Defense spending faces long-term hit

By David Brunnstrom and Ross Colvin - Analysis

BRUSSELS/WASHINGTON (Reuters) - The global financial crisis is unlikely to have any immediate impact on Western military operations in Iraq and Afghanistan, but analysts say U.S. and European defense budgets face deep long-term cuts.

The allocation of hundreds of billions of dollars from state budgets to bail out banks hit by the credit crunch will make expensive long-term defense projects particularly hard to justify, defense analysts in the United States and Europe say.

But the crisis could strengthen calls for closer defense integration in the European Union to avoid costly duplication of the 27 member states' limited resources.

"I can't see defense is going to escape any kind of austerity measures," said defense economist Mark Stoker of London's International Institute for Strategic Studies.

"It would be very difficult for any government to justify cutting health and education in favor of, say, building two aircraft carriers and buying a load of planes to stick on them."

U.S. Defense Secretary Robert Gates predicted last month U.S. military spending would level off in coming years but said he did not expect severe cuts.

Defense analysts said they expected no big change in spending on military operations in Iraq and Afghanistan, billed as part of the war on terror.

"There wouldn't be an appetite to cut back on the pursuit of an important objective to the United States in the name of near-term economic gain," said Lieutenant-Colonel Nathan Freier of the Center for Strategic and International Studies think tank in Washington.

But he said spending cuts were likely later on, adding: "You will see downstream impacts on the defense budget on the areas of procurements, research and development, modernization."

DILEMMA FOR NEXT PRESIDENT

Whoever wins next month's U.S. presidential election could find it hard politically to make cuts that undermine the operations in Afghanistan or Iraq, but the crisis may provide an incentive to finish the campaigns there earlier than foreseen.

"I don't think people are going to be transparent about that. It's not a winning political argument to say that in order to bail out Wall Street bankers we'd rather accept defeat in an ongoing war," said Stephen Biddle, Senior Fellow for Defense Policy at the Council on Foreign Relations.

"What is likelier is that other parts of the defense program not as immediately and directly connected with an ongoing war are going to have a lot more pressure put on them."

The United States spends more on defense than the rest of the world put together -- with a base budget of some $500 billion submitted for the coming year -- and a total of $12 billion a month in Iraq and Afghanistan.

The U.S. Navy's top uniformed officer, Admiral Gary Roughead, said last month the financial crisis would not lead to a "gutting" of the U.S. defense budget but would increase pressure to review big weapons program.