PARIS --- As soon as the Cold War ended, European governments – with the notable exception of historical opponents Greece and Turkey – lost no time in paying themselves substantial peace dividends by cutting defense spending. But, while the smaller nations (Belgium, Netherlands, Sweden, Denmark, etc.) also reduced their military establishments and sold off surplus weaponry, the larger countries such as France and Germany preferred maintaining their armed forces while slashing spending on operations and maintenance.
The result is that Europe today has large, expensive but ineffective armed forces, that are unable to project more than a few thousand soldiers to foreign theaters, and which when deployed mostly lack the right kind of vehicles, UAVs, and helicopters to carry out their missions. The tail is far too big for the teeth, in other words, and the money is not enough for either to work well.
Enter the rating agencies. With their threat to lower the sovereign debt rating of Greece, Spain and Portugal, perhaps Italy and maybe even France, a handful of rating agencies this summer managed to panic European governments into doing what they had been putting off for years: balance their books, reduce their ballooning budget deficits, and pay down their foreign debt. All good, sound economic stuff, to be sure, but very unsettling for military staffs preparing long-term defense policy and buying weapons intended to last for 20 or 30 years.
European governments responded so quickly because the threat posed by the rating agencies is very real: lowering a country’s sovereign rating immediately increases not only the interest it will have to pay on future borrowings, but also in many cases the interest it pays on existing loans, where penalties kick in automatically if the borrower’s credit rating is lowered.
This was enough to frighten France, the United Kingdom and Germany into announcing very substantial downsizing of their military establishments, of their defense spending or of their equipment purchases, as they sought to convince the rating agencies that they were serious about balancing their books. (See related story: Budget Cuts Are a Good Pretext for Reforming Military Policy).
Germany last month announced plans to cut defense spending by 8.3 billion euros by 2014 and to reduce its army by one-third; Britain’s new government has launched a Strategic Defence Review and is talking of reducing its defense spending by as much as 20 percent, with major cuts expected in the Royal Air Force and Royal Navy.
France has suspended its much-vaunted 2009-2014 multiyear defense plan and plans to cut 1 billion euros from its defense budget each year until 2014, although it has ordered some new equipment, including an amphibious ship and helicopters, funded by a separate, economic recovery budget.
Italy has announced plans to cut its defense budget by 10% in 2011, Spain by 9%, and further cuts are on the cards in Sweden after the forthcoming general elections. Switzerland, pleading lack of money, last month pushed back its long-running fighter competition until 2015 at the earliest. Even Greece and Turkey appear to have at least temporarily shelved their military differences because they, too, must cut military expenditure to cut their debt.
So, in just a few months the ratings agencies have proved more effective at upsetting the European defense cart (new German defense reforms, British Strategic Review, postponement of the Swiss fighter competition, etc.) than the Soviet Union during the Cold War, and the wave of pacifist euphoria when it ended.
This raises the specter of a new vulnerability for Europe, which has always paid at least lip service to maintaining some military and industrial autonomy: that its defense spending, and thus, to some extent, its foreign policy, could be influenced by private companies that have amply demonstrated their incompetence in recent years.
Could these same rating agencies, if influenced by particular interests or covertly taken over by unfriendly states (China, Libya, Russia, North Korea,…), or criminal organizations, be used to nudge European governments to disarm, simply by threatening to lower their debt ratings? And, as this would be done in the name of economic orthodoxy, it would obviously be unimpeachable.
This scenario may sound far-fetched, but since it has just happened over the summer, a future replay with a direr outcome cannot be ruled out. Western economies have given far too great a role to rating agencies, based on the idiotic assumption that they would be infallible, objective and disinterested; because of this assumption, their work is mostly unregulated.
While cyber warfare is the flavor of the day when considering emerging threats in the new strategic environment, the rating agencies have the demonstrated potential to represent a very real menace to European national sovereignty that should be neither overlooked nor tolerated.