UPDATE 2-Panetta reassures European allies over defence cuts
* U.S. to cut two Army brigades in Europe
* Defence budgets likely to continue decline
* Increasing U.S. discontentment over low European spending
By David Alexander and Sebastian Moffett
MUNICH, Feb 4 (Reuters) - U.S. Defense Secretary Leon Panetta reassured European allies on Saturday that Washington remains committed to their security despite an austerity drive, as NATO pushed for new ways for alliance members to maintain capabilities at lower cost.
The declarations came amid declining defence budgets and growing U.S. discontent over Europe's low spending and diminishing capabilities, which add to the United States' defence burden.
Panetta said the U.S. Army would still have about 37,000 soldiers in Europe even after it withdraws two of its four combat brigades - about 7,000 soldiers - as part of efforts to cut $487 billion from the defence budget over the next decade.
"Our military footprint in Europe will remain larger than in any other region of the world," Panetta told a Munich security conference.
"That's not only because the peace and prosperity of Europe is critically important to the United States, but because Europe remains our security partner of choice for military operations and diplomacy around the world."
The conference, an annual gathering of foreign policy experts, took place as many NATO members struggle with heavy sovereign debt. That makes it unlikely that NATO - the U.S., Canada and 26 European nations - can maintain even its current levels of military spending in coming years.
"The reality is that in aggregate NATO defence spending is going to go down over the coming years," said British Defence Secretary Philip Hammond.
"Everyone in the industrial sector has understood for years that the challenge is constantly to deliver more output with fewer inputs ... Now we have to challenge our militaries to think in the same way."
NATO's main solution to that came last year, with a call for "smart defence", meaning more efficient use of military budgets and a more open market for defence equipment.
NATO Secretary-General Anders Fogh Rasmussen on Saturday proposed enhancing this with a "Connected Forces Initiative". This would help NATO allies' more effectively use their equipment and troops to work together.
"It's the ability to connect all our forces," he said. "Common understanding. Common command and control arrangements. Common standards. Common language. And common doctrine and procedures. It concerns everything we do as an alliance."
Specifically, Rasmussen called for greater use of joint training centres, such as those in Poland and Norway, and encouraged the opening up of national facilities.
He also wanted increased exercises, with a strengthened NATO Response Force (NRF) - a stand-alone military force available for rapid deployment.
He gave the example of Denmark's use during NATO's Libya operation of F-16 planes bought from the United States, which were not capable of carrying French munitions. To fix the problem, a universal ammunition adaptor is now being tested, he said, "a bit like a plug adaptor for planes".
But there is widespread skepticism Europeans have the will to improve their capabilities, either through common defence projects or higher spending.
"If we look behind the slogan of smart defence, I would say that at least 20 years ago all these ideas were on the table," said Thomas Enders, CEO of Airbus. The aircraft manufacturing unit of EADS makes military transporters and refueling planes as well as passenger jets.
"So why is this time different? It could be austerity. But ... the NATO members, particularly the Europeans will not spend more on defence for the foreseeable future, say 10 years."
Panetta pledged greater support for the NRF, saying the United States would rotate U.S.-based soldiers to Europe for training on a regular basis. He said one U.S.-based brigade would act as Washington's contribution to the response force.
"The NRF was designed to be an agile, rapidly deployable, multi-national force that can respond to crises when and where necessary," he said. "The United States has endorsed the NRF but has not made a tangible contribution due to the demands of the wars - until now."
The United States has about 80,000 military personnel in Europe when Air Force, Navy and other troops are included. There are 28 U.S. military bases - 16 Army, eight Air Force and four Navy.
But U.S. lawmakers have been critical of Europe for low levels of defence spending. They have pressed for the withdrawal of American forces, saying it was time for the continent to shoulder more of the expense of defending itself.
In June, outgoing U.S. Defense Secretary Robert Gates warned that Europe's declining defence capabilities presaged a "dim, if not dismal future for the transatlantic alliance".
Last month, President Barack Obama announced a new strategy aimed a cutting defence spending over the next decade and shifting the United States' focus to the Asia-Pacific.
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