January 18, 2011

Europe’s Defence in Times of Economic Crisis

For Europe’s governments, reducing defence expenditure is an easy response to times of economic hardship. Few immediate effects are felt by the population – compared, for example, with cuts in education or welfare spending – and what effects there are tend to be local, rather than national.

14.01.2011, Tony Lawrence

“Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.”
President Dwight D. Eisenhower, April 16, 1953

For Europe’s governments, reducing defence expenditure is an easy response to times of economic hardship. Few immediate effects are felt by the population – compared, for example, with cuts in education or welfare spending – and what effects there are tend to be local, rather than national. Further, partly because defence equipment prices inflate more rapidly than those of consumer goods, essentially meaning that defence euros are able to buy less and less capability with each passing year, defence frequently has the reputation of being wasteful and deserving of trimming. Continued defence industry consolidation and the reduction of the supplier base are likely to make defence inflation even higher in the future, compounding this effect. In his pithy observations on business and management, Augustine’s Laws, Lockheed Martin’s Norman R. Augustine famously – if a little sarcastically – predicted that by the year 2054, the entire US defence budget would be able to purchase just one combat aircraft, to be shared between the armed services according to the day of the week. Finally, defence is often seen as a remote, and for some, an unethical business. Iraq and Afghanistan, wars largely unpopular with Europe’s publics and difficult to directly connect with our own security, have caused many to question why we are spending money to sort out problems far away, rather than at home.
It is no surprise, therefore, that throughout Europe, defence has been hit hard by the economic crisis. The three Baltic states and others in Central and Eastern Europe saw substantial defence budget reductions from the start of the crisis, while in 2010 defence began to suffer in the countries of Western Europe too. France, for example, is looking to reduce its defence budget by €5 billion over the next three years, Germany proposes to cut €8 billion in the next four years and the UK, where largely due to public sympathy for soldiers serving in Afghanistan defence has been excused the harshest treatment in the recent public spending review, is nonetheless planning to reduce defence expenditure by 8% (about €3.3 billion) in the next four years.
There are, of course, good arguments against defence cuts in a time of economic crisis. Defence provides domestic jobs and, although difficult to measure and justify to ministries of finance, global influence. And because defence capability, while quick to demolish, is very slow and difficult to rebuild, a sensible defence strategy will always take a longer-term perspective and avoid short-term cuts. In addition, defence faces a series of modernisation challenges that require investment. If Europe’s armies, navies and air forces are to remain interoperable with those of the US – which they must, not least so that we can continue to secure America’s commitment to European security – and competitive in the world, we too need to invest in the information-based capabilities that have characterised America’s military transformation.
In its autumn 2010 economic forecast, the European Commission considers that while economic recovery is beginning to take hold in Europe, progress will be uneven. Economic growth in many states will be slow and governments will need to continue to seek austerity measures. With continuing economic uncertainty and at a time when a direct military threat to our states is a remote prospect, it seems that defence will remain an easy target. For some years to come, our ministries of defence will be in the business of prioritisation and tough choices, and of managing reduced finances while attempting to retain capability.
Before looking at the choices facing our defence establishments, it is perhaps worth pausing to examine how much Europe does spend on defence. In 2009, the year for which the latest published figures are available, the states who participate in the EU’s Common Security and Defence Policy – all EU member states except Denmark – spent a total of €194 billion (approximately $270 billion) on defence.  Although this is considerably less than US spending ($660 billion), it compares favourably with spending by potential competitors such as China and Russia (estimated at $100 billion and $53.3 billion respectively).  It is undoubtedly a substantial amount of money, but Europe’s military capability – the output we get from this investment – is widely regarded as being unsatisfactory. According to one measure, for example, the US had an average of 16.3% of its troops deployed during 2009, compared to Europe’s 4.1%. The US is not only spending more on defence but, if we accept deployed troops as an indicative measure of defence output, it also seems to be spending better. It is not inevitable, therefore, that continued budget reductions in Europe should result in reduced capability. We too ought to be able to spend better. What, then, are the options for doing so?
Using the normal categories to break down defence spending, there are essentially three ways to save money from national defence budgets: by reducing the costs of operations, reducing the costs of personnel, or reducing the costs of investment in research and development and equipment procurement. A fourth source of potential savings is infrastructure. This is not considered further here except to note that of all Allies, Estonia spends the highest percentage of its defence budget (9.9%) in this area. This figure has halved since 2005, but still compares unfavourably to a NATO average of 3.4%, suggesting that there is some scope for further consolidation of Estonia’s defence infrastructure.
The costs of operations include both the cost of current missions, such as Afghanistan and the anti-piracy operations of the east coast of Africa, and the costs of the day-to-day activities of armed forces – fuel, food, ammunition, and so on. In most European states, defence budgets will be required to bear at least some of the direct costs and most of the indirect costs – for example, those arising from the need to replace equipment sooner than expected due to operational wear and tear – of foreign missions. Withdrawing from ongoing operations may be politically easy domestically, but would be damaging for relations with Allies and damaging for those who are intended to benefit from the presence of our armed forces. Few states would thus be prepared to withdraw from current operations or refuse to participate in future operations on financial grounds alone. Lithuania has seen a current price defence budget reduction of 28% between 2008 and 2010, but still maintains a very expensive commitment to lead a Provisional Reconstruction Team in Chaghcharan, Afghanistan.
Nonetheless, there ought to be some scope for reducing duplication in current operations. Counter-piracy operations, for example, have been conducted off the Horn of Africa since late 2008 by both NATO (operations Allied Provider, Allied Protector and Ocean Shield) and the EU (operation Atalanta). At the same time, NATO and EU member states have also participated in the similarly mandated multinational Combined Task Force 151. It is hard to believe that this is the most efficient way to provide maritime security here.
While some efficiency savings may be possible, substantially cutting day-to-day operating costs is also difficult. To do so means that expensive equipment is left unused and personnel are under-trained. This is especially hard to justify when the day-to-day employment of many of our armed forces is in preparing for or recovering from overseas operations.
The second area where spending may be reduced – personnel – offers better prospects. Europe has approximately 1.7 million men and women in uniform (compared to 1.4 million in the US). These accounted for 51% of Europe’s defence budgets in 2009 (21% in the US), although this figure hides considerable disparity. Romania, for example, spends a staggering 78.9% of its defence budget on personnel.
As many states have transformed their large, often conscript-based, Cold War force structures into smaller professional units, the steady reduction of defence personnel has become a trend in Europe’s armed forces, which looks set to continue. The UK will lose 17,000 military and 25,000 defence civilian personnel by 2015, while Germany’s Defence Minister Karl-Theodor zu Guttenberg has announced the ending of conscription in his country and the reduction of the army by about a third to 165,000, with the aim of making it “smaller, but better and more operational”.
The third area for potential reductions is investment. The Ministerial Steering Board of the European Defence Agency has agreed a target that equipment procurement should account for 20% of national defence spending, of which a tenth – 2% of defence spending – should be spent on defence research and technology. This target recognises the importance of innovation and technically sophisticated equipment in modern conflicts and reflects a trend that has seen high-tech defence contributions such as intelligence, surveillance and networking emphasised over platforms. The CSDP member states collectively spend 21.1% of their defence budgets on procurement, a figure that has grown steadily from 2006. Once again, however, this average hides wide disparity, with many nations spending considerably less. Latvia, according to NATO’s figures, was the poorest performer in 2009, spending only 5.4% of its budget on equipment. Europe’s collective defence research and technology spending, meanwhile, has fallen every year since 2006, and is approximately one sixth of that of the US.
As a result, and despite slow, but steady improvement over the years, while Europe spends around €120,000 for each of its military personnel, around half the US figure, its investment spending per soldier of €25,000 is only around a quarter of the US figure. Cutting investment spending may be contrary to the development of useful armed forces, but it is relatively painless. As the Latvian example shows (Estonia has taken a similar approach in 2010), a state whose procurement model relies on off-the-shelf solutions may simply freeze procurement for a year or two to save money. Naturally this will lead to a reduction in planned capability in the short term and slower defence development in the longer term. Another alternative is to reduce, or simply to opt out of one or more capabilities – following its recent defence review the UK, for example, will reduce tanks by 40%, heavy artillery by 35% and the number of frigates and destroyers from 23 to 19. It has also decided to abandon airborne maritime reconnaissance, a curious decision for an island state, but one partly brought about by years of delay and rising costs in the Nimrod Airborne Early Warning project.
While measures taken nationally have only a limited scope to achieve better value for money in defence, international cooperation potentially offers great benefits. This might take a variety of forms, such as joint units, role specialisation and joint procurement. The European Defence Agency has been enthusiastic in its promotion of cooperation, and multinational solutions will also feature more prominently in NATO’s revised defence planning system. As a result, there are some positive signs. The UK and France have recently announced a major defence cooperation agreement, including nuclear testing, a combined, joint expeditionary force, and aircraft carriers. The three Baltic states are also natural, although not exclusive, cooperation partners. Meeting in Tartu in December, the three ministers once again stressed Nordic-Baltic defence cooperation in their communiqué (albeit as the seventh point of an eight-point text). But the details are thin and, even with logic and political will behind it, there are numerous reasons why defence cooperation is hard to achieve in practice. Furthermore, with this economic crisis now beginning to recede, the rationale for cooperation becomes weaker. It may be that in the Baltic states, and more generally in Europe, the opportunity to take a truly strategic approach to defence cooperation and partnership has been missed. Nonetheless, there is every reason to expect that collaborative European projects will continue to be features of the defence landscape.
In many respects, then, the economic crisis has merely accelerated post-Cold War trends in Europe’s armed forces, which have seen large warfighting military structures dismantled in favour of smaller, well-trained, deployable, sustainable and flexible units, better suited to deal with the types of conflicts we see today. Europe’s armed forces will certainly be less able to fight major wars, but may, with the intelligent use of reduced resources – which, as already discussed, presents major challenges – be able to undertake smaller-scale military tasks more effectively and more efficiently. The concern here, though, is that this reduced level of ambition has been driven more by pressure on finances, than by an assessment of the risks to our security and the military tasks that may result from these. It may be that Europe will simply have to face a reduced level of military security in the coming years.
Defence spending and the generation of defence capability does not deal with certainties and absolutes. Unless it is tested in wartime, we can never be certain just how much defence is enough, and we will always be in the business of trying to manage and mitigate risks, rather than eliminate them. Perhaps one important aspect of this economic crisis is that it has reminded us that there are many more risks to our security and well-being than military ones. In 21st century Europe, as actors in a globalised world, risks to our financial security are perhaps more likely to arise than military threats and have the potential to cause substantial and lasting damage. Mitigating these risks may be just as vital as dealing with the military ones.

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