Op-Ed: Stability Pact Stifles EU Defense
(Source: defense-aerospace.com; issued Nov. 22, 2004)

by Giovanni de BRIGANTI
PARIS --- In the wake of the US presidential elections, pundits on both sides of the Atlantic have argued that George W. Bush’s election victory might be the spark that will finally set Europe’s defense identity afire. Faced with increased US unilateralism and continuing hostility to most of Europe, the argument goes, European governments will opt to flex its muscles to become a future counterweight to the United States.

Being a superpower, however, requires effective military forces, which Europe still lacks despite more than a decade of ambitious but hollow declarations. Large amounts of money are needed to modernize Europe’s armed forces, to make them capable of long-range deployment, and to provide them with the intelligence, targeting and command and control capabilities they currently lack.

Spending more money on defense, never very popular in itself, is also strictly constrained by the European Stability and Growth Pact, which sets a (nominally) firm 3% cap on national deficits. One of the pact’s perverse effects is that it encourages governments to cut defense spending to avoid broaching the deficit ceiling, because cuts in military spending are politically far preferable to cutting pensions or reducing health or education spending.

Thus, German Finance Minister Hans Eichel is preparing to shave a further 250 million euros from Germany’s 2005 defense budget, which has already taken a disproportionate share of past government cuts. This could compromise the armed forces’ ongoing (modest) modernization, but given the current state of the German deficit and Eichel’s need to fill the growing hole in the state coffers, it is unlikely the military will be spared from hard-hitting cuts.

For much the same reasons, French President Jacques Chirac accepted that the 2005 defense budget should grow by a mere 1.5%, much less than planned by the current five-year defense blueprint, and this despite his promise last year to protect defense spending from Finance Ministry cost-killers.

And, last week, Greece finally admitted that it had fiddled its national accounts to meet the criteria for joining the euro. Eurozone states are expected to have deficits below 3% of gross domestic product, but Greece in fact exceeded that limit each year since 1999, primarily by understating military expenditure, according to Prime Minister Kostas Karamanlis.

Arguing that defense expenditures are a special case, France in 2003 floated the idea that they should be excluded when calculating budget deficits. This was immediately shot down by a group of smaller European countries, who countered that Europe should not change its rules for the sake of expediency.

Yet, is there not a case for relaxing the terms of the stability pact?

At its inception, the pact’s goal was to impose checks on national governments’ propensity to spend their way out of a recession, which might have led to galloping inflation. At the time, however, there were no terrorist threat and no ongoing wars such as Afghanistan or Iraq, while the need for military modernization has a far-off prospect.

Today’s situation is far different, not least because inflation remains low in Europe and the euro, far from depreciating, appears largely over-valued compared to the dollar. Yet, in the name of the stability pact’s fiscal orthodoxy, European defense spending cannot increase unless the deficit cap is lifted.

Rather than stubbornly refusing to recognize that the world has changed, Europe should exclude military expenditure – or at least the portion that goes into capital investment – from the scope of the stability pact. That would allow European governments to modernize their armed forces, and to restructure them to meet new threats and new operational requirements, without having to resort, like Greece, to creative accounting.

After all, defending Europe from real terrorist threats, and allowing it to play a significant role by giving it a “bigger stick” to wield on the international scene, is rather more important than scrupulously abiding by the terms of an outdated agreement simply for the sake of appearing virtuously inflexible.

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