Press Release

Contact: Dan Darling, Europe Defense Analyst
Phone: (203) 426-0800
Fax: (203) 426-4262
Web site: www.forecastinternational.com
E-mail: daniel.darling@forecast1.com
Forecast International, Inc.
22 Commerce Rd. Newtown, CT 06470 USA
 

FOR IMMEDIATE RELEASE

Europe's Extended Defense Holiday

NEWTOWN, Conn. [December 12, 2011] — 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 $280 billion – 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."

Notable exceptions are, however, emerging. The Anglo-Franco defense pact of 2010 marked a tentative step forward in a quest to maximize efficiencies and avoid capabilities gaps among the continent's two leading military powers. Another budding partnership, Nordic Defense Cooperation (NORDEFCO), has shown that it is possible to partner in select areas without stripping militaries of the operational ability to act unilaterally in pursuit of a nation's sovereign interests.

But until more is done at the binational, trinational, or regional levels to boost military collaboration and stave off the ill effects of declining defense budgets, Europe as a whole will slip further behind its U.S. partner in terms of matching capabilities. The widening gap has become particularly acute since the late 1990s when the NATO-led mission in Kosovo exposed Europe's defense decline.

"Europe needs to summon the political willpower to strengthen defense or accept that out-of-area operations going forward will have to be limited in number and restricted in scope," Darling adds. "There is already a finite capacity regarding further Libya-type operations, let alone a similar mission to the one still going on in Afghanistan. A decline in ability to project power comes with a decline in global influence. Such decline may be relative, but it is a decline nonetheless."

Forecast International, Inc. (www.forecastinternational.com) is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics. Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide. To arrange an interview with Forecast International’s editors, please contact Ray Peterson, Vice President, Research & Editorial Services (203) 426-0800, ray.peterson@forecast1.com. Questions regarding sales may be directed to sales@forecast1.com.