NATO is celebrating its sixties birthday in disunity. There is lots of quarrel over the operation in Afghanistan. Turkey is against the election of the right-wing Danish premier as NATO secretary. There is no common strategic view of what NATO is supposed to be. Meanwhile its original commitment is no longer credible.
Consider this scenario:
Estonia has been hit hard by the economic crisis. It had a quite extreme housing bubble with the mortgages financed mostly in foreign currency. Inflation during earlier years had increased wages and made its exports uncompetitive. A flat tax limits state income but created a class of oligarchs. GDP has fallen nearly 10% year over year.
As most debt is in foreign currency to Nordic banks to devalue the Estonian krooni would increase the money that will have to be payed back. The other way to regain some competitiveness is internal deflation, i.e. wage decrease by some 20%. The government decided to take the second path and to thereby impoverish its population.
Some 25% of the 1.2 million people in Estonia are ethnic Russians and speak Russian as their first language.
In the fall of 2009 the ever increasing economic troubles lead to the rise of nationalism and some right-wing populist politician/oligarch redirects the peoples anger over the economy towards the minority. Cases of ethnic violence against Russian shops and workers start to appear.
Leaders of the Russian minority party publicly ask Moscow to step in. After a local slaughter during which a mob kills some 20 ethnic Russians in front of running international news cameras, the government in Moscow comes under heavy internal pressure to react. After additional violence three Russian divisions cross the borders and occupy Estonia. The Estonian army has only one brigade size force and after a day of small skirmishes resistance ends.
How will NATO react?
The right in the U.S. as well as liberal interventionists may well call for war. The public opinion, wary of war in Iraq and Afghanistan and also under economic stress does not favor this.
NATO countries will have to sit down and decide if they want to invoke article 5 and start a war with Russia to liberate Estonia.

They look at their maps and find that any land force would have to go through a small border strip between Poland and Lithuania which has on one side the Russian enclave Kalingrad and on the other the Russian ally Belarus. Additionally Latvia, the only NATO country with land borders with Estonia drags its feet. It is itself an economic basket case and 30% of its inhabitants are also ethic Russian – a potent guerrilla force against any NATO column crossing its country. Russia could easily occupy it too.
Winter is approaching and half of western Europe and all of eastern Europe is heated with Russian gas.
Does anyone believe that NATO would really be willing to react in this case? Would it really stand up the million soldiers army needed to retake Estonia against Russian? Would it really risk all out war over the issue?
I believe it would not do so. The promise that NATO made to its new members in Eastern Europe are mere symbolic. If the hard case comes, NATO will do nothing or break apart.
The U.S. wants to use NATO as a global force that furthers its aim. The populations of the European NATO members do not want this. At the same time NATO is no longer able to do its original task.
Andrew J. Bacevich has a good proposal on how to proceed from here:
Present-day NATO is a shadow of what it once was. Calling it a successful alliance today is the equivalent of calling General Motors a successful car company — it privileges nostalgia over self-awareness.
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Salvation requires taking a different course. However counterintuitive, the best prospect for restoring NATO's sense of purpose and direction lies in having the U.S. announce its intention to exit the alliance.
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Salvaging NATO requires reorienting the alliance back to its founding purpose: the defense of Europe.
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The difference between 1949 and 2009 is that present-day Europe is more than capable of addressing today's threat, without American assistance or supervision. Collectively, the Europeans don't need U.S. troops or dollars, both of which are in short supply anyway and needed elsewhere.
I agree with most of Bacevich's recommendations here. But unlike him, I do not see Russia as a potential enemy of a future pure European NATO replacement.
Europe needs a serious formal European security cooperation with the purpose of prevention of inner-European strife and strict defense-only preparation against potential outer enemies. Additionally a common division could provide expeditionary forces under UN command.
Such a European security cooperation requires the inclusion of Russia. But as long as the U.S is part of NATO that inclusion is impossible. Under a European security cooperation the above scenario in Estonia could have been solved by a common political intervention, not a Russian military one.
The U.S. leaving NATO would be a good start for something new that could than really guaranty security for and by Europeans.