Defense spending in Europe is on the rise again after experiencing severe reductions during the global financial crisis. A combination of pressure from the United States, fear of Russia and improving public finances is behind this trend. Having cut their forces to the bone, European countries must now decide how to build them up again – buy more of the same, invest in risky and disruptive technologies, or perhaps focus on fighting terrorism? For now, most countries seem to have decided to play it safe.
Most Western countries slashed defense spending amid the post-2008 economic downturn. In the United Kingdom, Professor Paul Cornish explained that an AAA credit rating was more fundamental to national security than military strength. Britain’s armed forces were subsequently cut by 20 percent, reducing the army to its smallest size since the 17th century.
Now that time of austerity appears to be over. Europe’s three biggest spenders on defense (Germany, France and the UK) have all increased their budgets in response to a newly assertive Russia, terrorist attacks and demands from their defense lobbies. The United States is also applying pressure on NATO members to meet their target of spending at least 2 percent of gross domestic product on defense. American diplomats still have some work to do before the alliance’s July summit in Warsaw, since the number of NATO members spending less than 1 percent of GDP on defense jumped from one (Iceland) in 2008 to 11 in 2014.
Perhaps they would be better advised to focus on how the money is spent. Setting global targets such as defense spending in terms of GDP has the advantage of being easily understood by politicians. Such yardsticks also make it simple to measure progress. The question what is actually being measured is a bit more complicated, however.
More than half of Europe’s military spending is on wages and pensions (the latter is counted as part of the defense budget in some countries and excluded in others). Much of the rest is absorbed by institutional overheads, including maintenance of property and equipment. This means the sums earmarked for acquiring new capabilities or upgrading existing ones can be surprisingly small. In terms of combat power, how this portion of the budget is spent is more important than the size of military outlays as a whole.
Below are three scenarios for how Europe’s decision to invest more in its defense may play out.