There is some contention as to who actually said it – Winston Churchill, Admiral Lord Fisher, or Ernest Rutherford but in any case some Brit once said, “Gentlemen, we have run out of money. Now is the time to think.”

Sitting here in the Spanish capital in the wake of Real Madrid’s exit from soccer’s Champions League and with the Spanish Government this week coming clean about poor Spain’s economic nightmare the mood was not exactly upbeat. My reason for coming was to speak at an excellent conference organized by Spanish think-tank INCIPE on the need for a smart NATO. What, you will rightly ask, is a smart NATO and what has it got to do with the price of paella? A lot.

The simple fact of strategic life is this. We live in a world of some seven billion plus souls all with legitimate needs and aspirations organized unevenly into more unstable and failing states than at any time since 1648 and the end of the Thirty Years War. Many regimes are legitimized not by the vote but by economic growth and are therefore inherently rickety. Military expenditure in some parts of the world (Asia) is going through the roof and with it the technology to send more destruction from more sources to more places far further than ever before. Feeling better?

At the same time Europe is mutating from being a military pygmy into whatever is smaller than a pygmy (no offense to pygmies). The Euro (understandably) is all that matters in Europe but this is still dangerously strategically myopic.

European strategic myopia is making the world in which we Europeans live (quite a few of us like to pretend we do not) even more dangerous than it already is. This is because the second simple fact of strategic life is that the world is a lot safer when the West is strong and a strong West must necessarily include credible European armed forces. This is something the ‘architects’ behind Britain’s disastrous 2010 Strategic Defence and Security Review forgot. Once the British, a cornerstone power in NATO, had given up on the big security and defense stuff the other Europeans had the perfect alibi to do the same.

The third fact of strategic life is that security is the first duty of the state. So, to counter Europe’s palpable retreat from strategic reality NATO has come up with something that on the face of its looks like an oxymoron; smart defense. Indeed, whenever I have heard the word ‘smart’ used in conjunction with ‘defense’ it has always invariably meant doing less with less or rather nothing with nothing.

Smart Defense will be at the centre of things at NATO’s May Chicago Summit and rightly so. In simple terms (not NATO policy) Smart Defense is essentially about maintaining NATO’s security and defense credibility in an age of austerity by better managing and co-ordinating defense cuts in each respective NATO member, being much clearer about the core capabilities (NATO speak) the Alliance needs, promoting far closer multinational collaboration and streamlining of structures to that end allied to better prioritisation of defense investments in the big, expensive stuff such as missile defense, strategic air lift, and advanced deployable forces upon which the much needed modernization of Europe’s defense is dependent. Got that?

Smart Defense will also be critical in reaching out to new partners world-wide in what is now a global collective security effort at maintaining stability in a very instable world. This is the very essence of legitimate security and defense. In other words Smart Defense is a new way of doing defense business and we need it.

For all its failings only NATO can do this. It has the mechanisms, experiences and critically the processes and structures to enact what should lead to a vital and American-friendly reform to the European defense effort. By the way, those of you Europeans out there muttering about the EU should confront a fourth strategic fact of life: given the world I describe the more we Europeans cut our own defense investment the more we will be forced to rely on the Americans.

However, to succeed NATO will need the support of all its members if it is going to pull Smart Defense off. The economic crisis calls for far greater defense solidarity than before; the reverse is happening in Europe.

That is not to absolve the Yanks. Americans talk much about a single transatlantic defense market and cheaper defense procurement. However, the US Congress seems to think that is simply ‘American’ for making the Europeans buy American and the experience of American-led defense projects has been disastrous. Washington will need to up its game.

In other words, if NATO leaders at Chicago fail to support Smart Defense with real political leadership, including not a small amount of personal political risk for some of them, Smart Defense will end up littering the corridors of failing power like all the other ‘smart’ initiatives to date. And, given the pace of change in the world, this could be our last chance to get it right. Give NATO the tools and let the new NATO show it can deliver.

Being smart is never that easy. If indeed it was Admiral Lord Fisher who voiced that famous quip then it took place in the midst of the Anglo-German naval arms race one hundred years ago prior to the First World War. Of course the British found a uniquely British solution to the lack of money for building very large battleships (super-dreadnoughts) which proved yet again just how defense smart we Brits can be. The government wanted six, the loyal opposition four – so we compromised on eight!

Julian Lindley-French is Eisenhower Professor of Defence Strategy at the Netherlands Defence Academy, Fellow of Respublica in London, Associate Fellow of the Austrian Institute for European and Security Studies and a member of the Strategic Advisory Group of the Atlantic Council. He is also a member of the Academic Advisory Board of the NATO Defence College in Rome. This essay first appeared on his personal blog, Lindley-French’s Blog Blast.