February 20, 2014

NATO Capability Gaps and Asian Pivots

Europe and the United States need to cooperate to promote stability on Europe’s periphery as well as beyond, especially in Asia.

At their November 2010 heads-of-government summit, NATO leaders adopted a new Strategic Concept designed to revitalize the Alliance to manage the unprecedented new challenges and opportunities offered by the 21st century. The Concept speaks of keeping NATO “effective in a changing world, against new threats, with new capabilities and new partners” including non-member countries and other multinational institutions.  To realize these goals, NATO needs to address several issues related to defense spending and capabilities: the adequacy of European defense spending, the inefficient nature of NATO countries’ defense spending, the tardiness in NATO’s development of the new capabilities needed to fulfill new missions, and the credibility of the U.S. military commitment to Europe given competing priorities in Asia and the Middle East. However, as noted in the January 2014 NATO Defense Ministerial and the February 2014 Munich Security Conference, members have at best only made partial progress toward realizing these ends. In particular, the deep defense budget cuts adopted by many members, which follows years of underfunding important military requirements, call into question whether the Alliance can develop or sustain the capabilities needed to meet their expanding conventional defense and security requirements. There is a risk that Europe is becoming increasingly irrelevant and unable to promote stability even in nearby regions like Africa, where Europeans have a potentially critical role to play while Washington’s gaze drifts towards Asia.

Inadequate European Defense Spending

As an intergovernmental security alliance, NATO is only as strong as its member states. Of NATO’s 28 members, 26 are European. Of these, 21 are also in the EU. European countries collectively have more than two million men and women in uniform, yet, by some estimates only 100,000—a mere 5 percent—of them have the capability to deploy outside national borders.  NATO Deputy Secretary General Alexander Vershbow publicly lamented the failure of last December’s European Council on defense to make any meaningful effort to begin to reverse Europeans’ declining military capabilities—yet another circumvented opportunity.
In 2012, European NATO members’ military expenditures were approximately 11% below their 2006 spending levels.  Since the 2008 global financial crisis, 18 of the 31 countries in the European Union or European NATO have cut military spending by more than 10 per cent in real terms.  In 2012, Germany, the Continent’s largest economy, spent just 1.4% of GDP, Italy allocated 1.7%, and Spain, only 0.8% in the military sector. That year, only Greece (2.5%), France (2.3%), and Great Britain (2.5%) satisfied NATO’s GDP defense spending target of 2% (the same was true for 2013). By comparison, the United States spent 4.8% of its GDP on the military in 2011, and 4.4% in 2012. Even Britain and France, regularly ranked as two of the world’s top five great powers, are lowering their military budgets. European governments also failed to meet their obligation to spend at least 20% of their defense funds on major equipment rather than on personnel, maintenance, and other less critical capabilities.
In addition to their low military spending, Europeans do not make the best of what little they do spend. European defense spending remains focused on territorial defense and protecting domestic employment, leaving relatively little to meet global challenges through expeditionary forces. In addition, funds go overwhelmingly toward paying for personnel and operations and not towards developing or buying weapons. In addition, each member’s armed forces have poor interoperability with those of other members. A lack of specialization creates excessive redundancies. There is a risk that Europe would thus become increasingly irrelevant and unable to promote stability even in nearby regions.
Unfortunately, diverging national interests remain a stumbling block. Industrial policy concerns such as sustaining domestic employment as well as a natural national reluctance to rely on other countries for military important capabilities typically exert much greater influence on NATO spending than collective security considerations. For this reason, proposals to extend NATO- or European-wide defense procurement have never made much progress. NATO countries’ defense investment continues remains diluted across projects, with members supporting large national aviation, shipbuilding, and other high-technology sectors (valued for their stimulus to economic development as well as the skilled jobs they produce) despite the resulting duplication, inefficiencies, and insufficient economies of scale.  Even European countries with large aggregate defense budgets such as Germany and Turkey, have not optimized their defense efforts to meet NATO’s expanding international security obligations since money flows predominately to manpower and maintenance rather than researching, developing or procuring new weapons systems.
The Europeans do not make the best of what little they do spend on their armed forces.. European militaries remain based around territorial defense and protecting domestic employment, leaving relatively little to meet global challenges through expeditionary forces. In addition, funds go overwhelmingly toward paying for personnel and operations and not towards developing or buying weapons. A lack of specialization creates excessive redundancies. Optimists hope that the downward pressure on military spending will force European governments to take long-needed measures to reduce procurement duplication and pursue greater military specialization and interoperability. There are several examples of how NATO countries have been able to develop the dynamic and flexible forces the Alliance needs to address these threats rather than legacy forces that suck up funds but provide relatively little defense capability. Belgium, Canada, Denmark, and Norway all made important contributions to the NATO operation in Libya despite their limited defense spending because they have concentrated their resources on developing expeditionary capabilities such as strike aircraft. But their small size in terms of population and GDP mean that they can have only a marginal impact on NATO’s aggregate capabilities in coming years.
A key question is whether Europe’s most important military powers will retain significant power projection capabilities. The United Kingdom, France, and Germany represent about 65 percent of all defense expenditure in Europe and 88 percent of all military research and development in Europe. Most other allies can only make small or niche contributions to expeditionary missions, while still requiring that they keep defense spending sufficiently high to permit their military personnel of valuable potential training opportunities. Despite budgetary strains, these three governments are still planning to retain major expeditionary military capabilities—having the ability to deploy at least 10,000 troops within a few months on a multi-month mission—for the next few years. But the end of the Afghanistan mission around 2014 combined with probable future demographic trends such as expected rises in welfare spending due to aging national populations and other fiscal pressures will likely result in further reductions over time in force levels, military readiness, and defense procurements. Britain, France, and Germany must deepen their mutual defense cooperation to sustain high-end military capabilities such as satellites, ships, helicopters, missiles, and planes as they continue to decrease their national defense spending.
In the Libyan campaign, many European militaries experienced major shortages in precision-guided munitions and other essential equipment, ordnance, and other capabilities. The United States, which had been eager to limit its resource allocations to the Libyan War to prioritize the Afghanistan and Iraq conflicts, had to fill these gaps.  European defense budgets are likely to be squeezed further in coming years due to slow growth, high unemployment, enormous fiscal deficits, and an increase in the ratio of retired pensioners to taxpaying workers. The result will likely be declining per capita spending on soldiers even with further troop reductions and a decrease in their ability to contribute to NATO’s expeditionary operations rather than continue often useless territorial defense missions.  The decreasing NATO presence in Afghanistan could encourage more European defense cutting since the withdrawal would remove one argument (alliance solidarity in current missions) defense ministries have used to sustain their spending.
Several variables drive this wide gap in transatlantic defense spending and related problems, making it difficult to overcome. These driving factors include Europe’s deeper financial crisis, limited European public support for sustaining defense expenditures at the expense of welfare spending, domestic politics and political processes that make it difficult for leaders to resist these popular sentiments (especially during times of economic crises), and the ability of special interest groups such as defense companies and labor unions to promote inefficient defense industrial practices that apply much military spending for employment and industrial policy concerns. Finally, the willingness of the United States to pick up the slack and sustain high levels of defense spending (and if necessary bail out allied militaries as in Libya) combined with “buy America” defense procurement policies that further weaken transatlantic defense integration reinforces these problems of the sub-optimal allocation of defense resources.

Transatlantic Burden Imbalances

Americans and many other observers have long considered European defense spending insufficient compared with that of the United States. During the Cold War, the United States and the other NATO members spent roughly equal sums on defense; today, the United States currently accounts for some 75 percent of all NATO defense spending.  During the 2007-2013 period, the share of U.S. military expenditures increased from 68 to 73 per cent.  Since the Cold War, while European NATO countries have collectively grown by more than 50 percent, their aggregate defense spending has fallen by more than double-digit levels. This inverse relationship between military spending and GDP growth portends poorly for the future. Achieving a global capability, and sustaining domestic political support for the transatlantic alliance in Washington, requires that the European allies have some capabilities that they can commit to non-European missions.
Without major changes in these trends, Americans could become even more annoyed at perceived European free riding. While the United States contributed only a small proportion of the PGMs and strike craft in the Libyan campaign, the Europeans still depended on the Pentagon for essential intelligence, surveillance and reconnaissance (ISR), aerial refueling, and strategic targeting of the PGMs. The irony was that, if ever there was a NATO operation that should be European-led, Libya was it. Operation Unified Protector encountered little domestic political opposition, did not involve NATO ground forces on Libyan territory, and was occurring right in Europe’s own backyard.

Capability Shortfalls

As a result of this inadequate defense spending, especially in Europe, NATO suffers from an enduring supply-demand imbalance in its military capabilities: member countries’ demand for collective defense assets is typically greater than their willingness to supply them. In particular, NATO is not investing sufficiently to develop the new capabilities the Alliance needs to fulfill its missions. In addition to affirming NATO’s Article 5 commitments to mutual territorial defense, the Strategic Concept also stresses NATO’s need for new capabilities to “prevent crises, manage crises, stabilize post-conflict situations and support reconstruction.”  NATO should have the potential to manage a wide range of threats and opportunities since past decades show the difficultly of predicting what new ones may emerge. Few foresaw the collapse of the Soviet bloc, years of civil war in the Balkans, or the NATO missions in Afghanistan and Libya. But the January 2014 NATO Chiefs of Defence meeting confirmed that the NATO Defence Planning Process identified critical capability shortfalls with Joint Intelligence, Surveillance & Reconnaissance (ISR) and Ballistic Missile Defense.  Furthermore, the scandals involving the U.S. nuclear weapons establishment are obscuring that European nuclear capabilities are withering due to their governments not purchasing a new generation of dual-capable aircraft capable of dropping U.S. nuclear bombs even though the current planes are reaching the end of their operational lives.
At the Lisbon Summit, NATO leaders adopted a so-called Lisbon package of priority capability needs. These ten critical capabilities—ranging from missile defenses to cyber protection to improved countermeasures against improvised explosive devices (IEDs) in Afghanistan—aimed to enhance NATO’s capability to address global threats. For example, NATO’s cyber mission will require significant, accelerated, and efficient modernization among alliance members to guarantee security across communications, military, and energy networks. At the May 2012 Chicago Summit, the NATO governments adopted a capabilities package of over 20 multinational projects, such as remote-controlled robots to detonate roadside explosive devices and pooled maritime aircraft, in which the allies would collectively procure certain key assets they could not afford to buy individually.
NATO has borrowed from the U.S. joint vision exercises and developed its own vision of how to use all these resources and capabilities in an integrated manner. Just as the Pentagon has U.S. Joint Vision 2020, so the Alliance now has NATO Force 2020 to provide members with a set of alliance-wide capability targets and a collective implementation plan for achieving them. Britain, France, the United States and other NATO countries have announced major defense cuts without seemingly coordinating their decisions with allies to ensure that other NATO countries can make up the slack. By identifying the key capabilities they will need during the next decade, NATO Force 2020 will help members coordinate their national defense cuts more closely to ensure that they have the sufficient critical capabilities they will need for collective defense and other missions. In addition to NATO Force 2020, the allies might consider using Prime Minister David Cameron’s idea of having a NATO-wide Net Assessment, with national defense reviews main a deliberate effort to inform each other, to identify where capabilities are excessive or (more likely) lacking relative to threats.
NATO leaders argue that they can save money collectively by reducing the size and rationalizing the management of the Alliance’s numerous commands, defense agencies, and other support structures and processes. They also believe that the new NATO command structure will prove more effective and flexible, capable of being scaled to the mission and more easily deployable outside the Euro-Atlantic area. At the Lisbon and Chicago summits, NATO leaders committed to adopting a new, streamlined Command Structure to reduce costs by an estimated 35%.  Such a move will reduce the number of high-end headquarters from eleven to seven, and reduce the overall number of military command posts by about a third.  The number of NATO agencies is set to fall from fourteen to three in an effort to achieve greater efficiency.  In addition to cost savings, NATO experts believe that the new command structure will prove more effective and flexible, capable of being scaled to the mission and more easily deployable outside the Euro-Atlantic area. But realizing major cost savings through such policies is improbable given that reform and restructuring often cost more than they save, at least in the short term. NATO’s entire military and administrative budget is under $3 billion, or less than 0.5% of the allies’ combined defense budgets, and any savings would be distributed among many members. Furthermore, cutting funds supporting common operations and equipment could lead less wealthy members to shun foreign deployments, which could weaken these missions’ political legitimacy (renewing cries of Anglo-American imperialism). Even if these changes in NATO’s support structures and processes are extensive, the history of almost all modern defense organizational reforms suggests that realizing massive financial savings or huge efficiency gains is improbable. Recent media reports indicate, for example, that the plans to construct a new NATO headquarters are facing massive cost overruns and delays.

Limited Smart Defense

NATO and EU leaders have cited the cost pressure as giving them an opportunity as well as an imperative to secure more military value for defense spending through such measures as reducing unwanted defense duplication, reallocating resources based on collective rather than national priorities, encouraging more national military specialization on niche capabilities, as well as pursuing more collaborative research, development and procurement based on common funding mechanisms. Since NATO’s Secretary General Anders Fogh Rasmussen launched Smart Defence at the 2011 Munich Conference, the initiative has been widely discussed and promoted within NATO circles as a manifestation that multinational capability cooperation is the new norm. Under the Initiative’s auspices, NATO has undertaken several flagship projects (though some pre-existing ones were simply repackaged as Smart Defence initiatives) with a few participants and narrow tasks. The backers of the Initiative hope that, once these targeted flagship projects proved successful, they would generate sufficient confidence to embolden allies to try more challenging projects. But NATO leaders lack the means to compel countries to join or remain in these projects, so they will need structured incentives to encourage participation, such as ensuring that some of the defence companies of the paying participants for projects obtain some of the project contracts. Many of the other dozen initiatives are likely insufficiently prominent—shared use of training areas, more collective exercises, or multinational maintenance—or involve too few members or sums to generate massive momentum to make further reforms. The Nordic countries have already been practicing Smart Defence for many years, but they have a higher degree of mutual trust than one finds among most NATO members. There is still little evidence that NATO countries are coordinated their defence cuts with one another let alone NATO staff to ensure that specialization occurs by design rather than by default.

Pivoting to Asia

One development that might help narrow the transatlantic military burden sharing gap, though not by intent, is the U.S. effort to prioritize military its capabilities in Asia—protecting them even while reducing U.S. military forces assigned to other regions of the world, especially Europe. Although committed to maintaining a U.S. military presence in Europe, they argue that Europeans are more secure now thanks to NATO, the end of the Cold War, and other benign developments absent in Asia. United States is eager to reduce its overall foreign military costs and concentrate residual U.S. forces in the Asia-Pacific region. Yet, European spending and capability shortfalls could become newly prominent since U.S. policy makers expect Europeans to assume greater responsibilities for maintaining regional security in Europe and Africa. The message they want to convey is that the European allies are part of the solution rather than part of the problem. Europe and the United States need to cooperate to promote stability on Europe’s periphery as well as beyond, especially in Asia where U.S.-European security cooperation or even consultation is minimal.
Europeans’ current role in Asia has a different dynamic than that of the United States. Europeans, even when operating collectively within the EU or NATO, do not exert the level of influence in Asia that the United States regularly does. Meanwhile, Europeans are less influenced by the “China threat” thesis. This has caused them to take approaches that differ from the United States on some vital issues, in particular Europe’s ambition of integrating China into the international system through a strategic partnership, which includes the transfer to the PRC of “dual-use” technology, which can have both civilian and military applications. For U.S. policy makers, the problems from this integrationist approach are compounded by the fragmented nature of the EU’s export control system, which Americans believe prevents the EU from effectively managing the security risks involved in technology transfers. Because no EU member state has any security concerns at stake in East Asia since the UK’s 1997 handover of Hong Kong to China, the EU’s China policy is economically focused to promote the growth of Chinese imports from the EU, attract PRC investment and to protect the interests of European investors in China. In contrast to Washington’s enduring security alliances with Asian states like Japan, South Korea, and Taiwan, European members of NATO have generally restricted their Sino-European ties in security and military related areas to military-to-military diplomacy, port visits, educational exchanges, peacekeeping training, basic joint military exercises, and occasionally weapons sales and high-technology trade which could have military applications. European criteria for the export of sophisticated equipment and technology to China is less restrictive than U.S. export controls. For this reason, Europeans’ sale of potentially military useful products to China has become yet another source of transatlantic security tensions.

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