Military Spending

The New Global Arms Race

European defense spending is about to take off. A Source: Bloomberg
European defense spending is about to take off.
  • Why it matters

    Why it matters

    • After years of defense cuts, European countries are starting to play catch-up in response to Russian power plays, Islamist terrorism and America’s retreat from its former global role.
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  • Facts

    Facts

    • Global defense spending last year reached a record level of around €1.5 trillion, according to figures from think tank SIPRI.
    • Germany, France and Britain are increasing their defense budgets in response to Russia’s annexation of Crimea and Islamist attacks in Europe.
    • Wolfgang Ischinger, the head of the Munich Security conference, told Handelsblatt he sees “shoots of hope” in Russia’s relations with the West.
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After years of treating their defense budgets as an optional extra, E.U. member states are now boosting military spending, in the wake of wake of terror attacks in Western Europe and Russia’s annexation of Crimea.

The German government plans to increase its defense budget by more than €10 billion, or $11.16 billion, by 2020 and France announced a turnaround in its military policy after the attack on satirical magazine “Charlie Hebdo” in January 2015.

And in her first statement to parliament as Britain’s new prime minister, Theresa May urged lawmakers to vote in favor of renewing the country’s ageing Trident nuclear weapons system to protect Britain from growing threats from Russia and North Korea.

To be sure, NATO and the E.U. are behind the curve in global rearmament. “There are three regions where rearmament is happening: Asia, the Middle East and eastern Europe,” said Markus Kaim, defense analyst at the German Institute for International and Security Affairs.

“Governments increasingly lack the capability to pre-emptively prevent crises or at least to solve them quickly. This is leading to mounting insecurity and the widespread sense that the world order is breaking down.”

Wolfgang Ischinger, chairman, Munich Security Conference

China, Saudi Arabia and Russia have doubled spending on their armed forces in the last 10 years, according to the Stockholm International Peace Research Institute (SIPRI).

The world’s biggest military power, the U.S., has cut its defense budget by 4 percent over that period. But with an annual budget of $600 billion, the U.S. still spends almost three times more on defense than the world’s second-biggest spender, China. SIPRI said global defense spending last year reached a record level of around €1.5 trillion.

“We have been in a deepening crisis of the world security order for several years,” the chairman of the Munich Security Conference, Wolfgang Ischinger, told Handelsblatt in an interview. “Governments increasingly lack the capability to pre-emptively prevent crises or at least to solve them quickly. This is leading to mounting insecurity and the widespread sense that the world order is breaking down.”

Mr. Ischinger attributed this to America’s withdrawal from its role of global policeman and the rise of Islamist terror. “In Asia the growth in defense spending started years ago. In Europe, the annexation of Crimea was the trigger to end the period of shrinking defense budgets.”

He added that the general uncertainty would only abate if the U.S. and Russia repaired their relationship and restored mutual trust.

“Until 2012, until the re-election of Mr. Putin, there was a  period when relations were good: the two sides even managed to agree the ‘New Start’ treaty on nuclear disarmament,” said Mr. Ischinger. “The Europeans should urge a renewed focus on arms control.”

He said the chances of that happening were better than a few months ago and noted that Mr. Putin didn’t react to last month’s NATO summit in Warsaw by announcing further increases in arms spending, and had even talked about deescalation at a meeting with Finish President Sauli Niinistö.

“That’s little shoot of hope that something could grow from,” he said.

For Europe, the renewed rise in military spending ends the era of the peace dividend following the collapse of the Soviet Union at the start of the 1990s. Most E.U. states cut back their spending in the intervening decades, in some cases to less than 1 percent of gross domestic product.

Italy and Spain, forced to reduce their budgets in the wake of the financial crisis, have slashed defense spending by 30 percent and 20 percent respectively since 2006.

But the fear has returned. Eastern Europe is worried that Russia, after annexing the Crimea and backing militants in eastern Ukraine, may develop an appetite for the Baltic States. And Western Europe has been shocked by Islamist terror attacks. An additional factor is that the U.S. has been scaling back its global crisis management role. President Barack Obama stands for disarmament and has shifted America’s focus towards China and the Pacific, forcing Europe to plug the gap left by the U.S. within NATO.

Europe also wants to prevent the military powers in Asia, the Middle East and eastern Europe from gaining too much of a lead because they have been increasing defense spending for years. Beijing has the world’s biggest army estimated at 2.3 million troops and has been increasing its defense budget by 10 percent annually for the past 15 years. European arms manufacturers have been unable to profit because the E.U. bans the export of weapons to China.

 

02 p04 Who has the Highest Levels of Military Expenditure-01

 

Last year was a good year for global arms manufacturers with global military spending at €1.5 trillion, the first rise in 4 years, according to SIPRI. In Europe, the beneficiaries include Airbus as well as French shipyard DCN and tank manufacturer Krauss-Maffei Wegmann, which has merged with French rival Nexter.

Military modernization is a global trend. Russia, hit by its economic crisis, has had to reduce its military budget by 5 percent this year to 3 trillion roubles, or €42 billion, from its previous plans. But upgrading the armed forces remains one of the Kremlin’s top priorities, with defense spending accounting for 4 percent of GDP and just under 20 percent of its budget. The modernization program was passed in 2010 as part of Russia’s new military doctrine. Mr. Putin referred to the sums being spent as “making me afraid to speak them out loud.” At the time, the €20 trillion earmarked for defense up to 2020 was equivalent to almost €500 billion. And Moscow has not abandoned this goal despite its economic troubles and the sharp depreciation of the rouble.

India too plans to modernize virtually all its weapons systems. Despite its tight budget, the government has steadily increased military spending by 10 percent annually in recent years. It launched the first submarine of the non-nuclear Kalvari class in the spring and is expected to purchase 36 new fighter jets worth around €8 billion from French planemaker Dassault in the near future. Dassault’s Rafale jets are also popular among the Gulf states, which analysts expect will enable France to oust Germany from its third place in the global ranking of weapons-exporting nations.

Germany’s arms manufacturers have been focusing on exports after years of domestic cutbacks. But Berlin is changing course, albeit modestly, with an increase in military spending from 1.17 percent of GDP in 2016 to 1.2 percent in 2017. That’s still well below NATO’s 2 percent target for its members, though. Defense Minister Ursula von der Leyen plans to boost the effectiveness of the military by enhancing cooperation among Europe’s armies. “In future there will be stronger cooperation within institutions but also among countries,” Deputy Defense Minister Katrin Suder told Handelsblatt. “This won’t always affect all countries but those that want to drive forward concrete projects.”

The notion of a European army was a distant goal, she said. “But currently we are very successful in cooperating with individual partner countries.” The Bundeswehr was working more closely especially with the French and British military, she added.

France, meanwhile, decided shortly after the Paris attacks of January 2015 to increase the defense budget by 10 percent or €3.8 billion for four years from 2016 through 2019. “We owe that to the French people,” said French President Francois Hollande. The aim is to spend €32 billion per year on defense in the coming years.

Britain last year spend €54.6 billion on defense to improve its equipment and boost soldiers’ pay — that’s the highest defense budget in Europe.

Mr. Ischinger said he didn’t see signs of hope in the fight against Islamist terror. “Europe’s governments will be forced to respond hard to every attack, and will likely increasingly do so in a military way,” he said. “Even if one succeeds in stabilizing a country like Libya, the terror networks will seek new bases. It’s still overlooked that the number of victims of Boko Haram in Nigeria and Central Africa is far bigger than the number of IS victims.”

 

Handelsblatt correpondents Donata Riedel, André Ballin, Carsten Herz, Tanja Kuchenbecker, Stephan Scheuer, Frederic Spohr all contributed to this article. To contact the authors: riedel@handelsblatt.com, herz@handelsblatt.com and scheuer@handelsblatt.com

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