Defense spending faces long-term hit

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.

A trader works on the floor of the New York Stock Exchange October 6, 2008. REUTERS/Brendan McDermid

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.”

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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.

Biddle said plans to boost U.S. Army and Marine Corps by 100,000 personnel would be especially difficult to maintain.


The financial crisis is no help to U.S. efforts to persuade European states in the North Atlantic Treaty Organization to boost defense budgets.

“I don’t know...the impacts, but everything concerns me when it portends possible impacts on budgets or nations’ defense establishments,” NATO’s top operations commander, General John Craddock, told Reuters.

French Defense Minister Herve Morin, whose country favors a stronger EU defense capability as a balance to U.S. influence, said last week the crisis showed the EU must pool resources.

Michael Codner, director of Military sciences at London’s Royal United Services Institute, said closer EU defense integration was still a long way off.

“But regardless of individual nations’ wishes for autonomy or reluctance to joint a pan-European defense arrangement they could be forced to do so by events,” he said.

“One such event, one could argue, would be if there was an economic decline across Europe.”

Codner said the need for deeper European coordination in defense was highlighted by Russia’s brief war with Georgia, and the financial crisis could spur efforts toward new pan-European military capabilities.

“It could be a tipping point,” he said. “And it’s typical of democracies that these sorts of tipping points and crises actually make for significant rather than incremental change.”

Writing by David Brunnstrom; Editing by Timothy Heritage