For a Sustainable Defence

For a Sustainable Defence

Subject: We analyse the low level of Spain’s defence spending compared with its European, the effects on the defence budget of ending conscription and the difficulties of sustaining the necessary modernisation of the Spanish Armed Forces in a context of Spain’s increasing ambitions in the international arena.

Summary: The defence spending debate recently resurged in Spain as a result of the tragic air disaster in Turkey. Yet, regardless of this terrible event, it has to be said that Spain has long been the NATO country that, on most measurements (GDP percentage, investment per man under arms, man under arms per 1,000 people, etc.), spends least on its defence. This longstanding funding shortage was recently aggravated by the added cost for the armed forces of ending conscription, costs that had to be borne with practically no supplementary budgetary allowance. All this meant a steady reduction in defence investment, which, however, was cushioned to some extent since 1997 by alternative means of funding. However, the sustainability of the modernisation of the Spanish Armed Forces could fail unless defence allocations in the medium term are increased, particularly in view of the fact that all three Services are now being called upon to play a much more active role beyond Spanish frontiers. Spain will therefore be obliged in the near future to increase defence spending in line with its growing ambitions in defence policy.

Analysis: The tragic accident that cost the lives of 62 Spanish servicemen coming back home from their mission in Afghanistan in a Ukrainian aircraft suddenly reopened the debate over whether Spain’s defence spending was sufficient to cater for the country’s increasing international commitments.

The budget debate on defence spending in Spain has, in reality, little to do with the means of transport employed by the armed forces on peacekeeping missions or, indeed, with the overall funding of this kind of operations. The use of civilian airlines, many of them East European, for troop transport is common practice among many European countries that take part in such missions but do not have their own strategic military transport capability. In fact, the US armed forces themselves, despite their much greater military airborne projection, frequently resort to private airlines for personnel transport.

In Spain’s case, the total cost of the peace operations in which our servicemen and women are involved is financed under a revolving credit that is not limited by the restrictions applying to the defence budget. Although there is greater control at present over how this money is spent, the truth is that, economically, these peace missions, rather than an additional cost burden, are a shot in the arm for Spain’s defence establishment.

However, the underlying problem is whether Spain’s defence budget is sufficiently ample to sustain modern professional armed services capable of assuming this country’s increasing military commitments.

The insufficiency of military spending in Spain
Spain is a minor European country when it comes to defence spending. Spain’s defence budget, which according to NATO figures was EUR 8.2 billion last year, accounts for just over five per cent of the total defence spending of the European members of the Atlantic Alliance. Of the four leading European powers, Spain spends little more than a fifth of the amount spent by France or Britain, a fourth of the defence budget of Germany and a third of that of Italy.

This shortcoming is explained to a large extent by the fact that our country has long been, with the exception of tiny Luxemburg, the NATO member that makes the smallest budget allocation on defence in terms of economic potential. Spain spends on defence only 1.2% of its GDP, about half the average of its EU and NATO allies, 2.0%.

In purely budgetary terms, the effort is even smaller; the defence budget for 2003 was less than 1.0% of GDP. Moreover, in the last few years Spanish defence spending has actually shrunk, declining from 1.19% in 1995 to 0.92% for the current year. Nevertheless, the gap of 0.8% between the Spanish figure and those of its European allies, according to NATO figures, has narrowed marginally from the 1.2 percentage-point difference at which it stood in 1990.

This shortfall underlines that defence has been largely ignored in the process of convergence with Europe that Spain has undergone in economic terms. In 2002 Spain surpassed, for the first time since NATO had been enlarged to include Poland, Hungary and the Czech Republic, the average per capita income of its European allies. At the same time our defence expenditure per inhabitant, USD 220, remained half the European average.

Containing military spending over recent years was justified by the compelling need to reduce the huge budget deficit inherited from the previous government, firstly in order to meet the convergence criteria laid down by the EU for joining the single currency and, thereafter, to achieve a higher-than-average rate of economic growth. It is precisely this belt-tightening approach that now allows the country to tackle the modernisation of its armed forces from an improved economic vantage point.

The present weakness of this country in terms of defence spending now also affects the number of military personnel. Having traditionally made up for the lack of defence spending by drafting vast numbers of young recruits into the barracks, Spain now comes nearly bottom in terms of troop numbers.

Spain’s armed forces have been slashed to a third of what they were only two decades ago: 130,000 compared to 360,000 at the outset of the 1980s. It means that Spain has moved, in terms of men under arms, from Europe’s fifth-greatest power to its seventh. As a result, it is now not only the European country that spends least on defence; it is also that which employs the lowest percentage of its working population in the armed forces.

However, despite the major cutback on numbers, the fact that the Spanish Armed Forces now operate on an entirely professional basis had brought them considerable gains in effectiveness. Indeed, in terms of firepower, Spain can now be ranked fourth in Europe.

The scant amount of financial and human resources being invested in defence places a double strategic limitation on the country. On one hand, it makes it unlikely for Spain to contribute on more than a token basis to the development of a meaningful European Security and Defence Policy while it is still seen as the partner contributing least to Europe’s defence capacity. On the other, the new relationship with the United States, particularly our commitment to the global fight against terrorism, will be continually hamstrung unless we can bring our forces up to level at which they can operate alongside the Americans, a problem Spain faces in common with the rest of its European allies.    

A regular army at low cost
In 1996 Spain tackled the need to convert its armed forces into professional regular units. Increasing social opposition to obligatory military service, the need for servicemen capable of being sent abroad and the technological complexity of weapons systems themselves convinced the incoming government of the People’s Party to convert Spain’s conscript army, navy and air force into paid regular forces in line with those of most of its neighbours.

A regular army is more expensive than one made up of conscripted recruits. What it boils down to is replacing an imposition in kind, a service rendered in person, by a tax paid in money. But to be able to recruit the necessary numbers, the armed forces have to offer competitive wages, something conscripts do not expect. It means that the allocations for personnel costs in a defence budget rise inexorably.

That said, Spain managed to turn its conscript army into regular armed forces while actually reducing its defence budget in real terms, as occurred, it might be added, with most of the European countries that have introduced this reform. Thus, whereas the 1995 defence budget was EUR 6.64 billion, the 2003 amount was EUR 6.48 billion, 2.5 per cent less.

This means that the cost of ending military service, almost a billion euros in personnel costs alone, had to be recouped from cutbacks on other defence items. Taking into account that rank-and-file wages now account for over 25 per cent of the total personnel costs of the armed forces, ending military service entailed a major new burden for the already overstretched finances of the Spanish Armed Forces.

Turning the country’s armed forces into regular units obviously had an impact on the resources available for materials. Thus, for every hundred euros spent on defence, 58 are spent on wages and 42 on material. This is due to the fact that personnel costs have increased over the last decade at an annual rate of 5.3 per cent in real terms, whereas allocations for materials have decreased by 11.5 per cent in the same period.

Yet the cost of regularising the armed forces involves not only wages but also other recurrent operating costs. Paid soldiers and sailors have to be compensated for displacement from their home bases when on manoeuvres or exercises; and many of the jobs formerly done by conscripts now have to done by external service suppliers. Increased costs here, however, tend to be offset by savings on kit and messing, with fewer troops to clothe and feed.

In short, converting the Spanish Armed Forces into professional units was an essential first step in adapting them to the country’s new strategic requirements. However, tackling such a major reform without a corresponding increase in budgetary allocation clearly slowed the no less essential modernisation of the equipment used by our troops. Let us hope that in the not-too-distant future a regular army will command more attention when it comes to drawing up defence budgets, given that more and more Spaniards have a better understanding today of the need to invest in defence now that obligatory military service is over and done with.

Modernisation in jeopardy
The level of investment contained in Spain’s defence allocation fell by about 15% in real terms in the last decade. Whereas a third of the money earmarked for defence in the early 1990s was for investment, today it is only a quarter. However, this fall in investment allocation for defence was offset by alternative funding sources such as the loans given to the defence industry by the Ministry of Science and Technology, the investments undertaken by the autonomous body Defence Infrastructure and Equipment Management (GIED), and the loans granted by the INVIFAS (Armed Forces Housing Institute). Thanks to these resources, the total amount available for military investment in 2003 includes the EUR 1.63 billion provided by the Ministry of Defence, the EUR 1.05 billion advanced by the Ministry of Science and Technology, the EUR 231 million provided by the GIED and some EUR 27 million from INVIFAS, all in all some EUR 2.94 billion, more than twice the amount available ten years ago.

However, the loans made by Ministry of Science and Technology have to be repaid by the Ministry of Defence as the financed companies deliver their equipment to the Armed Forces. This means that in theory as from 2005 the defence budget should encompass outgoings for equipment funded in this manner, repayments that by 2012 will amount to as much as the total modernisation programme with respect to its three main programmes (the EF2000 fighter plane, the F100 frigate and the Leopard tank).

The loans provided by the Ministry of Science and Technology had the virtue of allowing the Spanish Armed Forces access to basic weapons systems that it would otherwise have been unable to develop had it had to rely on financing from the Ministry of Defence. However, such funding does not solve the long-term budgetary problem of the Ministry of Defence. This is that not only are there today no funds with which to initiate new purchasing programmes; repayment schedules already in the pipeline will generate a budgetary deficit of EUR 400 million per annum over the next few years. For example, by 2005 the payments due on the three programmes already mentioned will exceed the entire sum invested today in military modernisation.

In short, the freeze on defence spending in Spain over the last ten years, together with the need to absorb the costs of ending conscription, severely curtailed the investment capability of the Spanish Armed Forces, a reduction that was cushioned by alternative funding sources. The formula most used was one that is politically attractive and that allowed defence investment to be more closely related to the country’s industrial and technological development. However, the decline in Spain’s own investment funding will, in the long term, jeopardise the sustainability of the modernisation process. Unless corrected, the lack of investment may well result in a steady decline in available funds that will not only make it difficult to meet existing commitments, but it will also incapacitate the armed forces in their bid to meet the technological challenges, principally in the field of communications, command and control, intelligence and reconnaissance, facing tomorrow’s armies.

In the next few years this will inevitably require an increase in Spanish defence spending to bring the major development programmes currently underway, the EF2000, the F100 and the Leopard tank, to successful completion and to finance new projects such as the recently ordered A400M transport plane, the attack helicopter or the new S80 submarine, all projects designed to allow the Spanish Armed Forces to meet the challenge that the present technological revolution poses for all modern defence establishments.

While the Spanish Armed Forces were not involved in any activity outside its own borders, the chronic dearth of material resources could be largely ignored because there was little call for them. Now that they are undertaking an increasing number of international military missions, the imbalances of the defence budget are becoming increasingly obvious and the need to correct them more and more urgent. The international and strategic situation calls for a defence establishment providing increased security, something that can only be achieved if society is prepared not only to understand the problem but also to pay for the solution.

Conclusion: Spain is still, despite the growing ambition of its defence policies, the European NATO member that spends least on defence. What is more, its traditional lack of equipment is now, unlike previously, matched by a shortage of troops. Nevertheless, the containment of defence spending was part of a budgetary stability policy that achieved higher economic growth than the average level in Europe and that now allows the country to tackle the job of modernising its armed forces with greater optimism and solvency.

In any event, Spain’s traditional military weakness is no longer in keeping with neither the country’s economic and demographic potential nor the growing political and strategic influence the government wants to wield. The increasing convergence of Spain with Europe in numerous economic and social fields should also be reflected in terms of defence capability.

Meanwhile, the long overdue conversion of the Spanish Armed Forces into regular units had to take place within a context of limited defence expenditure, meaning that the additional costs had to be absorbed by reducing investments in arms and equipment. This meant that the structure of the Ministry of Defence budget became lop-sided, with allocations for personnel costs reaching 60% of total spending. Notwithstanding, it is fair to say that ending conscription has greatly increased the operational capability and firepower of the Spanish Armed Forces.

The chronic shortage of funding for Spain’s defence establishment and the deterioration of its internal structure could jeopardise in the medium term the necessary modernisation of the equipment used by our armed forces, though to date this weakness has been largely resolved by recourse to alternative sources of funds outside the Ministry of Defence, notably the loans given by the Ministry of Science and Technology that allowed the military access to a new generation of basic combat weaponry.

However, the need for the Ministry of Defence to honour these loans, together with the new technology requirements of the Spanish Armed Forces, makes it essential to increase the level of defence spending in the coming years.  The growing strategic ambitions shown by Spain after the conflict in Iraq make it vital to find a better balance between the country’s growing political, economic and cultural weight in the world and the responsibilities Spain is prepared to adopt, something that will inevitably require the support of a modern and efficient defence establishment.

Ignacio Cosidó
Founder member of the Strategic Studies Group and member of the working group on the Future of Defence of the Royal Elcano Institute

Ignacio Cosidó

Written by Ignacio Cosidó