2021 - PRELIMINARY DRAFT GENERAL REPORT - ALLIED DEFENCE SPENDING: ENDURING THREATS AND NEW CONSTRAINTS

Christian TYBRING-GJEDDE (Norway)

13 April 2021

The COVID-19 pandemic and the global recession it has triggered have put serious pressures on Allied defence budgets. As governments enact fiscal stimulus packages to bolster aggregate demand, there is growing concern amongst strategic thinkers that defence spending could be sacrificed to cover other pressing spending priorities. The problem is that the security landscape remains daunting and, if anything the pandemic and related economic crisis have only aggravated a range of defence-related challenges. There is a litany of traditional and new threats with which Allies need to cope and doing so comprehensively requires both adequate financial resources and efforts to enhance efficiency.

Even prior to the pandemic, Allied governments had identified a shared need to ensure that military spending and investment would be sufficient to meet both current and future security requirements. The challenge became clear in the aftermath of Russia’s illegal annexation of the Crimean Peninsula and its aggression in Eastern Ukraine. At the 2014 Wales Summit, Allied leaders committed to spending 2 percent of their national economic output on defence spending and 20 percent of their respective defence budgets on heavy equipment, research, and development. Since 2014, several of Allies – especially those closest to NATO’s eastern flank – have made important progress towards these commitments, either reaching or surpassing their obligations in the past three years. But others have moved with less haste, with several Allied countries not on track to meet the goals by 2024.

Invariably the issue of defence spending has spilled over into a larger, and indeed, perennial burden sharing discussion. There are concerns that if the perception that some Allied countries are not meeting minimal spending commitments, the very alliance solidarity that has made NATO so successful will be undermined. NATO itself has sought to encourage Allies to meet spending commitments but it has also worked to enhance defence spending efficiencies so that Allied spending yields the greatest possible return in terms of capabilities. The European Union is working towards many of these same ends although the economic crisis has triggered some spending cuts in its defence industrial programmes.

For these reasons, the Defence Investment pledge should remain a signpost for Allied governments insofar as it symbolises the kinds of investments that Allies must continue to make for national and collective defence. But the bottom line ultimately is capabilities, and this too must be a focus of collective and national efforts. Allied governments should avail themselves of NATO’s reflection process to galvanise the political will to meet these core security commitments and to deepen cooperation in ways that enhance the efficient use of scarce defence resources. Efforts to achieve greater efficiencies by bolstering tooth to tail ratios, cutting fat from defence budgets, reassessing defence ministerial bureaucracy, as well as through collaborative projects, joint force planning, defence industrial integration etc. must all be part of the mix. Capabilities development and long-term investment should lie at the heart of these efforts, which become essential at a time of escalating geopolitical uncertainties. Maintaining procurement and defence investment budgets will ultimately be crucial to helping core defence industry players to weather the current downturn. This will likely require a degree of consolidation in these highly stressed industries. Consolidation will ultimately reduce pressures on hard pressed government budgets by driving down costs while deepening interoperability and overall defence integration across the Alliance. This should happen at both the European level, where consolidation is clearly needed, but also at the trans-Atlantic level. More open defence markets could undergird these efforts.