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29 Nov 10. Negative fallout from recession and ballooning public debt continues to adversely affect European defense investment, as combined year-on-year expenditures fell for the second consecutive year in 2010. The 5 percent drop in nominal defense spending mirrors that of 2009, when the fallout from the global financial crisis and recession negatively impacted the European military market. Despite fiscal austerity measures imposed throughout Europe, budgetary imbalances continue to plague many eurozone members, thus forcing them to place their militaries on a starvation diet. Defense remains the preferred area for European governments to seek immediate savings as they attempt to bring their budgets back in line with the European Union maximum deficit threshold of 3 percent of GDP. Countries remaining outside the eurozone, such as Britain and Denmark, are following suit. The British have announced cuts of up to 8 percent under their new Strategic Defense and Security Review, while the Danish Defense Plan 2010-14 has come under pressure from government officials and politicians hoping to find savings from the five-year DKK111bn ($21bn) budget. In its annual Europe military market overview, Forecast International examines how declining investment by the region’s most powerful military nations negatively impacts the continent’s overall ability to contribute to NATO Alliance missions and project power globally. The diminishing commitment toward defense by many dual EU-NATO members is reflected by the steady decline in military investment as a percentage of state expenditure. This trend has been ongoing since the mid-1990s, but the negative economic and financial environment of the past three years has magnified the separation between government pledges toward defense and the actual political will to see them through.
“Europe is struggling as a whole to meet its minimum defense investment obligations toward the NATO Alliance,” said Forecast International Europe Military Markets Analyst Dan Darling. “Compounding this problem is that dual EU-NATO member states have diverging fiscal standards to meet. As NATO members, they are asked to invest at least 2 percent of GDP toward defense, while as EU members, they are required to adhere to Stability and Growth Pact rules regarding budget deficits and public debt. Both sets of standards are in effect toothless, as they are unenforced, but governments nonetheless come under pressure to meet them.”
In the end, the loser is more often than not defense. Only three dual EU-NATO members – Britain, France and Greece – currently meet the Alliance minimum defense investment standard. Like Britain, France has a rising public debt to confront and has opted to trim defense expenditures by EUR3.6bn through 2013. Greece is in a financial straightjacket imposed upon it by the EU and International Monetary Fund in return for a EUR110 billion emergency loan. The highest defense spender in Europe in terms of national wealth at 2.8 percent of GDP, Athens, has been forced by its sovereign debt crisis to push impending purchases of new jet fighters, warships and armored vehicles out to 2012 and beyond. Other premier military nations in Europe, such as Germany, Italy and Spain, also see defense funding as a peripheral concern to tackling budgetary imbalances. Germany is expected to slash defense spending by 9.3bn over the coming three years, while Italy’s budget fell by 7 percent in 2009 and 0.4 percent in 2010, and may tumble by as much as 10 percent in 2011. Meanwhile, the Spanish armed forces will experience their third consecutive budget cut in 2011.
“Such cuts would not be alarming had previous levels of military investment not been so relatively meager,” Darling said. “Germany has regularly earmarked about 1.3 percent of its GDP toward defense, while Italy and Spain hover at just below 1 percent of GDP. Spain’s deficit reduction efforts and Italy’s economic inability to grow itself out of debt cast