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FORECAST REPORT ON EUROPEAN MILITARY MARKET

12 Dec 11. While the past several years have been particularly tough ones for the European defense environment, things are unlikely to turn around in the near term, according to Forecast International’s latest report on Europe’s military market. With the eurozone economy still sluggish and governments fixated on containing the sovereign debt brushfire that has consumed three member states, defense continues to be an afterthought in Europe. Deficit cutting has overtaken social spending as the chief priority in European capitals, and treasuries still consider defense budgets a tempting area from which to wring savings.

Forecast International anticipates that total European defense expenditures by 2015 will barely reach $280bn – with that figure inflated by a weak U.S. dollar. As dueling obligations force EU-NATO members to make financial choices between meeting EU Stability and Growth Pact deficit rules or minimum defense investment standards, invariably governments opt for the former requirement, with Denmark and Poland the only two dual members to refrain from shrinking their defense budgets over the past two years.

Little in the near-term environment lends hope that a rethink toward defense prioritization is in the offing. Austerity programs are draining government ministries of funding and any reversals of this trend will first be felt in areas outside defense. The end result of the ongoing decline and flattening of already-limited defense allocations will be armies that struggle to project power, conduct training exercises, maintain combat readiness, and entice new recruits. Modernization programs will be postponed or forsaken entirely.

While the Libyan campaign underlined Europe’s continuing need for U.S. operational support in select areas, the clarion call by NATO Secretary General Anders Fogh Rasmussen for greater cooperation among European partners in the area of defense procurement (what the Alliance refers to as “smart defense”) is unlikely to move the process forward. Defense ministries are instead focusing their frugal equipment budgets on maintaining existing platforms.

“Despite shortcomings witnessed in the recent Libyan operation, European governments continue to view defense as a peripheral concern,” according to Forecast International’s Europe Military Markets Analyst Dan Darling. “What resulted there did not stem from some overnight occurrence. The shrinking of assets and degradation of capabilities happened over an extended period of time. Defense investment in Europe has steadily declined since the early 1990s as governments placed a premium on ‘soft power’ alternatives over military strength.”

The steady downward slide in Europe’s defense investment makes selective collaboration necessary if European armies are to retain and improve upon performance capabilities. This has become particularly imperative as the rising cost of modern weapons platforms limits the total number of units countries can afford to purchase. More procurement of off-the-shelf technologies might help mitigate this problem, but countries would still need to partner in joint purchasing in order to achieve economies of scale.

Yet some governments remain wary of increasing defense cooperation as these efforts can be interpreted by political opponents as eroding national sovereignty. Whether because of disinterest, protectionism, or political survival, the end result is a collective inertia.

“Concepts such as ‘smart defense’ are sound in theory,” says Darling. “Certainly eliminating unnecessary duplications and creating synergies in procurement would go a long way toward maximizing a return on defense investment, but too often vows of increased cooperation suffer from a lack of firm movement. So long as Europe does not face a direct, conventional military threat, this would seem unlikely to change. Simply put, social welfare trumps hard power in Europe at both the government and street level.”

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