Deteriorating security environment causes defence budgets to rise in Europe

·         Western European defence budgets to grow for first time in six years in 2016

·         Eastern Europe fastest-growing region for defence budgets in 2015

Paris. 16 June, 2016. A deteriorating security situation has caused Western European defence budgets to rise for the first time in six years.  Approximately $50 billion will be added to Western European defence budgets across the region between 2016 and 2019.

“The deteriorating security environment in Europe over the last two years has resulted in a sharp reversal of defence spending trends in several EU member states, particularly those in the Western Europe,” said Fenella McGerty, principal analyst at IHS Jane’s Defence Budgets. “Ten countries in Western Europe implemented cuts to their defence budget in 2015; only five are expected to do so in 2016.”

Western European defence spending has been cut by 1.3 percent on average annually since 2009. This year, 2016, will be the first year of growth. However, the recovery to pre-financial crisis levels won’t be expected until around 2020.  McGerty noted the drivers of this change include Russian actions in Ukraine, terrorist acts in France and Belgium, and operations against the Islamic State.

“The 7 January and 13 November attacks in Paris led to an acute upward revision to the French military financing plan and sent wider ripples throughout the region as countries looked to re-assess their security measures and protocols,” McGerty said. “Germany pursued further upward revisions to defence spending plans and the UK improved its outlook beyond 2017. Austria’s recent 17 percent increase in defence spending is the latest in a series of regional trend reversals over the last year.”

According to the 2015 SDSR and Spending Review, defence spending in the UK will increase 3.1 percent in real terms for 2015 to 2019. Furthermore, security and intelligence agencies were given an additional £1.3 billion, cyber security an additional £1.9 billion, and the country’s defence equipment plan was increased by £12 billion to fund over 170 projects.  “Spending is to remain above 2 percent of UK GDP for now, but will continue to decline as current projections for economic growth outpace growth in defence,” McGerty said. “Of course, projections are likely to be altered upon the result of the upcoming EU Referendum.”

France added €3.9 billion to its 2016-2019 defence budget following the January 2015 attacks on Charlie Hebdo. After the November 2015 attacks, IHS estimates that a further €500 million will be added to French spending. The 2016 budget created 2,300 defence jobs rather than cutting 7,500.

“Despite these additions, France’s defence budget will continue to fall as a percentage of GDP from 2.2 per cent in 2005 to 1.94 percent of GDP in 2016, slightly below NATO guidelines,” McGerty said.

Defence spending in Germany grew by almost 5 percent annually between 2005 and 2009, increasing from 1.1 percent to 1.3 percent of GDP. The 6 percent contraction in Germany’s economy in 2009 saw spending falter over the last five years.

“Despite an unfavourable international environment, Germany’s economic recovery remains on path and this gradual recovery combined with a deteriorating security environment resulted in a steadily improving finance plan for defence in Germany.” McGerty said.

The 50th Finance Plan effectively brings spending back up to 2009 levels by 2017, reversing the cuts made over the last five to six years. “The defence budget is now holding steady at around 1.12 percent of GDP,” McGerty said. “While this is well below the NATO commitment to spend 2 percent of GDP on defence, it is a significant improvement over previous finance plans that would have seen German defence spending fall to 0.9 percent of GDP.”

 “Defence spending in Eastern Europe is soaring,” McGerty said. “Trends have altered significantly since the Russian annexation of Crimea and defence budgets have already recovered to pre-financial crisis levels as fiscal conditions have improved.”

Spending is expected to reach around $30 billion by the end of the decade. Poland and Greece account for 53 percent of the total, despite the Greece budget being down 8 percent in 2015. Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Romania and Slovakia are all targeting defence spending to be 2 percent of GDP, in line with NATO guidelines.