June 16, 2017

NATO Burden Sharing and Defence Spending

Discussions on increasing the defence expenditure of the Alliance’s members are not new.

The main focus of the NATO special meeting held in Brussels in May was on the new US president, Donald J. Trump, and transatlantic relations. The primary subjects discussed were the fight against terrorism and burden sharing among NATO member states.
Although the things Trump said publicly or refrained from saying about Article 5 and collective defence have attracted attention since the meeting, the event produced familiar conclusions. In recent years, NATO has done a lot to adapt to the new security situation, the potential threat from Russia has not disappeared anywhere, and this is why NATO’s deterrence is important. The Alliance should do more in the fight against terrorism and the basis for all of this would be to increase the defence expenditure of all member states. In this context, heads of state and government agreed that member states would prepare national action plans to realise the defence investment pledge approved at the 2014 summit in Wales.
There was nothing new in the discussion on burden sharing, which provided a framework for the exchange on defence expenditure. Ever since NATO was established in 1949, the division between the US and European member states of responsibility for maintaining a common security space and the launching of potential military collective defence operations has been a subject of discussion. Throughout the Cold War, the focus of the issue was the balance between the Americans’ dedication and the contribution of the European allies. This question is also relevant in today’s situation, in which NATO is paying more attention than before to deterrence and collective defence but where the security environment and the threats and challenges to its member states are much more diverse than during the Cold War.

The Point of Departure for Discussions on Burden Sharing

In talking about the 2014 defence investment pledge, people often focus on a single fact—the requirement that defence spending should account for 2% of national GDP. However, the pledge is a whole that consists of several parts, and the level of defence expenditure is not a goal in itself; aside from the desired 2%, member states must invest in agreed military capabilities so that the Allies have the political will and complete readiness to make available for NATO operations the capabilities necessary for achieving their objectives.
More specifically, the defence investment pledge is about three things.

  • When their economies start to grow, member states are required to try and increase the level of their defence spending to 2% of GDP by 2024. By that point, annual investments in major defence-related procurement and research and development must make up 20% of defence expenditure.
  • The member states should use the increased defence expenditure primarily for developing those military capabilities that NATO asks each ally to develop in the framework of the defence planning process, taking into account the Alliance’s various theoretical operations, i.e. member states must meet the capability objectives NATO has set.
  • Member states must guarantee that their units get the required training, equipment and logistics support to participate in multinational operations outside their national borders. As a sign of political will, it is important that the allies contribute to NATO operations and activities that are already underway, including multinational battalion-size battlegroups in the Baltic States and Poland and the air policing mission.

As can be seen, meeting the defence investment pledge is entirely about the national-level actions of the member states. In today’s context, where the intensity of NATO’s military operations is low (as compared to, for example, its operation in Afghanistan ten years ago), we need not speak about the European allies being indebted to NATO. When the tempo of operations does not place demands on states, and other obligations towards NATO have been more or less fulfilled, problems caused by underfunding are less noticeable and low defence expenditure can be explained by reduced requirements without worrying about the future.
It was, however, with the future in mind that the defence investment pledge was made. Developing modern and high-end military capabilities may take years or even decades. As a result, large states view the development of military capabilities from the perspective of several decades, while Estonia, for example, thinks a decade ahead (the country’s current national defence development plan covers the period 2017–26). The 2% requirement reflects NATO’s planning experience, on the basis of which this figure is the minimum level of defence spending that guarantees that a member state is capable of contributing to ongoing operations as well as replacing outdated or worn weaponry so as to be ready for future operations.
NATO’s day-to-day activity does not depend entirely on the capabilities of member states. Member states jointly fund the activity of NATO’s headquarters and military staff. Similarly, part of NATO operations or individual military capabilities belonging to NATO as an organisation, e.g. AWACS aircraft, are also subject to common financing. These are funded from separate small budgets or through three of NATO’s budgets (the military budget, civil budget and NATO Security Investment Programme (NSIP)), the total size of which is small in relation to the defence budgets of NATO allies. The total of the three budgets is 1.5 billion euros for 2017, while the total of NATO member states’ defence budgets in 2016 amounted to more than 800 billion euros.

Discussion on Burden Sharing

Article 3 of the North Atlantic Treaty, which established NATO in 1949, prescribes that the member states are separately and jointly required to maintain and develop their individual and collective capacity to resist armed attack aimed at themselves and others. This principle has been considered the basis of NATO’s burden sharing in the US—all member states must contribute to NATO without exception, although in terms of defining a contribution it was considered from the start that each ally must make investments within the limits of its means as effectively as possible. Immediately after World War II the Americans did not expect a significant contribution from the Europeans to building collective defence, but once Europe had recovered from the war damage the US began to press them to invest in NATO—at first to protect the continent and then, after the end of the Cold War, to participate in foreign operations. In most cases, European allies have followed the US lead.
The issue of fair burden sharing came up in several discussions during the Cold War. For example, European allies were unwilling to increase conventional forces, referring to the US nuclear umbrella; they were hesitant about the American commitment to defending Europe and had conflicting opinions about military operations outside the North Atlantic area, especially those of the US in Asia. Defence expenditure as a proportion of GDP became the main measure of burden sharing and contributions. The requirements of Congress, i.e. American voters, often lie behind US demands. In order to organise fair burden sharing, the US sent a burden sharing ambassador to NATO in the 1980s, Congress and the Pentagon prepared annual burden-sharing overviews, and so on.
The late 1980s and the 1990s saw a significant decrease in the Europeans’ contributions and, after that, in the US presence. The main focus in discussions on NATO’s positions shifted to operations outside NATO’s territory and especially the capability of European allies to actually contribute to such operations. Owing to the requirements of the Cold War, European allies’ forces were not equipped or supported in a manner that would allow them to function outside their territories. To resolve this, NATO heads of state and government decided at the 2002 Prague summit to increase the mobility of their forces and to employ lighter weaponry so as to facilitate forces’ readiness for deployment to operations outside their territory or the North Atlantic area, including in counterinsurgency. The proportion of defence spending in relation to GDP became less important to the question of burden sharing; the allies began to evaluate countries’ actual contributions to foreign missions and member states began to discuss the issue of risks connected to participating in them.

The Development of the 2% Target

The definition of defence expenditure, which has remained largely unchanged to the present day, was developed in the 1950s, and member states’ defence budgets were first published in 1963. According to NATO’s own definition, defence spending is investments made by states to maintain, develop or use military capabilities. Costs of civil defence, internal security and development aid do not form part of defence expenditure.
In the 1950s, the average level of defence expenditure among the allies was 4.8% of GDP. As a result of the decreasing likelihood of large-scale military activity by the USSR and changes in NATO strategy (shifting from the massive retaliation doctrine to one of flexible response) in the second half of the 1960s, the defence expenditure of NATO members declined to 3.4% of GDP by the late 1970s. This was in stark contrast with the defence expenditure dynamics of the Warsaw Pact states, which spent 4–5% more on defence each year. In this context, a clear and quantitative intergovernmental agreement on defence expenditure was agreed in NATO in 1977 at US initiative. This required the allies to increase their defence budgets by 3% a year, which caused defence spending to increase for a short while in the early 1980s. However, the world changed and the European allies’ defence spending started to decrease rapidly in the late 1980s, so that the average figure in NATO was 3% of GDP at the beginning of the 1990s. The US agreed to waive the 3% growth requirement in 1990 and the subject of defence expenditure became secondary in NATO’s burden sharing policy.
Thenceforward, defence spending was a resource issue in the background of the NATO defence policy planning process. Between 1995 and 2006, the importance of defence expenditure and large investments was discussed in a general and recommendatory manner, while budgets continued to decrease. In 2006 NATO discussed approving 2% as the unofficial but high-level objective for defence spending. An agreement at heads of government level was not reached at the Riga summit, but the same year allied defence ministers agreed in the NATO defence planning process that member states whose defence spending made up less than 2% of GDP should stop the fall in expenditure and increase it in the following few years.
It was a good plan, but was followed by the global recession, as result of which several member states made significant cuts to defence spending to cope with the situation. By the time the Wales defence investment pledge was made in 2014, European member states’ average defence expenditure was 1.5% of GDP.

After Wales

The defence spending of NATO member states is starting to grow slowly; in 2016 the defence budgets of European allies and Canada increased by 3.8%. At the same time, the US accounts for 68% of the total defence expenditure of NATO member states, and although we must take into account the Americans’ significantly wider global interests and military presence in comparing budgets, it can be said that Washington’s message about fair burden sharing can be understood. This is especially so if we consider that there is a clear connection between the proportion of defence expenditure and the capability targets set for NATO allies; NATO depends significantly on the military capabilities of the US in organising operations.
This dependence is remarkable because the renewed importance of NATO’s collective defence means yet another change in the structure of member states’ forces. For the past 10–15 years, capabilities connected to mobility and light weaponry that could be used in operations similar to Afghanistan were considered more important. However, combat activity in Ukraine showed that technologically complex capabilities (like electronic warfare) and heavy weaponry are still relevant. This is why NATO heads of state and government confirmed during the 2016 Warsaw summit that all allies must develop high-end capabilities as well as heavy weaponry. Similarly, the forces of member states must be at a higher level of readiness than before in terms of manning, training and equipment. This, in turn, requires that the allies make larger investments. As mentioned earlier, putting investments to use to create actual capabilities takes time. Limitations arise from the defence industry’s ability to produce new weapons as well as the time spent on training personnel.
From Estonia’s point of view, the unity displayed by the allies and the reiteration at the special meeting in Brussels of the importance of increasing defence spending are more than welcome. Although it may seem banal to say it again, it is important to acknowledge that the allies have understood how the security environment has changed and that we must contribute more to national defence than before. Despite its limited resources and little actual influence, Estonia has a significant role in this—its dedication to maintaining defence spending at 2% of GDP and many years of active participation in foreign missions has shown that European allies are capable of doing more to guarantee their security. Making a serious contribution is important in dealing with the challenges posed by the changing world.

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