EU Zone Crisis

EU Economic Outlook

European leaders are facing a bleak economic picture with ballooning public debt as a percentage of GDP and anemic economic growth by historical standards over the next fi ve years. The figures are staggering, as of April 2011:

Greece, which spends the highest percentage of GDP of any European NATO member on defense (second only to the United States), is projected to have its public debt reach 150 percent of its GDP by 2014. For the past two years, the Greek economy has had negative growth –2 percent (2009) and –4.8 percent (2010).

Italy had a public debt worth an estimated 118 percent of its GDP in 2010.

Italian media reported May 31 that the Defense Ministry could have 255 million euros stripped from its funding in 2011, while in 2012 it would lose 304.8 million and in 2013, 104.8 million euros.

The reports added that for Italy’s Industry Ministry, which tops defense procurement spending, the cuts would be tougher, running to 2.6 billion euros over the three years. Such cuts form part of austerity measures that aim to reduce government spending by 23 billion euros.

With cash for procurement already low and the fixed military wage bill costing 9.3 billion euros out of a total spending of 14.3 billion euros, the maintenance and operations bill, which includes training, has been the main victim of cuts since 2001.

Most recently, it has been trimmed by a three-year program of reductions spanning 2009-2011 to which the new 10 percent cut will be added.

Rationalisation of defence spending has impacted upon the Italian Air Force (IAF) since 1999. Since then nine air bases and three combat bases have been scrapped. According to the Military Balance, Italy also plans to reduce the number of IAF aircraft from 390 to 310.

France           which had the highest outlay of defense in 2008, held 84 percent of its public debt as GDP in 2010.

France's defense ministry plans to slash spending by 3.5 billion euros between 2011 and 2013 to contribute to government efforts to rein in the public deficit. The cuts equate to less than approximately 4% of the defence budget.

The defense budget was provisionally pegged at 95 billion euros for the period from 2011 to 2013 but with the spending cuts, the figure would now be around 91.6 billion euros.

The government plans to postpone a number of French Air Force programs,

including replacement of the inflight refueling fleet and the 700 million euro ($888 million) upgrade of Mirage 2000D aircraft.

Among the programs to be delayed are the acquisition of the Multi Role Tanker Transport (MRTT) aircraft and level four of the SCCOA national air command-and-control system. Some elements of the Scorpion land systems modernisation programme will also be postponed.

Cuts would not affect production and delivery of weaponry, planes, ships or nuclear submarines. Major programmes - such as the Barracuda nuclear attack submarine, Felin infantry gear, FREMM multi-mission frigate (The unit price of the FREMM warship, based on an initial 17-strong purchase for the French Navy, was 388.5 million euros ($526 million), totaling 8.51 billion euros, official figures show. France slashed the order to 11 frigates.)  Rafale fighter and VBCI armored vehicle - would escape the budget cuts.

Since 2008, the French have called for sharp reductions in the number of their forces from 270,000 to 225,000 with corresponding budget cuts over the subsequent six to seven years.

Germany

Germany might retire large numbers of planes, helicopters and ships and reduce buys of new weapons. This would reportedly save 9.3 billion euros.

The 23-page paper, "Prioritization Material Investments - Recommended Actions," would affect all services and many major defense projects. (Currently only an advisory paper, with defence secretary to have the ultimate decision).

The paper itself suggests retiring 15 of 86 Transall transport planes immediately and reducing the planned purchase of its successor, the A400M.

The paper also calls for the immediate retirement of 100 of 185 Tornado fighter jets and the scrapping of the last tranche of the Eurofighter, which contains 37 planes.

Defense Department experts also suggest scrapping the Tailaron UAV being developed by EADS in favor of immediate procurement of the Saateg AA medium-altitude, long-endurance UAV and an advanced version of the Heron UAV.

According to media reports, the Bundeswehr might also buy only 80 instead of 122 NH90 type helicopters and cut new tiger attack helicopter buys by half from 80 to 40.

The paper recommends the German Navy retire eight frigates, 10 fast-attack boats and 21 Sea King helicopters over the medium and long term. At the moment, it owns 21 Sea Kings, 10 fast-attack boats and 15 frigates. The number of new F125 expeditionary class frigates also could be reduced from four to three.

In Germany, a major reform effort to abolish conscription and reduce the budget could cut troop levels from 250,000 to 158,000 and is now considering defense cuts of €8.3 billion through 2015.

Spain

Despite a four per cent cut to USD15.88 billion in 2009, Spain's defence budget is still the fifth highest in Europe. However this year Spanish defence spending has declined by 9% to approximately $14 billion.

Since gaining power in 2004 Zapatero has increased the MoD's budget by EUR1.4 billion, a little over 20 per cent in nominal terms.In general terms the low proportion of national wealth apportioned to defence is indicative of the low priority defence spending has had in Spain in recent years.

the three most capable European NATO allies—the United Kingdom, France, and Germany—that represent 65 percent of all defense expenditures in European NATO

and 88 percent of all research and technology investment have already signifi cantly reduced their defense budgets.

The UK’s Strategic Defense and Security Review (SDSR) initiated an 8 percent cut in defense spending over the next four years with funding for a number of programs not assured and further cuts after 2014 likely.

The constrained capabilities of European military forces in Libya are an ominous indicator of the unintended strategic consequences of the past decade of underinvestment in European defense.

A recent report by the British House of Commons revealed that a British budget decision not to train Typhoon (Eurofi ghter) pilots for ground attack missions had important consequences for the Libya mission.

           

Three weeks into the air campaign, only 4 out of 82 Typhoons had been made available due to shortages of equipment and pilots trained for ground strikes. Moreover, the decision to take the Ark Royal air carrier and its Harrier jump jets out of service has constrained the UK’s overall operational flexibility in Libya.

The impact of austerity and strained defense resources are clearly fraying NATO solidarity. NATO secretary general Anders Fogh Rasmussen recently noted that a decade ago the United States accounted for just under 50 percent of total Alliance defense  spending. Today, the U.S. share is closer to 75 percent, and this transatlantic imbalance of defense effort and capabilities is projected to grow. An Alliance that is so reliant on the power and capabilities of one will cease to function.

BRITAIN         Britain is to shrink its armed forces and scrap key assets like its flagship aircraft carrier, it said Tuesday, in a defence review which comes as part of stinging overall public sector cuts.
  
Prime Minister David Cameron said 17,000 service personnel would go from the British Army, Royal Air Force and Royal Navy by 2015 -- but vowed there would be "no cut whatsoever" to the level of support for forces in Afghanistan.
  
As part of eight percent cuts to the 37 billion pound (42 billion euro, 58 billion dollar) Ministry of Defence (MoD) budget, the Royal Navy's flagship HMS Ark Royal aircraft carrier is also being scrapped immediately along with Britain's fleet of Harrier jets.
  
The government has delayed a decision on renewing the Trident nuclear deterrent until 2016, although Cameron stressed that he wanted to "retain and renew" it.
  
Cameron said his government had inherited a 38 billion pound "black hole" in the defence budget when it took power in May.
  
Cameron's coalition government is battling to reduce public sector borrowing from 149 billion pounds to 20 billion pounds by 2015-16.  
Army numbers will be cut by 7,000 to 95,500; the navy will fall 5,000 to 30,000 and the Royal Air Force will decrease by 5,000 to 33,000.
  
Other major cuts include reducing the numbers of tanks and heavy artillery by about 40 percent, plus cutting the number of civil servants in the MoD by 25,000.  
The government is also bringing all Britain's 20,000 troops back from bases in Germany by 2020. They have been there since the end of World War II throughout the Cold War in case trouble erupts on the European mainland.
 
Cameron insisted that, despite the deep cuts, Britain's defence budget would remain the fourth-largest in the world and would meet NATO's target for members to spend more than two percent of GDP on defence for the next four years.  
The decision to axe Ark Royal earlier than the 2014 date originally planned will leave Britain without an aircraft carrier capable of launching jets for around a decade.
  
Britain has 10,000 troops in Afghanistan, making it the second-biggest contributor of foreign forces after the United States.
   Cuts to defence spending have contributed to a £466m rise in the cost of the UK's 15 largest military equipment projects in a year, the spending watchdog has said.

The National Audit Office said the decision to delay the Astute submarine programme could also leave the Royal Navy short of attack submarines.

The projects - including new submarines, fighter aircraft, helicopters and destroyers - are now £6.1bn over budget compared with forecasts made when the main investment decisions were taken.

Combined delays on the projects now total nearly 27 years, the watchdog said in its report.

the NAO said the MoD "had limited options to manage a legacy of poor planning and performance on some past projects".

The Public Accounts Committee (PAC) says two carriers being built will cost more, offer less military capability and be ready much later than planned.

It says the Royal Navy will be without a carrier until 2020, which may not be fully operational until 2030.

UK NATIONAL DEBT

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.

UK public sector net debt in September 2011 was £966.8 billion, equivalent to 62.6 per cent of GDP- (note this excludes financial sector intervention.)

If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds), the Net debt was £2266.3 billion (148.0 per cent of GDP). This is known as the unadjusted measure of public sector net debt.

Although 62% of GDP is a lot, it is worth bearing in mind that other countries have a much bigger problem. Japan for example has a National debt of 194%, Italy is over 100%.  The US national debt is close to 75% of GDP.( WE KNOW HOW MUCH US IS IN TROUBLE) . Also the UK has had much higher national debt in the past, e.g. in the late 1940s, UK debt  was over 180% of GDP.

It is estimated gross government national debt will could rise close to 100% of GDP by 2015. It is way above the government’s sustainable investment rule of 40% maximum. ( MEANS THAT THEY ARE NOT ON RECOVERY PATH)