European defence squeezed by economic difficulties, indifference

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Beset by the twin encumbrances of the global financial crisis and ensuing recession, the European military market experienced a 5% reduction in combined defence spending during the past year.

Due to the negative economic climate, European nations witnessed revenue declines that left them with budgetary imbalances exceeding the 3%-of-GDP deficit threshold imposed under the European Union Stability and Growth Pact agreement.

With the need to rein in budget deficits, many countries have opted to slash public spending, invariably resulting in diminished defence allocations.

The decision to look at defence as one of the first public sectors ripe for savings was, with a few notable exceptions, an easy one in many capitals, particularly considering the strain for some countries caused by supporting struggling financial institutions and pressures on welfare systems resulting from the spike in unemployment.

In its annual Europe military market overview, Forecast International reviews the struggles confronting European defence as it experiences declining financial investment across much of the region.

Though the European military market has grown nominally throughout most the decade, as a percentage of state spending the overall level of defence expenditure has steadily shrunk. Seeking improved efficiencies, most European nations have downsized their military personnel by abolishing conscription while at the same time shedding much of their armed forces’ Cold War-era heavy equipment.

The various reductions were often accompanied by government assurances that the smaller, nimbler force would be met with greater financial resources for equipment and training.

The core goal behind these reformation processes was the attainment of capabilities such as rapid crisis reaction and the ability to undertake out-of-area operations, which the formerly static, heavily armoured European militaries were not designed to perform. However, Europe still largely suffers from the inability to deploy much of its military personnel abroad, and, when committing forces to external missions, struggles to sustain them.

After NATO-Euro countries failed to boost investment above the minimum levels expected of them by the NATO Alliance during periods of relative economic growth, the financial crisis and subsequent recessionary wave eroded any lingering commitment amongst those countries for defence investment.

Now with the economies of Central and Eastern Europe continuing to struggle, the fall from the spending levels of 2008 is expected to continue into 2010 and perhaps longer. Total military spending across the continent tumbled to $280 billion in 2009 from $295 billion only one year earlier.

“The economic tumult experienced by the three Baltic nations has severely damaged their ability to bolster military spending commensurate with their modernization needs,” says Forecast International Europe Military Markets Analyst Dan Darling. “The poorer dual EU-NATO members from Central and Eastern Europe are struggling between meeting defence investment pledges made to the Alliance while also maintaining the fiscal responsibility necessary for accession into the eurozone. Judging by the public pronouncements of many government officials from these countries, Russian military activity in Georgia during 2008 seemed to be the spark that would finally spur a firm commitment to greater military investment. But instead such plans have fallen victim to economic realities.”

The list of NATO-Euro countries meeting the 2%-of-GDP minimum defence allocation requirement has shrunk from five to four in the past year, with only France, the United Kingdom, Greece and Turkey achieving that meagre level of investiture.

The latter two continue to emphasize military financing largely out of anticipation of war with each other; combined French and British defence investment, meanwhile, represented 49 percent of all military spending among the European nations in NATO.

Other significant military markets in Europe are mired in a state of stagnation. Mere weeks after Poland announced a 10-year, $20 billion modernization package, its 2009 defence budget was cut by almost 8 percent.

Italy and Spain sharply curtailed defence allocations over the past year – by 7% and 4% respectively – and both are likely to see further reductions in 2010.

Germany has moved against the tide, with a boost of over EUR1.5 billion in spending in 2009, but this was to bring forward procurement programmes as a means to stabilise domestic industry and revive economic growth. Yet even with the increase, Germany still invests only 1.3% of its GDP toward defence.

Most ominous for the European market, however, is the likelihood that France and the UK will each face a deficit reckoning, resulting in more restrained defence outlays in the future.

The UK in particular is confronting some difficult choices where larger defence projects are concerned, and may be forced to scale back its procurement ambitions in order to bring its military equipment budget in line. Programmes that may suffer as a result include the A400M airlifter, the proposed Future Rapids Effects System (FRES) family of armoured vehicles, and the Future Surface Combatant program, which may be indefinitely postponed.

“Defence ministries in Europe today have to navigate a turbulent financial environment compounded by the funding of ongoing missions abroad and the need to account for the attrition of material used in operations in Afghanistan,” says Darling.

“Fiscal realities have forced many governments to scale back expenditures, leaving them with a choice as to what areas of public spending they wish to preserve. Considering the natural public preference for social spending during times of economic duress, such a choice seems obvious.”

The fall in aggregate military investment across Europe has led to increased calls for greater defence cooperation among European nations, including the pooling of resources. But questions of sovereignty and protection of domestic industry continue to trump burden-sharing initiatives, delaying what may ultimately be inevitable. For now, however, European defence spending remains relatively static while many global regions are placing more and more emphasis on military investment.

“The lack of an immediate, direct security threat means that European governments would have to display a stronger sales pitch than has thus far been exhibited in order to increase defence spending,” adds Darling. “The asymmetric threat does not seem to creep into the public consciousness as much as the conventional one.

The collapse of social protection is of greater concern to Europe, which with various exceptions considers the US as its security guarantor.”



Pic: HMS Defender, the latest British Type 45 Daring-class destroyer