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Mattis warns of "arc of instability" on Europe's edge

* Britain warns: be under "no illusions" about Russia
* Germany says committed to defence spending
By Phil Stewart and Robin Emmott
MUNICH, Germany, Feb 17 (Reuters) US President Donald Trump's defence secretary warned of an "arc of instability" on Europe's periphery and told nervous allies that the United States would stand with NATO partners to confront shared threats.
Defence Secretary Jim Mattis' remarks to the Munich Security Conference came as Europe fears Trump could retreat from traditional U.S. leadership as the continent grapples with an assertive Russia, wars in eastern and southern Mediterranean countries, and attacks by Islamist militants.
Mattis said the United States and its European allies had a shared understanding of the challenges ahead.
"We all see our community of nations under threat on multiple fronts as the arc of instability builds on NATO’s periphery and beyond," said Mattis, a retired Marine general.
British Defence Minister Michael Fallon and Lithuanian President Dalia Grybauskaite singled out Russia as the main threat, although they also said the West needed to talk to Moscow.
In that vein, NATO Secretary-General Jens Stoltenberg held talks with Russian Foreign Minister Sergei Lavrov in Munich, seeing progress on encouraging Moscow to be more open about its military exercises that the alliance says are unpredictable.
Russia says it is the Western alliance, not Moscow, that is destabilising Europe by sending troops to its western borders.
"We have different views," Stoltenberg said of the crisis in Ukraine, where the West accuses the Kremlin of arming separatist rebels in a conflict that has killed 10,000 people since April 2014. Russia says the conflict is a civil war.
Trump alarmed allies during his campaign for office by breaking with traditional Republican views on the transatlantic relationship, even expressing admiration for Russian President Vladimir Putin.
Mattis, however, has spoken out strongly against Russia on his first European visit. After talks with NATO allies in Brussels on Thursday, he said that he did not believe it would be possible to collaborate militarily with Moscow, at least for now.
European intelligence agencies have warned that Russia is also seeking to destabilize governments and influence elections across Europe with cyber attacks, fake news and propaganda and by funding far-right political parties.
"We should be under no illusions about the step-change in Russian behaviour over the last couple of years, even after Crimea," Fallon said, referring to Moscow's 2014 annexation of the Ukrainian peninsula.
"We have seen a step-change in Russian military aggression, but also in propaganda, in misinformation and a succession of persistent attacks on Western democracies, interference in a whole series of elections including ... the United States.”
MUNICH AWAITS PENCE
In the latest incident, Lithuanian prosecutors have opened a criminal investigation into a false report of rape by German soldiers stationed there on a NATO mission to deter Russia .
Mattis, without explicitly citing the case, rallied to the defence of German forces as he spoke in the German city of Munich. "I have great respect for Germany's leadership in Europe – and for the ethical performance of your troops on the battlefield," he said.
U.S. intelligence agencies concluded last year that Russia hacked and leaked Democratic emails during the election campaign as part of an effort to tilt the vote in Trump's favour.
Trump is wrestling with a growing controversy at home about potential ties between his aides and Russia, which he dismissed on Thursday as a "ruse" and "scam" perpetrated by a hostile news media.
Mattis spoke a day before U.S. Vice President Mike Pence will address the Munich conference, also seeking to soothe allies unnerved by his boss's statements on Russia and NATO.
Pence will say that Europe is an "indispensable partner" for the United States, a senior White House foreign policy adviser told reporters.
Mattis told a crowd that included heads of state and more than 70 defence ministers that Trump backed NATO -- but also saw the need for change.
The Pentagon chief warned NATO allies on Wednesday they must honour military spending pledges to ensure the United States does not "moderate" support for the alliance .
German Finance Minister Wolfgang Schaeuble, a veteran of Chancellor Angela Merkel's government and committed European, said there was "no doubt" Germany would increase spending.
Europe's low defence expenditure has long been a sore point for the United States, which puts up 70 percent of alliance funds. But Trump has made change a priority, saying allies have "been very unfair to us" for not spending more.
"President Trump came into office and has thrown now his full support to NATO. He too espouses NATO's need to adapt to today's strategic situation for it to remain credible, capable, and relevant," Mattis said
REUTERS CJ PM2325
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