are posted for discussion
purposes**

**only and do not represent the views of the US Government.**

**COMMONWEALTH CONFERENCE**

**NATIONAL INTELLIGENCE COUNCIL 2020 PROJECT -- SCENARIO**

The paper looks at Europe and Russia separately, although there are some
themes and issues common to both. In each we notice the continued US
dominance of the global agenda, the rising power of China, the declining
strategic importance of Europe in terms of world security, and the
difference between Europe and Russia's dwindling, ageing population and
the rising, juvenating populations of the US and China.

# EUROPE

First Europe, which in this context means the whole of the continent
less the Former Soviet Union, but including the Baltic States.

In this scenario, in 2020, Europe will be major global economic and
political power, rivalling the United States and China. The engine of
Europe will be the European union (EU), expanded to encompass all the
countries of Europe, including Norway, Switzerland, Iceland, the
Balkans, Turkey and possibly Ukraine.

Europe will increasingly pursue its own interests -- and be less
inclined to follow the lead of the US. It will strike out on its own
with initiatives eg in Mediterranean/Africa and Middle East -- areas
where Europe believes that for historical, geographical or cultural
reasons it has a distinctive role to play.

But:

The EU will be less homogeneous. There will still be distinctions
between eastern and western Europe (although less so than now, with
living standards in poor and rich regions more closely aligned).

And its increased size will make the EU more ponderous. There may be
tension between advocates of inclusivity (i.e. the widest possible
Europe) and those of institutional idealism (narrower Europe but deeper
co-operation). However, by 2020 the EU will have adapted to the need to
take decisions at 30 (ish), and for differences in attitude between
"old" and "new" Europe to be less prevalent; the so-called Franco-German
motor will have given way to an enlarged central grouping, although
jockeying for leadership -- particularly among the large states - and
tactical alliances will remain. On the major issues (security,
governance, economy) there will be a new European consensus. But
recurrence of internal instability in aspirant countries like Albania,
Macedonia, Moldova, Ukraine and Belarus, or pressure from the Russian
Federation against their inclusion in European structures, could be a
source of tension.

# Drivers

Turning to the drivers identified by the NIC.

*Demographics*

This will be an important driver for Europe. Current demographic trends
will continue resulting in a population which is ageing and declining.
Europe has the lowest birthrate of any continent. Three Western European
nations (Germany, France and Spain) have the lowest birthrates in
Europe. Yet longevity is improving, increasing the ratio of dependants
to workers. By 2030 a quarter of Western Europe's population will be
over 65. The worker deficit will be made up to some extent by increased
population movement within an expanded EU (eg from the Balkans and
Turkey). While central and eastern European states will experience
reductions in birthrate compared with current levels, they will continue
to outstrip Western Europe. Over time this will alter the dynamics
within the EU.

Some European countries (eg Germany) are already struggling to deal with
the rising pension/health costs of an ageing population (reform is
underway but slowly). Discretionary expenditure such as defence and
overseas aid is likely to come under severe pressure in order to
preserve essentials such as education and healthcare. But better
co-ordination should ensure a more efficient European effort.

Higher birthrates among immigrant populations will impact on the overall
ethnic mix. Their significance as a proportion of the overall electorate
will increase. Governments will need to take account of this. It may
affect attitudes to international security issues (eg Arab/Israel,
international terrorism) and relations with the developed world.
Increasing opposition to immigration, as evidenced by the series of far
right electoral victories across the continent, could herald more
restrictive immigration, making the strain of the ageing population
worse, as well as lowering economic growth rates. A rise in intolerance
toward immigrants also has implications for social stability.

####### Natural Resources and Environment

Pressure on the environment will continue. People will increasingly be
environmentally aware and see environmental protection as a greater
priority. Europe will be more reliant on external energy sources and to
meet its needs will look to renewable energy (still unlikely to be a
major source), nuclear energy, and imports - particularly from Russia
given volatility elsewhere (although without major investment in
hydrocarbon production and distribution Russia will not be able to fill
the gap). Technological advances (eg liquefied gas) will allow gas
supply sources to be diversified and new technologies, such as fuel cell
powered cars, will be more widely used.

Europe will be far more dependent on food imports following long overdue
agricultural reform. However, this will have created stresses and
unemployment in rural areas, undermining traditional rural societies
particularly in accession states.

Environmental damage (eg flooding of low-lying parts of Europe such as
the Netherlands as a result of global warming; pollution) will increase,
with potential impacts on health and agriculture. Managing this will
require more effort and resources; it will have risen up the political
agenda, creating greater tension with those parts of the world seen as
less "green".

###### Science and Technology 

Europe will remain a centre of innovation. The demise of much of its
traditional heavy industry will continue. Engineering (where it remains)
will focus on top-end/hi tech (eg motor cars, space). Service industries
will continue to dominate. By 2020 China may be competing with European
manufacturers on "high level" products (as opposed to just assembling
European-designed products -- e.g. DVD players). Nonetheless, Europe's
well-established high technology industries and clusters, and its
relatively good education systems will ensure that it remains at the
fore of many technologically advanced industries.

*Global economy and Globalisation.*

The EU will continue to have below potential economic growth on average,
and relatively high unemployment, because of remaining inflexibility in
the "old" (ie W European) EU economies. Globalisation will make
flexibility increasingly important, as will the new entrants to the EU,
who will pay lower wages than the established members.

The EU as a whole will be the second biggest economy in 2020 (after the
US) and be increasingly integrated. The US will have higher average
economic growth, and it will be obvious that in terms of GDP size, China
is catching up on the EU fast. However, China will continue to have a
far lower GDP/person than the EU in 2020 and beyond.

Eastern European countries will be the fastest growing parts of Europe
up to 2020. EU membership will ensure that they not return to their
political or economic past and will aid investment. Other benefits of
membership will include regional aid from Brussels, faster
liberalisation in some areas, and generally strengthened economic
institutions. On the downside, the EU will bring costly regulations,
arguably unsuitable for the developing Eastern European countries, but
this will not outweigh the positive factors.

The process of globalisation will continue and extend. This should
benefit both rich and poor countries. Globalisation will bring
transitional costs, however, as economic activities shift to their
optimal locations - for instance manufacturing production currently
moving to China from both rich and middle income countries. This will
produce uncertainty, and perhaps resentment, amongst workers who have to
find new jobs.

This may lead to protectionist pressures, which if realised constitute a
threat to the world economy up to 2020. The World Trade Organisation
will have been undermined by continued failures. International tensions
may make people re-think the interdependence of nations that
globalisation brings. An oil price shock is possible, most likely
relating to some negative event in the Middle East.

###### National and International Governance

2020 will see an expanded EU with increased competencies (to include
defence, foreign policy and greater harmonisation of tax). Nation states
will remain but they will be bound increasingly together by common
interests and values and by European machinery. Economic strength will
be accompanied by increased political confidence and assertiveness.
Common Foreign and Security Policy will have improved the coherence of
Europe's international approach. But democratic apathy will continue
with a sense of disengagement between those making the decisions and
ordinary citizens.

The bringing together of Europe in the EU will see an increased sense of
European identity. This, and increased economic links, will lead to a
new political relationship between Europe and Russia. The two will
co-ordinate and concert international action.

Pressure for UN reform will by 2020 have been irresistible. The UNSC
will have expanded. Japan, Germany, India, South Africa and Brazil will
be permanent members.

###### Future of Conflict

European Security and Defence Policy will have added a credible, albeit
limited, security and military dimension (fuelled by US force reductions
in Europe). US military capability will remain far greater. Europe will
not be prepared to make the sacrifices in social expenditure to
maintain, let alone narrow, the military gap with the US. While some
improvements will come about through improved co-ordination and less
duplication, Europe will increasingly focus its efforts on small scale
conflict, counter-terrorist, and conflict prevention, not heavy
war-fighting. But with reduced and changing US force levels, and in the
absence of a credible conventional threat, it will accept responsibility
for its own collective defence. A key aspect of European defence may be
a European Theatre Missile Defence (TMD) system, probably with Russian
involvement. NATO will probably remain, but with a more diffuse
membership and more limited decision-making potential. Its focus will be
on conflict prevention and peacekeeping outside Europe, not territorial
defence. Some NATO spheres of activity will have been taken over by
European bodies.

Terrorism will remain a problem. By 2020 some criminal elements will
have terrorist capabilities. Religious extremists will continue to
conduct terrorist acts. But terrorism for nationalist reasons (e.g.
Ireland or Spain) will be rare.

###### Role of the US

The US will remain a friend and ally sharing common values of freedom
and democracy. But there will be tensions, and these will be greater
than now. The terms of the relationship will have changed. US forces in
Europe will be much reduced. The remaining presence will have shifted
further south and east, and will focus on using Europe as a base for
operations elsewhere, rather than defence of Europe. Europe will
increasingly seek to strike a different tone to the US and to be a
distinctive voice on the international stage. It will be more assertive;
and will see the US increasingly as an economic and political
competitor, as well as a friend.

What are the most important trends shaping regional events between now
and 2020?

-   Europe growing in confidence: it will be increasingly assertive both
    politically and economically, and prepared to take an independent
    line internationally.

-   Europe growing in size -- more and more countries will have entered
    the EU or associations with it.

-   Europe growing in stature -- it is seen increasingly by others (e.g.
    China) as an economic and political power to rival the US.

-   Increased European identity -- common institutions, common currency,
    common policies etc. People increasingly seeing themselves as
    citizens of Europe as well (not instead of) citizens of nation
    states.

# Wild Cards

-   Europe stagnates -- finding it cannot handle expansion, leading to
    inertia and decline. In the defence policy arena it's possible to
    see three scenarios: an independent defence policy with higher, more
    efficient spending; a more dependent policy, allowing continued high
    social spending; or independent policy without adequate spending,
    weakening Europe's strategic relevance.

-   Europe splits -- new fault lines emerge for example between old and
    new Europe; north and south; big and small states.

-   Europe grows -- both geographically (eg EU expands to include
    Russia) and in responsibility (for example eclipsing and replacing
    NATO).

-   New cold war -- with a resurgent Russia and friends. The Islamist
    fringe? Or someone else?

-   New European instability -- renewed Balkan conflict?

# RUSSIA

Russia is at a testing moment, in the run-up to a presidential election.
Looking ahead to 2020, a great deal will depend on how the current trial
of strength between, essentially, the business/market reform lobby and
the \'power\'/security lobby plays out.

Russia faces enormous objective challenges to governance:

-   Political infrastructure (parties etc) and culture are still weak

-   The \'democratic transformation\' has been left incomplete. The
    political elite and bureaucracy at all levels are still largely able
    to control political processes from above: indeed that trend has
    strengthened. Looking ahead, few major parties or figures are
    genuinely committed to western-style democracy.

-   Market reforms are incomplete. The hardest decisions have been left
    for Putin\'s second term, eg on reform of housing and welfare,
    structural and banking reform. Russia is still far too dependent on
    the energy and extractive industries, and hence on the oil price.

-   Significant demographic issues include population fragility and
    imbalance -- life expectancy is below replacement level.

In 2020, Russia\'s relations with the outside world will continue to be
ambivalent. It will continue to define its interests in ways which do
not always chime with those of the major European countries, but a
reversion to outright military/ideological confrontation with the West
is virtually inconceivable. In external relations, Russia will be more
closely identified with Europe, and probably linked by some form of
formal treaty or agreement. Whether that will actually be EU membership
will depend on evolution in the EU as well as in Russian policy. As a
member of the WTO, it will be more deeply integrated in the
international economy, yet protectionist sentiments are likely still to
be strong in certain sectors and regions. Many in Russia (probably a
majority) would resist absorption into a larger entity of which Russia
was not the pre-eminent component, in spite of any economic benefits
(which may not seem so tangible to voters). A major challenge for the
leadership will be how to reconcile the reality of a medium-sized
economy with Russia\'s continuing ambitions to be a major Power. The
main external partners will still be the USA and the EU, followed by
China and India. Russia will remain a major Power in Eurasia and retain
a close interest in the CIS, whose economies will probably still be
closely linked.

Political and security links with the CIS countries are likely to be
asymmetrical coalitions. Russia\'s ties with the other Slav countries of
the former Soviet Union (Ukraine and Belarus) may be closer, and more
deeply institutionalised. Even if Ukraine succeeds in its aspiration of
joining the EU (and Russia will do as much as possible to prevent it),
the social, infrastructure and economic ties will remain strong. Some
form of federation, even union, with Belarus is possible. The South
Caucasus (Azerbaijan and Georgia) will want to remain at a greater
distance, though Georgia\'s viability as a state may still be fragile.
Armenia is more likely to remain a close and stable neighbour, while
retaining its own identity. Central Asian countries are likely to move
slightly further away politically, preserving their identities and some
economic ties to keep a stable relationship with Russia, but also
choosing other alliances (particularly with the US and other major
regional players).

Drivers:

####### Demographics

The Russians are not yet showing signs of being able to tackle these
major issues properly. Life expectancy is well below normal European
averages and the birth rate is very low (the deaths to births ratio is
currently 2:1, and the population is likely to fall from 143 to 130m
according to US estimates); chronic or debilitating illnesses are high,
including among children. There is the prospect of an AIDS explosion,
and little prospect that the authorities will be equipped to deal with
it, still less prevent it. The population is very unevenly spread, as a
result of geography and history as well as economics and Soviet
population policies. Siberia and points east only account for 20% of the
population (and dropping).

####### Natural resources and environment

Russia's significant energy resources will be increasingly exploited up
to 2020. The EU is likely to become a larger buyer of Russian energy
during this period, although the economic benefits of tying in central
Asian states by pipelines may lead Russia to look east for energy export
customers. Significant, further foreign investment in the energy sector
will occur -- although the imbroglio involving Yukos, the oil company,
and its founder, Khodorkovsky, may delay this, especially if the affair
turns out not to be a one-off attack on a single "oligarch".

Awareness of natural resource and environment problems is growing, as is
willingness to tackle the enormous burden of the Soviet legacy. But it
is a huge task, unlikely to be completed by 2020. Russia is unlikely to
aspire to Western standards.

####### Science and technology

This is a traditional Russian strength, but badly underfunded in recent
years. Current economic projections do not suggest that that will change
in the near future, but Putin or a successor may take a policy decision
to invest more in it.

####### Global economy and globalisation 

Russia has made some progress on economic reforms, but has problems
implementing them "on the ground". This will continue up to 2020. In
addition, major reforms remain to be tackled that are going to be very
difficult. These reforms, to some extent at least, will continue to be
delayed.

Russia will not have taken off economically by 2020 as China has done.
The economy will still be medium-sized by world standards. It will be a
hybrid structure, combining elements of the market with (by European
standards) significant State influence. Key industries will be
corporatised and are likely still to be inefficient. Energy and raw
materials will continue to dominate, and Russia's growth will remain
dependent on the price of oil. Economic activity unrelated to energy
will remain relatively stunted; few other industries will be
internationally competitive. Internal markets (eg capital, labour,
products) will remain undeveloped and segmented. The weakness of the
rule of law, high incidence of crime and corruption and vulnerability to
fluctuations in commodity prices will preclude sustained high rates of
economic growth. Economic performance in general will be uneven across
the country, resulting in even greater inter-regional inequalities. This
will constrain the ability of the leadership to improve domestic living
standards and project influence abroad. Whilst Russia will grow, it will
not do so sufficiently to tackle the problem of poverty, which affects
millions. These people appear to accept their lot, and are not a threat
to social/political stability. So in politico/economic terms, Russia in
2020 will rather similar to what we see today. \'Economic collapse\' (ie
a breakdown of essential economic infrastructure) is most unlikely.
Corruption and (in certain regions and sectors) organised crime will be
important features.

By 2020, there will unquestionably be more foreign economic activity and
probably ownership in Russia, though with many hiccups along the way.
The legal environment is likely to be tighter though not necessarily
fully tracking with European standards. Though internet usage has not
yet spread throughout the population, penetration will certainly broaden
by then (in whatever form the internet by then exists). It will
increasingly allow Russians sources of information not under the control
of the Russian authorities; but may contribute to a Russian brain drain
as the labour market in the younger generation becomes more mobile both
physically and on line.

####### National and international governance

Putin is trying to continue his initial work on setting in place a
proper body of basic laws and administrative reform. But this is uphill
work, and it is hard to see where the needed impetus will come from.
Recentralisation of power threatens the development of reform and good
governance both at regional and central levels. In 2020, important
features of democracy (eg elections) will remain at both the federal and
regional levels, but the Russian political system will still be highly
authoritarian by European standards. Deeper democratisation - eg rule of
law, development of vigorous parliamentary institutions, political
parties, civil society etc - will be patchy and weak. Respect for human
and civil rights is likely to remain conditional. There will be
significant regional variations, with civil rights relatively secure in
some regions, yet under serious threat in others. In the absence of a
major internal convulsion (eg massive economic problems), the Federation
will hold together. Paradoxically, political underdevelopment could be a
force for stability: there would be an absence of political groups with
an interest in fomenting unrest. Russia will retain a UNSC seat.

####### Future of conflict

Notions of military power will continue to figure more prominently in
official definitions of national security than they do in Europe, but
there is no question of a return to Soviet levels of defence spending.
Reliance on nuclear weapons will remain a pivotal aspect of military
planning. The intelligence and security services will still be highly
influential.

Chechnya is likely to remain messy but contained at politically
sustainable levels for the foreseeable future. Other regional conflicts
in outlying CIS states depend on a variety of factors for resolution,
but Russia does not hold all the cards, and is not (mostly for reasons
of leverage) hurrying to play all those it does hold.

Russia will have moved closer to NATO. Even an application for
membership cannot be ruled out.

####### Role of the US

Russia's view is unlikely to change much overall from its present
ambivalence: the US will be seen as the ultimate focal point for foreign
policy and an ally, but also resented as a successful rival. The
Russians want to be taken seriously as a partner: above all they fear
being ignored or sidelined. Barring an extreme nationalist backlash in
Russia (which is unlikely), they will hang in with the US. But they will
continue to assert themselves, often in clumsy and uneven ways. However
sensitively handled, US rebasing -- particularly the establishment of
permanent US or NATO bases within CIS states in the Caucasus or central
Asia - would cut across existing Russian national security principles.
Combined with a possible maturing US missile defence programme, this
would cause problems for any Russian administration and is likely to
lead to periods of tension.

What are the most important trends shaping events between now and 2020?

-   Degenerative effects of population reductions and poor health

-   Growing oil/gas exploration and extraction across CIS states and
    disputes over distribution of spoils

-   Islamic extremist internal security threats (real or imagined), and
    reaction to them

-   Stresses placed on the relationship between Russia and CIS states
    over the latter\'s engagement with NATO/EU and/or hosting of US
    Forward Mounting Bases

**Wild Cards**

-   Relapse into Political Instability: the Putin regime ends
    prematurely due to indisposition or rise of a successful political
    challenger (perhaps from oligarch ranks), followed by a decade of
    political instability and adventurist leadership.

-   Economic stagnation or reverse; Low oil prices and collapse of
    foreign investment leads to extended depression, with political
    consequences.

-   Internal security crisis: Russia faces renewed export of the Chechen
    insurgency in North Caucasus, Islamic insurgency in Central Asian
    states, and civil unrest in Russian Far East associated with Chinese
    immigration and economic penetration.

-   Severe deterioration in relationship with US and NATO over missile
    defence re-basing and Western military intervention in other parts
    of the world.