European budget watch: Gradual decline in EU budgets continues, says EDA

12/01/2011 Jonathan Dowdall (writes for the Defence Dateline Group)

This year rafts of European militaries have announced they will be cutting their defence budgets, reducing equipment orders or trimming force numbers. Yet it can be difficult to judge the effect of such reforms in the short term. Projects can overrun, new operations can unlock additional state funding, or projected savings can fail to materialize - all altering projected figures from the reality. In short, judging the total cost of European defence in 2011 is difficult at this stage.

That’s why the European Defence Agency waits a full year before releasing its statistical breakdown of European defence spending, so it can accurately review and consider the cumulative effect. Its latest figures provide a comprehensive overview of defence spending trends in 2010, covering 26* of the European Union’s member states. They paint a mixed picture; from a worrying inability to tackle rising personnel costs to increased collaborative equipment spending and a slow decline in European operational overseas forces.

Total spending: assessing the damage

In total, European states spent €194 billion on defence in 2010. That gives an average ratio of 1.6% of GDP, or 3.2% of total government expenditure. However, as this figure remained stable from 2009, inflation marks this as a real term decline in purchasing power. European defence spending is continuing its gradual decline.

Moreover, despite continued attempts to bring costs down, personnel spending actually rose from previous years, now constituting €98.1 billion, or 50% of all European defence spending. This is all the more remarkable, as total military staff declined by 4%, to a new low of 1.62 million Europeans in uniform. Civilian defence staff declined even further, to below 390,000, an 8% drop.

So despite clear European force transformation targets and rapid reductions in troop numbers across the board, it seems no radical savings in personnel can be found amongst EU militaries.

Procurement, collaboration and overseas deployments

The story is even more convoluted on investment accounts, amounting to €43 billion, or around 22% of total spending. Here, procurement actually saw a net rise of 5% to €34 billion. Despite the cupboards being bare, it seems some extra money has been successfully plowed into new equipment.

The downside comes with research and technology (R&T), which despite buoyant forecastsin late 2010, actually suffered more from the austerity axe then predicted. Amounting to just €2 billion of total spending, military R&T in Europe is at its lowest level since EDA records began in 2006.

For those following the ongoing military pooling and sharing debate, 2010 does at least give a glimmer of hope that Europe is willing to collaborate. Multilateral equipment procurement in 2010 was the highest on record: constituting €7.5 billion worth of investment. At 22% of all procurement spending, this creeping trend may just prove that sharing equipment resources is not such a long-term goal afterall. It is happening now and, if the upward trend continues, we could see a quarter of all European procurement being collaborative in the coming years.

At 23% of all spending - or €44 billion - operations and maintenance costs in 2010 remained stable. Yet there are some interesting changes in the distribution of this funding from previous years. With an overall reduction of 2,000, just 66,000 European personnel were deployed on overseas missions - the lowest number since 2006. Yet despite this decline, total defence expenditure on overseas deployments increased, to €10 billion, or 5% of all European spending. This incongruity would seem to indicate, once again, that reducing troop numbers does not seem to be drawing the savings militaries would like.

Conclusions

The overall image is of incremental changes that are only sporadically having the desired effect. Despite troop drawdowns, net personnel costs remain stable, or are even rising. A mere 5% increase in equipment investment in return for a drastic reduction of 8% of all civilian staff may seem an uneven pay-off at a time when military resources are so heavily taxed by missions in Afghanistan - and in 2011, Libya. 

Dwindling R&T expenses also bode ill for such a vital component of the technology and industrial base. The defence sector will obviously need to pick up the slack from lower state expenditures - an unlikely proposition given the financial climate. Fortunately, increased collaborative spending is a heartening trend, though a more dedicated investment will be needed to draw significant cost savings.

Of course, from Libya to the Eurozone crisis “2.0”, 2011 has thrown up more challenges these 2010 statistics do not account for. It thus remains to be seen how these trends will develop, and if European militaries can finally pull their budgetary affairs into order.

*Denmark is excluded from EDA statistics.