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"Keep the Americans in, the Soviets out and the Germans down."
—General Hastings Lionel "Pug" Ismay, 1st Baron Ismay, first Secretary-General Of NATO, stating the basic objective of the organisation.
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NATO stands for North Atlantic Treaty Organisation. Set up to counter the threat of the USSR, it was the effective successor to the informal "Western Allies" of World War One and World War Two, primarily centering upon those nations (US, Britain, France, Canada, etc) with the addition of West Germany. With the end of the Cold War, a number of former Warsaw Pact countries joined the alliance, which made the Americans happy — they got MiGs, Sukhois and T-72s to play with.
NATO has only been involved as a collective in three foreign conflicts — Kosovo, Operation United Protector in Libya and Operation Enduring Freedom in Afghanistan.
The most notable day to day part of NATO is QRA (Quick Reaction Alert). The NATO Air Forces that have the ability to launch fighter aircraft keep some of them (it rotates) on c.10 minute alert, scrambling them if any unidentified aircraft enter NATO airspace or something goes off course. Those countries, such as Latvia and Iceland, who can't do it for their own airspace have their duties covered for by others on a rotating basis (in 2008, RAF Typhoons were due to do Iceland's QRA, but it was cancelled after a diplomatic row due to the Icelandic banking crisis).
NATO has a massive number of mutual standards in the the weaponry field, with the two standard rifle calibres used by them actually being called 5.56x45mm NATO and 7.62x51mm NATO in other publications. NATO rifles have standardised ammo mag sizes (STANAGs). The idea was to share logistical support in times of war by having everyone's guns use the same ammo.
During the Cold War, the USSR liked to test NATO reaction time. A lot. They'd send Tu-95 bombers towards the UK and Norway, or even up towards Canada, keeping their tail guns pointed upwards to show they weren't actually hostile, then got escorted out by NATO fighters. They also did "Bear" runs to Cuba and back.[1]
Compared to the Warsaw Pact, individual NATO member states during had more freedom and power in the running of things, which led to problems like the lack of unified troop control (all the NATO corps were subordinate to their countries, not NATO), members often having opposed interests, and other political squabbles that could've led to hesitancy and indecision in potential crises.
NATO's plan in the event of a Warsaw Pact offensive was the strategy of Forward Defense, where NATO troops would defend as close to the Inner German Border [IGB] as possible. While the concept satisfied the West Germans in peacetime, the problem with Forward Defense was that it offered very little in the way of operational depth (Around 300 kilometers from the IGB to the Rhine and most NATO ground units were deployed in only a fraction of that), which meant that it would not likely to stop a Soviet mechanized offensive and then the tactical nukes start flying...
Since NATO's raison d'être was to contain the USSR, it was supposed to be disbanded after the fall of the latter, but it continued to exist. Nowadays, no-one really knows what its purpose is, and for that reason it is very much criticized: many people and governments see it as a mere extension of the U.S. Army, that only serves American interests, while some American officials criticize NATO as the US providing military welfare for European allies who don't or can't meaningfully contribute to their own defense. Although NATO played a key role in ending conflicts in hotspots like Bosnia, Kosovo and Libya, so it's a bit of a mixed bag.