PROSPECTS FOR NATO DEFENSE SPENDING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00316R000200110004-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 22, 2016
• Document Release Date: July 27, 2009
• Sequence Number: 4
• Publication Date: August 8, 1984
• Content Type: REPORT

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completed.
Directorate of
Intelligence
Prospects for NATO
Defense Spending
Secret
Secret
EUR 84-10171
August 1984
431
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Prospects for NATO
Defense Spending
This paper was prepared by
Office of European Analysis. Comments and queries
are welcome and may be directed to the Chief,
European Issues Division, EURA
Secret
EUR 84-10171
August 1984
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Prospects for NATO
Defense Spending
Key Judgments West European members of NATO have reacted to heavy social welfare
Information available burdens, rising equipment costs, and unfavorable public opinion with
as of 1 July 1984 increasingly austere defense plans:
was used in this report.
? Budget deficits in most West European countries have climbed dramati-
cally, particularly over the last three years. Governments are under
intense pressure to trim defense budgets in order to preserve social
welfare spending-which has increased from a fifth to a fourth or more
of GDP since 1970.
? European defense budgets have been plagued by skyrocketing costs,
especially those associated with advanced weaponry, and most countries
have had great difficulty working accurate forecasts of inflation into
their defense budget requests.
? Public opinion polls in Western Europe consistently show a strong
preference for reductions in defense rather than in social programs.
Attempts to significantly increase defense expenditures at the same time
that some social welfare expenditures are being pared have met with
intense political opposition.
? As a result of these pressures, none of the largest NATO Allies-the
United Kingdom, France, West Germany, and Italy-and few of the
smaller Allies have done well in meeting the 3-percent annual real
growth in defense spending goal since 1978. Current plans for the Allies,
taken together, call for about 1-percent real growth in 1984.
Faced with rising costs and constrained budgets, many of the Allies have
made major reductions in personnel, maintenance, current operations, and
training as their chief means of controlling defense spending:
? Personnel expenditures, as a percentage of non-US NATO-wide defense
budgets, have declined from 54 percent in 1975 to less than 47 percent in
1983. Several countries-particularly France, the Netherlands, the
United Kingdom, and Norway-have reduced military and civilian
manpower and are relying more heavily on reserves.
? All NATO Allies have curtailed training and many have canceled or
trimmed field exercises. In several countries, laws governing military
unions have forced an increase in the already high costs of troop training.
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EUR 84-10171
August 1984
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The Danish Navy, for example, has limited training at sea because of
overtime compensation requirements for sailors. To further reduce fuel
usage, annual pilot flying hours also have been severely limited in
Belgium, the Netherlands, and Italy.
? In order to reduce operational costs, the Allies have phased out older
weapon systems early to save on maintenance and have limited replenish-
ment of spare parts and ammunition stocks.
? Most Allies have attempted to protect equipment procurement programs;
as a result, procurement increased from less than 14 percent of their
combined defense budgets in 1975 to over 21 percent in 1983. Neverthe-
less, a number of major projects have been canceled, and many more
have been stretched out. In general, the Allies failed to meet goals
established in 1978 for completion in 1983.
We expect political and economic pressure on NATO defense budgets to
increase during the rest of the decade. Economic growth almost certainly
will be sluggish, unemployment probably will not subside until the early
1990s, and social welfare costs consequently will remain high and difficult
to constrain. Without at least 3-percent real growth in defense spending,
many of the Allies' force improvement programs will be further curtailed:
? A recent preliminary SHAPE study predicted that most countries would
achieve fewer than 70 percent of their 1984-88 force goals. Major
shortfalls will occur in antitank helicopters, mine-warfare ships, subma-
rines, stockpiles of munitions, and air defense missiles.
? Further cutbacks in training levels for pilots, reserves, and some ground
units-already below NATO standards-are likely in a number of
countries.
The United States could come under increasing pressure to compensate for
the Allies' failure to meet their commitments. For example, Greece,
Portugal, and Turkey-NATO's poorest members-already are almost
totally dependent on foreign military assistance for day-to-day operations
as well as force modernization. Among the more likely measures that the
Allies could propose are:
? Reductions in host-nation support for US forces in Europe to permit
shifts of national funds to procurement.
? Reductions in national contributions to the NATO Common Infrastruc-
ture Program.
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? Early movement toward an MBFR agreement that would reduce costs
through lower force levels.
? More favorable terms on European procurement of US equipment,
coupled with significant US purchases of West European arms.
? Expanded US reinforcement and pre-positioning commitments to offset
declines in national forces.
We expect that the economic barriers to a substantial conventional force
buildup will not lessen European discomfort over NATO's dependence on
its nuclear deterrent. However, any debate over NATO doctrine is likely to
focus less on nuclear dependence, per se, than on the proper conventional
strategy and force mix to reduce it.
As the Allies address these issues in an era of economic stringency, their
concerns over the state of US-European defense trade and US restrictions
on technology transfer are likely to undercut further their support for an
aggressive conventional force modernization effort. Rather, they are likely
to emphasize proven systems over unproven future technologies and to fall
back on the two-way street issue in arguing against major new funding
programs.
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Key Judgments
Pressures on Defense Budgets
Competition From the Social Sector
2
Procurement Inefficiency
8
Impact on Defense Programs
8
Impact on Readiness
9
Operations and Maintenance
10
Impact on Modernization
12
Implications for the United States and NATO
14
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Prospects for NATO
Defense Spending F
In 1978 the leaders of the NATO countries agreed
that 3-percent annual real increases in national de-
fense expenditures were necessary to maintain the
Alliance's effectiveness in the face of continuing
growth in Warsaw Pact forces and capabilities. The
following year the NATO Allies began their slide into
the worst economic slump in postwar history, which
put significant upward pressure on government bud-
get deficits. One policy response, dictated by both
political and economic considerations, has been to
limit defense spending. All of the Allies have had to
cut back planned growth in real defense spending, and
several countries have suffered actual declines in real
expenditure levels. Despite this poor record, most
Allies continue to support the NATO spending goal
and all are committed to improvement in NATO's
conventional capabilities. Nonetheless, because slow
economic growth and prolonged unemployment are
likely to persist, we expect most of the Allies to
remain unwilling or unable to meet the 3-percent goal
for several more years.'
This Intelligence Assessment focuses on the chal-
lenges faced by the NATO Allies as they attempt to
maintain their commitment to conventional force
modernization and real growth in defense spending.
The paper reviews the economic and political pres-
sures on the defense budgets of the NATO members,
outlines the hard choices many have been forced to
make in allocating scarce funds, and assesses the
impact of resulting program cuts on force capabilities.
It also assesses the prospects for growth in defense
spending over the next three to five years.
I In 1977 the NATO Defense Planning Committee recommended
that the Allies make every effort to achieve real increases in defense
spending "in the region of 3 percent." The goal was first included in
the resource guidance section of the 1977 Ministerial Guidance and
was intended to apply to NATO's 1979-84 force goals/planning
period. In 1978 the NATO Heads of State committed themselves to
this goal. It has been reconfirmed in each Ministerial Guidance
since then and now applies to force goals for the 1985-90 planning
period. In 1985 it will be possible for the Allies to alter or delete the
Subsequent analyses will focus more sharply on the
prospects for conventional force modernization in the
face of continued fiscal austerity. These papers will
assess the outlook for national defense programs as
well as those for major NATO-wide improvements in
such areas as air defenses and naval forces.
The almost immediate squeeze on defense budgets
that followed the 3-percent commitment has taken its
toll on spending performance. Overall, non-US
NATO has averaged only 2-percent real growth since
the goal was adopted; by contrast, during the 1979-84
period the United States has averaged about 6-
percent real growth. Current spending plans for the
Allies call for about 1-percent real growth in 1984,
the lowest since the goal was adopted, although
supplemental appropriations and better-than-expected
inflation rates may increase this.
Individually, only four NATO Allies-Norway, Can-
ada, Luxembourg, and the United Kingdom-have
averaged better than 3-percent real growth in defense
expenditures since 1978. None of the four largest
NATO Allies-the United Kingdom, West Germany,
France, and Italy-has done particularly well in this
period. While the United Kingdom averaged 3-per-
cent real growth, much of the gain occurred in 1982
and was due to a surge in spending during the
Falklands war. France and Italy roughly matched the
non-US NATO average; recent shortfalls have pulled
the West German average growth in spending down
to 1.4 percent. Spending performance has been erratic
among the other NATO Allies; several-Belgium,
Denmark, Greece, and Turkey-have met the goal
only once, or not at all, in the last six years (see
table 1).
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Table 1
NATO: Real Growth in Defense Expenditures, 1978-84 a
1981
1982
1983 b
1984 c
1979-84 d
Average
6.7
2.2
1.9
0.9
-3.3
-3.0
-0.4
-0.3
Canada
0.8
-0.7
3.6
3.1
4.9
5.0
5.0
3.6
Denmark
4.1
0.2
0.7
0.6
-0.3
0.8
-0.6
0.2
France
5.2
2.4
3.5
3.6
2.0
0.0
0.5
2.0
Greece
1.8
-2.8
-8.3
20.7
0.1
-0.3
-0.5
2.0
Italy
1.4
2.6
4.9
-0.5
3.2
1.1
0.8
2.1
7.9
3.5
16.3
4.8
3.9
3.5
3.1
6.3
3.3
1.8
2.7
2.0
2.0
7.8
1.9
1.8
2.7
4.1
2.8
3.5
3.0
1.8
6.3
6.0
0.9
0.5
0.4
NA
2.4
0.4
2.2
2.1
1.8
4.6
1.9
1.8
2.5
United Kingdom
-1.0
2.2
2.9
1.4
6.4
3.1
2.0
3.1
West Germany
2.7
1.5
2.3
3.2
-0.9
1.9
0.2
1.4
a Defense deflator used where available, otherwise the GDP
deflator used. Data derived from official country reporting to
NATO; French data derived from NATO and other sources.
b Estimate.
c Forecast.
d Years of the 3-percent goal.
The shortfall in military goods and services not
purchased because of spending squeezes becomes
harder to overcome over time. The aggregate shortage
during 1979-84 amounts to over $11 billion (see table
2). In order to make up for these losses, the Allies, as a
group, would have to boost 1984 real defense spending
by 11 percent over the currently planned levels.
In attempting to allocate scarce resources in time of
austerity, European governments have been under
increasing pressure to make additional cuts in already
slim defense budgets. Much of the pressure has come
because of the increasing costs of social welfare
programs. But phenomena within the defense sector-
particularly the spiraling costs of new hardware as
well as procurement inefficiencies-also have taken a
heavy toll on defense programs.
Competition From the Social Sector
Given Western Europe's political commitment to an
extensive social welfare system, the rise in unemploy-
ment in the past few years has caused the costs of
such programs to skyrocket. Unemployment in the
non-US NATO countries has grown from 5.5 million
persons in 1973 to 19 million in 1983, the highest level
since the Great Depression. Rising expenditures to-
gether with recession-induced tax losses have pushed
government budget deficits to record levels. The
expansion of the public debt, coupled with higher
interest rates, has increased government debt service
costs, thus further worsening fiscal positions
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Table 2
NATO: Comparison of Actual Defense Expenditures
and the 3-Percent Goal, 1979-84
14.4
25.6
14.2
24.8
Social welfare expenditures have increased since 1970
from about 20 percent of GDP to roughly 25 to 30
percent in most of the major European NATO coun-
tries. For most countries, on the other hand, defense
expenditures have rarely topped 5 percent of GDP,
and in most cases have hovered around 3 or 4 percent
for well over a decade (see figure 1). Even though
defense spending is not a major factor in the overall
budget crunch in Western Europe (see table 3), public
opinion polls have consistently shown strong sentiment
for defense reductions. Although some NATO coun-
tries have been able to adopt austerity measures
curtailing some social benefits and raising taxes in an
attempt to stop the flow of red ink, all have found it
politically difficult to maintain defense spending,
much less increase it.
Factors Within the Defense Sector
The small real gains in defense spending have been
insufficient to maintain current forces and to fund
new modernization programs. Even those countries
that have met the 3-percent goal-particularly Nor-
way and Canada-have been forced to curtail major
defense activities. Key factors have been the increas-
ing cost of advanced weapon systems and procure-
ment inefficiencies that have plagued NATO for
years.
Difference Difference as a Percent
of 1984 Budget
Defense Inflation. Rapid technological change and
heavy research and development costs make it ex-
tremely difficult for NATO governments to program
defense cost increases accurately into their procure-
ment planning. A third-generation tank, aircraft, or
field artillery piece, for example, can be twice as
expensive as its second-generation predecessor (see
figure 2).1 The current strength of the American
dollar also has added to these cost increases. The
Allies spend roughly 3 to 5 percent of their defense
budgets in the United States, chiefly on equipment.
Inflation in the defense sector tends to run ahead of
overall inflation in the economy (see figure 3). Most
countries have failed to forecast inflation accurately
for use in their budget process, and NATO's attempts
I Furthermore, although new systems have increased capabilities,
earlier systems generally must be replaced on a one-for-one basis to
keep pace with the increasing number and sophistication of oppos-
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Figure 1
Selected Countries: Government Spendinga
as a Share of GDP, 1970-83
Total outlays
? Social welfare
50
25
i i I I T i i
0 1970 75 80
J
83b
50 50
0 1970 75 80 83b 0 1970 75 80 83b
H i-i -I-i--t-r- T-+-ter i 11 11 i i i I i i
0 1970 75 80 83b 0 1970 75 80 83b 0 1970 75 80 83b
50
a Represents general government spending, Note: Data in this figure is in
including national, state, and local governments. appendix C.
F -~~ b Estimates.
0 1970 75 80 83b
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Table 3
NATO: Defense Expenditures as Share of National
Budgetary Expenditures, 1960-83 a
1960-69
Average
1970-79
Average
United States
44.1
26.6
24.7
26.1
27.1
29.4
Non-US NATO c
23.3
16.9
15.4
15.6
15.8
15.9
Belgium
12.8
9.9
8.7
8.8
8.3
8.1
Luxembourg
4.5
2.9
3.1
3.2
3.1
3.5
Netherlands
16.0
11.0
9.9
9.8
9.5
9.3
Norway
17.7
12.3
10.3
10.3
10.9
11
a The figures represent defense spending as a share of the budget of
the central government.
b Estimated.
c Excludes France. Comparable data on French defense spending as
a percentage of the national budget for 1960-79 are unavailable
because France does not release official statistics based on standard
NATO counting rules. We estimated French data for 1980-83 by
using a variety of non-NATO sources.
to develop a standard forecasting methodology for
defense inflation have been unsuccessful. Without
valid forecasts, many Allies-particularly Norway,
Italy, Greece, Turkey, and Portugal-have found
themselves short of funds before the end of the year
and unable or unwilling to appropriate supplemental
monies. Norway, for example, has consistently
planned on 3- to 4-percent real growth and has fallen
short over the last several years or had to make last
minute supplemental appropriations, partly because of
inaccurate estimates of inflation.
The key factor contributing to higher defense infla-
tion rates-particularly for operations and mainte-
nance (O&M) and procurement-is the defense sec-
tor's heavy reliance on volatile areas of the economy
with higher-than-average inflation (for example, spe-
cialty metals, aerospace). In addition, unlike most
other sectors of the economy, the defense sector is
limited in its ability to react quickly to cost increases
by altering its purchases, in part because of long
planning leadtimes for systems acquisition. Personnel
costs, on the other hand, are tied to more standard
measures of inflation and are easier for governments
to control.
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Figure 2
NATO: Cost of Major Equipment, 1983
First generation Third generation
Second generation
The damaging impact of inflation on defense capabili-
ties has been compounded in the United Kingdom and
Canada by recent decisions to alter their forecasting
methodology and in France by highly optimistic pro-
jections of inflation through 1988:
? The United Kingdom and Canada traditionally
have had possibly the best procedures in the Alli-
ance for measuring inflation in the defense sector.
In both countries, however, the ministries of the
treasury are attempting to control the rise in nomi-
nal government spending. As a result, the ministries
of defense have been forced to adopt more general
measures of inflation that are lower and less accu-
rate than previous defense-specific methods. In
Canada, defense inflation estimates had been run-
ning 1 to 2 percentage points higher than the rate
derived by the recently adopted method. In the
United Kingdom, a defense official recently stated
that defense inflation for military procurement had
been nearly twice as high as inflation in the overall
economy. Moreover, London now has projected
defense spending for 1986/87 based on an assumed
inflation rate of only 3 percent, a number we and
many private forecasters consider too low even for
nondefense sectors.
? In France, the Socialist government's 1984-88 de-
fense plan contained highly optimistic projections
for overall annual inflation through 1988-original-
ly 6.2 percent, later increased to 6.6 percent for
1984 and 5 percent for each of the following years.
These forecasts have served as the basis for similar-
ly optimistic defense procurement plans. We project
higher rates of overall inflation and expect inflation
in the defense sector to run ahead of that.
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Figure 3
Defense Expenditures in Constant Prices, 1970-80
Countries With Sophisticated
Defense Deflators
- GDP deflator
? Defense deflator
140 140 140
120 120 120
100 100 100
lt
60 1970
80 80
60 1970 75 80 60 1970
Countries With Less Developed
Defense Deflators
60 1970 75 80 60 1970
80
80
1 i I I I I I I I I I I I I 1 1 I
75 80 60 1970 75 80
75
Note: Where line using GDP deflator is above
line using defense deflator, defense inflation
has been higher. Where line using GDP is
below line using defense deflator, GDP
inflation has been higher.
100 1970
.'.Has recently dropped defense specific
deflators.
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Procurement Inefficiency. Inefficient procurement
practices also have contributed to the high costs and
reduced returns of Allied force modernization pro-
grams. The Allies have shown only limited willingness
to set defense industrial competition aside and to
standardize equipment within the Alliance, and sig-
nificant amounts of money are spent on redundant
research and development. NATO countries are cur-
rently buying three different fighter interceptors,
three main battle tanks, and 10 different models of
armored vehicles. The diversity in weapons and sup-
pliers also has led to losses in the economies of scale
that procurement from a single source would permit.
The insistence of some countries on subsidizing na-
tional industries has greatly raised costs for individual
programs. Canada, for example, will spend substan-
tially more on a per unit basis on new indigenously
built frigates than it would on similar ships produced
in countries with established military shipbuilding
industries. In fact, we estimate that the Canadians
could replace almost all of their current 24 frigates
with ships purchased abroad for about the same
amount they are spending to build six frigates domes-
tically.
Coproduction and multinational development are gen-
erally more cost-efficient than each state developing
and producing its own separate weapon system, but
they are still more costly than if all states bought from
a single manufacturer. According to a study of the
F-16 program, for example, coproducing planes in the
European consortium as opposed to the United States
added 30 percent to their cost
Impact on Defense Programs
Faced with rising costs and constrained budgets, the
Allies have engaged in a round of reductions in
present and planned defense activities, including cur-
rent operations, procurement, and force moderniza-
tion. According to NATO's International Staff and
defense attache reporting from the individual coun-
tries, these austerity measures already have led to a
decline in NATO's conventional deterrent and war-
fighting capabilities. In December 1982 the NATO
Force Plan General Report noted that the need to
save had led some countries "to reductions in the
funds for training and operations and to postpone-
ments of equipment modernization programs to such
an extent that they begin to endanger the very
substance of the forces involved." The report ex-
pressed the fear that the Allies with greater commit-
ments to defense might have to increase their own
forces or accept a decline in the overall effectiveness
of NATO's conventional deterrent. Subsequent
NATO reports have echoed these conclusions.
Personnel Cuts
The first area to feel the ax generally has been
personnel costs. To control costs, all of the Allies have
placed pay freezes or pay caps on their military and
civilian personnel, and many have introduced minor
cuts in the perquisites for military personnel. On a
NATO-wide basis, excluding the United States, per-
sonnel expenditures as a percentage of the budget
have declined from 54 percent in 1975 to under 47
percent in 1983. The percentage share devoted to
procurement, on the other hand, has risen, while other
categories have remained relatively stable (see figure
4).3
Several countries-notably France, the Netherlands,
the United Kingdom, Norway, and Denmark-are
reducing military and civilian defense personnel:
? Large cuts in military personnel are planned in
France where the Socialist government's new 1984-
88 defense plan calls for a reduction of some 35,000
troops out of its 1983 strength of about 480,000.?
? The Dutch plan to cut 2,300 air defense personnel
by 1986 or 1987 from a total strength of 108,000.
? The British plan to reduce the Navy by about
10,000 sailors out of roughly 70,000; London al-
ready has eliminated some 39,000 civilian defense
slots out of about 225,000 in 1981 and plans to cut
another 9,000 in the next several years.
' See appendix A for a breakdown of budgets by country.
' 3,500 in the Navy, 5,500 in the Air Force, 22,000 in the Army,
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Figure 4
NATO: Major Resources Categories
as a Share of Defense Budget, 1975-83a
1975 1980
Other-5.20 Other-4.91
Procurement Personnel Procurement
13.72 54.25
23.35
Operations Ooerations-
e Excludes France, Turkey, Greece, and
Luxembourg.
1983
Other-4.70
Personnel Procurement
? Norway recently reduced three standing units,
which form the cadre for mobilization, to zero
manpower and may eliminate one of its 13 brigades.
? Denmark's total military strength has already de-
clined some 25 percent since the early 1970s, and
Copenhagen has indicated it is likely to reduce its
standing regular Army by 50 percent from about
7,000 to 3,500 in the next few years.
Norway, Denmark, the Netherlands, and Belgium
also face higher personnel costs because of soldiers'
unions. Laws granting overtime for troops who work
more than 40 hours a week increase the already high
costs of training and operating for extended periods of
time. The Danish Navy, for example, is unwilling to
engage in extensive training at sea because of over-
time compensation requirements for sailors. Danish
Army field exercises are similarly hampered and,
according to defense attache reporting, military capa-
bilities have suffered appreciably. The Norwegian
Navy in 1983 shortened its fall exercise from two
weeks to one; rather than pay overtime, it ordered its
sailors to take additional leave following the exercise.
Impact on Readiness. Budget limits, adverse demo-
graphic trends, pay caps, and personnel cuts will
aggravate a longstanding problem of maintaining
adequate military manpower levels. All Allies face
serious shortages of skilled professional technicians in
all services and shortages of pilots and maintenance
personnel in their air forces. These positions require
too much training to be filled by conscripts, given
their short terms of service. Although the current
economic slump makes military service attractive, the
Allies will have difficulty retaining trained military
personnel as their economies recover if pay and
benefits are not increased. According to the US
defense attache in Oslo, Norway already has been
suffering a steady loss of pilots despite the recession
because they can get lucrative civilian jobs flying for
North Sea oil firms.
The cutbacks in personnel have forced most nations to
increase their reliance on reserves to bring their forces
to wartime strength. The United Kingdom, for exam-
ple, will require an additional 40,000 reservists by
1988 over the current 140,000 to offset a decline in
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active duty forces and accommodate an increase in
the wartime force structure. At the same time, reduc-
tions in annual reservist training are impacting on
overall force readiness. Norway, which is totally
dependent on reserve mobilization to man its forces in
wartime, has been unable to fund enough reserve
training to keep these troops combat ready. In 1983
no reserves were called up for the annual fall ground
forces exercise because of the extremely tight budget.
As fewer reservists are called up for training in
peacetime, NATO countries will be faced with the
need to provide more extensive refresher training at
the time of mobilization, thus extending the time
needed to bring their forces up to wartime strength
and to acceptable levels of combat effectiveness. F_
While most countries have reduced active duty per-
sonnel to achieve cost savings, West Germany has
maintained its commitment to a 495,000-man active
duty force. The Bundeswehr, however, will face a
severe manpower crunch in the late 1980s, as the
number of draft-age males drops to about half of what
is needed to maintain a 495,000-man force. Although
Bonn is likely to extend conscript service time and
lower its physical standards, it will require improved
wage and benefits packages to attract more volunteers
for extended service. According to Chancellor Kohl,
this package will be extremely costly and will impact
on other defense budget programs.
The impact of personnel cuts on overall readiness can
go relatively unnoticed in the short term, particularly
in peacetime. Most countries still have a sufficient
number of personnel adequately trained to meet criti-
cal requirements. If the steady declines continue,
however, we believe that the armed forces in all
countries-particularly in the Netherlands, Norway,
and Belgium-will suffer noticeably as skills atrophy
and a new generation of reservists fails to receive
sufficient training.
Operations and Maintenance
Another vulnerable area of the defense budget with
direct impact on military capabilities has been Opera-
tions and Maintenance (O&M).' Although the O&M
' The "O&M" account in defense budgets generally consists of
funding for the day-to-day operations and maintenance of military
forces, including spare parts, petroleum products, and training costs
Table 4
Estimated Average Flight
Time Per Flight Crew
Belgium
200
125
Canada
220
220
Denmark
140
160
180
180
Greece
NA
180
Italy
170
150
Netherlands
190
160
200
200
173
account increased slightly as a share of the total
defense budget for NATO overall, the chief factor has
been marked inflation in such areas as maintenance
and spare parts, as well as high fuel costs. As a result,
the Allies, faced with tight budgets, have curtailed
training in the active forces, cut exercises, strictly
limited the use of fuel, and phased out older weapon
systems without replacing them in order to reduce
maintenance. The Belgians, Danes, Dutch, and Ital-
ians have limited pilot flying hours to levels well
below the NATO minimum of 180, and far below the
NATO standard of 240 hours. The French plan to
maintain current minimum flying hours for their
combat pilots but are cutting back the flight time for
other pilots (see table 4). Every country has canceled
some ground forces field training exercises, and those
exercises that do take place are under strict limits on
fuel usage. Dutch and Norwegian ships are ordered to
sail at reduced speeds.
The severe restrictions on pilot flying hours in Bel-
gium, Italy, and the Netherlands-as much as 50
hours less than the NATO minimum-will mean that
new pilots will not receive sufficient training, and the
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skills of current pilots will deteriorate from lack of
use. This could cause a serious decline in aircrew
proficiency, according to attache reporting, at a time
when Warsaw Pact tactical air capabilities overall are
increasing.
The NATO navies have been especially hard hit by
the cuts in maintenance. Several countries are delay-
ing ship overhauls, and a few, particularly the Nether-
lands, Norway, and Denmark, have placed older ships
on reserve status earlier than planned in order to save
on maintenance costs. Other key program areas also
have been affected: the Belgians and Dutch have
begun an early phaseout of their old Nike-Hercules
surface-to-air missiles (SAMs) to save on their main-
tenance costs; the poorest members of NATO-
Portugal, Greece, and Turkey-are now almost total-
ly dependent on outside assistance to maintain their
aging equipment; and NATO reports a serious short-
age of spare parts throughout the Alliance for all
three services.
Procurement
The Allies have tried hardest to avoid cutting procure-
ment, which has grown steadily as a share of defense
budgets under the 3-percent real growth goal (see
figure 4). Equipment expenditures have been less
constrained than other categories of spending for two
primary reasons:
? The Allies have reached a consensus, embodied in
the 1978 Long-Term Defense Program (LTDP), on
the importance of modernizing their weapons
inventory.
? Defense procurement is important to countries with -
substantial domestic defense industries-especially
the United Kingdom, West Germany, Italy, Bel-
gium, the Netherlands, and France-as a means of
maintaining both employment and an emergency
defense industrial base
Despite the relative protection afforded funds for
procurement, many major equipment modernization
programs are being cut, curtailed, postponed, or
stretched out due to high costs. Among such programs
are many crucial to bolstering NATO's conventional
forces:
? The British, Italians, and West Germans have
stretched out their procurement of the jointly pro- 25X1
duced Tornado multirole aircraft as a result of
burgeoning costs.
? The Belgians have delayed until 1990 the purchase
of a short-range air defense system. Other delayed
purchases include new mine-warfare ships-put off
four years-and new armored personnel carriers
and self-propelled howitzers-postponed
indefinitely.
? Norway has slowed its plan to modernize its 13
brigades by 1990; only 10 brigades will be modern-
ized by 1998. Oslo has also canceled plans to
modernize the Army's Leopard I tanks and has
reduced its purchase of 120-mm guns by a third.
? Canada's naval modernization program has been
stretched out; currently only six of 24 frigates have
been funded.
? Portugal's plan to acquire three new frigates-one
to be partially paid for by the NATO Allies-has
been repeatedly delayed by Lisbon's refusal to
allocate sufficient funds for its part of overall
construction costs.
? Initial deliveries of the US Patriot surface-to-air
missile (SAM) system to the Dutch have been
delayed from 1986 to 1987.
? Italy has delayed, for the time being, plans to
purchase 66 antitank helicopters and 300 replace-
ments for its old M-47 tanks.
? France has stretched out or delayed most of its
major conventional forces programs, including pro-
curement of the Mirage 2000 interceptors, new
armored vehicles, and new artillery. The Hades
short-range nuclear missile also has been delayed
several years
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Impact on Modernization. While the lost effective-
ness resulting from inadequate funds could be made
up fairly quickly in most defense sectors with renewed
spending, the impact of procurement cuts and delays
on equipment modernization is more serious and will
pose problems through the next decade. Even if
additional funds were forthcoming, hardware cuts and
program cancellations could not quickly be turned
around because of the long leadtimes in research,
development, and procurement.
The cuts and delays in defense procurement programs
imposed in most countries have forced the Allies to
continue using obsolescent equipment. Analysis of the
Allies' defense plans indicates that while moderniza-
tion is taking place in a number of areas-especially
in new aircraft and armored vehicles and chiefly in
NATO's central region-the northern and southern
flanks have lagged well behind; overall the rate of
modernization has slowed and all of the Allies failed
to meet planned equipment increases for 1983. The
Major NATO Commanders (MNCs), for example,
commenting on the serious shortfalls in the current
Allied compliance with the NATO Force Goals for
1984-88, have concluded that current force planning
"will not provide adequate means to support a flexible
response" (see table 5). Shortfalls are affecting
NATO capabilities in a number of key areas:
? NATO's air defense capabilities in the central
region have been degraded. For example, the Bel-
gian decision to begin phasing out Nike-Hercules
surface-to-air missile batteries in 1983 without pur-
chasing the Patriot to replace them and the Dutch
decision to phase out two Nike-Hercules batteries
early and delay Patriot deliveries are creating a gap
in the air defense belt in West Germany. The
Alliance also suffers from a serious shortfall in
short-range air defense systems, particularly to pro-
tect airbases vital for US reinforcement. Little
progress has been made in improving NATO's
integrated air defense radar net, and there has been
no significant movement toward a NATO-wide
Identification Friend or Foe (IFF) system.
? NATO's International Staff has cited significant
Alliance-wide shortfalls in naval modernization as
more old ships are retired without replacement.
Table 5
NATO: SHAPE Projection of Allied
Compliance With 1984-88 Force Goals a
Projected Assumed Defense
Achievement of Expenditure Real
Force Goals (1988) Growth Rate
Canada 68 3.0
Denmark 51 2.3
West Germany 76 1.0 b
Luxembourg 75 3.2
Netherlands 65 2.3
Norway 50 3.4`
United Kingdom 75 3.0
a NATO force goals are target force levels and force modernization
programs derived from force plans submitted by the Major NATO
Commanders. These plans are discussed and then approved by the
Military Committee and the Defense Planning Committee. They
cover the forces needed to meet the Warsaw Pact threat for the
planning period.
b Within 0.5 plus or minus of this number.
NATO faces a serious shortage of mine warfare
ships, as well as declining numbers of escorts and
submarines, and some replacement programs are
being delayed. Most countries face serious shortages
in naval munitions stockpiles. Many have cut back
plans for needed improvements in electronic warfare
(EW) capabilities, especially modern EW equipment
for the Navy and Air Force.
? Although most major ground forces programs have
not suffered serious reductions, the West Europeans
have postponed some improvements, especially in
field artillery, antitank guided weapons, and anti-
armor helicopters, until later in the decade. More-
over, the Allies have cut back or canceled planned
increases in ammunition stockpiles, as well as equip-
ment reserves and spares, for all three services,
causing most members to fall well short of NATO
standards for combat sustainability.
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Despite the nascent economic recovery, we believe
most of the NATO Allies will not be willing to
implement significant increases in their defense
spending for several years. Budget deficits and unem-
ployment almost certainly will remain high through
the rest of the decade, and little improvement in
public support for increased defense spending is ex-
pected. Several Allies-including France, the United
Kingdom, and West Germany-already have an-
nounced spending plans for the next several years that
we believe will provide only minimal real growth,
probably only around 1 to 2 percent.
NATO is unlikely to abandon the 3-percent goal in
the near future. Most of the Allies have found the
goal useful as a means of countering domestic resist-
ance to increased defense expenditures. By arguing
that real growth in defense spending is necessary to
meet an Alliance commitment, they have been able to
secure at least some real increases, although not near
the 3-percent goal. In recent discussions on the 1985
Ministerial Guidance, the Allies once again affirmed
their support for retaining the goal of real growth in
defense expenditures "on the order of 3 percent" for
the Alliance as a whole
Nevertheless, our analysis and their own plans indi-
cate that the Allies will not significantly increase
defense spending for the next several years. Several
could suffer real declines:
? Belgium's defense expenditures are projected to
decline further in 1984, on the heels of a 6-percent
real drop over the last two years. We estimate that
the Belgian economy is likely to experience at best
little real growth for the next several years, and the
defense budget will continue to suffer severe
constraints.
? Greece, Portugal, and Turkey, NATO's three poor-
est members, are almost totally dependent on for-
eign military assistance for day-to-day operations
and force modernization. As in the past, real growth
in defense expenditures will have little positive
impact on force capabilities because it will be
almost totally absorbed by personnel expenditures
and the high costs of maintaining obsolescent equip-
ment. Turkey claims that it will achieve 3-percent
real growth for the next few years, although such
goals usually have not been met in the past. Portu-
gal is unlikely to have any significant real growth
and could suffer real declines because of its worsen-
ing economic situation. The Greeks are likely to
suffer persistent real declines, or at best register
little real growth, for the rest of the decade because
of the weak economy and increased emphasis on
social spending by the current Socialist government.
Most are likely to attain only limited real growth for
the next several years:
? Denmark's defense spending is now barely sufficient
to maintain current forces and offers little, if any,
prospect for supporting force improvements. The
Danes are calling for a 0.6-percent real decline in
1984 after marginal growth in 1982 and 1983.
Copenhagen recently announced a new defense
agreement that calls for no real growth in defense
expenditures through 1987, eliminating any chance
for significant military modernization.
? France's rate of real defense spending growth in
1984 is likely to be around 1 percent following the
first no growth defense budget in over 20 years in
1983. If inflation runs at levels higher than those
now being estimated by the government-as most
private forecasters project-the Socialist govern-
ment will come under pressure to make further cuts
in the defense budget to fund social programs.
? Italy's current defense spending plans call for real
growth of only about 1 percent in 1983 and 1984,
although the Italians averaged 2.5-percent real
growth between 1978 and 1982. Given Italy's eco-
nomic problems, it is likely that Rome will not
achieve growth near the 3-percent level in the next
several years.
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? The United Kingdom, according to its May defense
White Paper, is now calling for 1.8-percent real
growth for 1984/85 and claims it will return to 3-
percent growth in 1985/86. Previously, in its March
public expenditures White Paper, London said it
was planning 3-percent real growth in defense ex-
penditures only through 1984/85. The March
White Paper claimed there would be real growth for
1986/87-at less than 1 percent-but assumed that
overall inflation would drop to under 3 percent.
Because we believe such a decline in the inflation
rate is unlikely, we expect the defense budget will be
severely constrained throughout the decade at the
same time that several major naval procurement
programs, including the Trident ballistic missile
submarine, will be under way. We expect the British
to curtail some naval shipbuilding programs and
place further constraints on operations and training.
? West Germany's defense spending is projected to
grow by only 0.2 percent in real terms in 1984,
followed by nominal increases of 3.7 percent in 1985
and 3.5 percent in 1986, according to the five-year
defense plan. Such nominal growth rates would
barely compensate for expected overall inflation. In
their current discussions with NATO on their 1985-
90 force goals, the German military has based its
limited modernization plans-which will not meet
NATO's force goals-on no real growth through
the end of the decade
A handful of the smaller Allies have announced fairly
ambitious spending plans and are likely to have real
growth near the 3-percent level:
? Canada has announced plans for at least 3-percent
real growth in defense expenditures over the next
three years. In the late 1970s Ottawa began a
modest force modernization program calling for new
armor, aircraft, and ships, but there will be no
increases in troop strength.
Canada will be able to fulfill neither its national
missions nor its NATO roles even with these im-
provements and planned spending growth.
Hague has ordered all the military services to
contribute an as-yet undetermined percentage of
their budgets to the government bailout of the
Rhine-Schelde-Verolme shipyards. The Navy has
been ordered to procure some ships out of cycle, and
the other services have had their procurement bud-
gets curtailed, disrupting several of their moderniza-
tion programs, in order to pay for the new ships.
? Norway continues to plan at least 3-percent real
growth in defense spending for the next several
years. In a public statement in mid-1983, however,
the Chief of Defense said that even this would not
be sufficient to fund all needed programs and that
gaps in Norway's defensive capabilities would per-
sist for the next seven years. The Norwegians also
have often underestimated inflation and fallen be-
low their announced defense spending goals. In
1983, real growth was around 2.8 percent instead of
a planned 3.5 percent despite a last minute supple-
mental appropriation.
The lack of growth in defense spending in Western
Europe could pose a serious challenge to Alliance
cohesion and defense effectiveness. NATO as an
institution has no effective mechanism to press its
members to maintain their defense efforts. While the
Allies can collectively and individually register their
displeasure over cuts in national defense efforts, they
cannot force restoration. Countries like Canada and
Denmark, for example, have been able to reduce their
defense efforts unilaterally despite condemnation
from the other Allies. Similarly, the Allies also have
been unable to persuade the Belgians to reverse their
decision to withdraw their air defense forces from the
Central Region.
In the next several years, we expect the Europeans
can at best achieve some short-term adjustments to
soften the impact on military capabilities of current
? The Netherlands' Defense White Paper for 1983-93
projects 2-percent real growth in spending through
1986 and 3 percent in the later years. However, The
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capabilities.
budget constraints. Measures already taken by some
and likely to be implemented by others include:
? Reconsidering procurement priorities, emphasizing
critical needs and curtailing or canceling other
programs.
? Cutting active forces and increasing reliance on
reserves to arrive at a smaller but theoretically
better trained and equipped active cadre.
In our view, these solutions will do little to avoid
serious long-term dislocations in NATO's military
If the current shortfalls throughout NATO are fol-
lowed by further cuts, the United States could come
under increasing pressure to compensate for the Al-
lies' inability to meet their commitments. Among the
proposals that the Allies may put forth are:
? Reductions in host-nation support for US forces in
Europe to permit shifts of national funds to pro-
curement. The host-nation support (HNS) program
is designed to compensate for critical shortages in
US logistic support for its forces in Europe. HNS
agreements with Allied nations on whose territory
US forces are stationed-or will be in wartime-
involve both preparations for wartime logistic sup-
port of US forces as well as peacetime arrangements
including support to the annual US Reforger exer-
cise, ammunition and equipment storage for rein-
forcing units, and bulk petroleum storage. Although
the HNS initiatives primarily involve planning for
wartime, the program does entail current costs that
compete with other critical programs for national
funding. For example, Washington's current five-
year HNS agreement with West Germany involves
roughly a 50-50 sharing of peacetime costs totaling,
for the period, some $580 million (FY 1983 dollars).
? Reductions in national contributions to the NATO
Common Infrastructure Program. NATO's infra-
structure program covers the capital costs of com-
monly funded and standardized military facilities
for wartime use by NATO forces.' Currently the
United States and West Germany each contribute
over a fourth of these funds, and Bonn has led the
resistance by some Allies to attempts to increase
6 Projects encompass fixed installations in member countries neces-
sary for the deployment and operation of the NATO forces such as
airfields, communications facilities, headquarters, pipelines and
fuel storage, radar facilities, ports, and missile installations.F__
infrastructure expenditures. In addition, the Bel-
gians have recently obtained NATO agreement to a
reduction in their contribution to the infrastructure
program due to their financial difficulties. As the
budget squeeze continues, other Allies could begin
to focus on the infrastructure program as a means of
saving funds, either by cutting national contribu-
tions or by requesting infrastructure funds for na-
tional construction projects.
? Demands for more favorable terms on European 25X1
procurement of US weapons and equipment, in
conjunction with significant US purchases of West
European equipment. The Allies will continue to
look toward greater European defense coopera-
tion-particularly in weapons research and develop-
ment-as a means of controlling costs and improv-
ing their defense industrial base. For the immediate
future, however, many will remain heavily depend-
ent upon the United States for advanced weaponry.
Given the historical imbalance in US-European
defense trade (on average, some 6 to 1 over the last
several years), we expect the Allies will press for
increased US defense procurement in Europe and
more favorable terms on European purchases in the
United States. Recent agreements for West German
and Dutch procurement of the Patriot air defense
missile system-both involving substantial govern-
ment-to-government offsets-may well be used as a
model by the Europeans in future negotiations. In
addition, we expect the Allies to remain skeptical of
US motives in its initiatives on exploiting emerging
technologies (ET) unless the ET program defines a
clear role for European industries.
? Increased pressure to reach an MBFR agreement.
Current Allied interest in achieving meaningful
progress at the conventional force reductions talks
in Vienna is motivated in large part by their interest
in demonstrating to nervous publics the Alliance's
commitment to arms control in the absence of
negotiations on INF and strategic weapons. Over
the longer term, however, the Allies probably view
MBFR as offering the best prospect of reduced
defense costs through lower force levels. Thus, while
the negotiations offer little prospect of short-term
savings, we expect Allied interest in the negotiating
progress-and thus pressure to accommodate East-
ern interests-to remain high.
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? Expanded US reinforcement and pre positioning
planning to offset declines in national capabilities.
As national force levels decline because of budget-
ary cuts, defense of sectors.manned by the smaller
Allies in particular may increasingly become
dependent upon arrangements for early US troop
reinforcement and related materiel pre-positioning.
Reinforcement and pre-positioning already are con-
sidered critical to the defense of the northern flank,
particularly in Norway, and further reductions in
the peacetime strength of both Norwegian and
Danish forces are projected over the next several
years. As Belgium and the Netherlands come under
increasing pressure to achieve savings through force
reductions, the demand for US reinforcements for
the Central Region-with consequent requirements
for enhanced US strategic lift capability and logistic
support-could increase as well.
Over the long term, we expect that the economic
barriers to a substantial conventional force buildup
will not lessen European discomfort over NATO's
dependence on its nuclear deterrent. We believe that
any debate over NATO doctrine is less likely to focus
on nuclear dependence, per se, than on the proper
conventional strategy and force mix to reduce that
dependence. As the West European Allies address
these issues in an era of economic stringency, their
concerns over the state of US-European defense
trade-as well as US restrictions on technology trans-
fer-are likely to affect their attitudes toward both
the scope and pace of NATO's conventional force
modernization effort. They almost certainly will con-
tinue to express reservations over the emerging tech-
nologies initiative and related doctrinal issues such as
"deep attack" strategies. We expect the major Allies,
particularly the West Germans, to emphasize proven
weapon systems over unproven future technologies
and increasingly to use the two-way street issue in
arguing against the allocation of major new funding
for the procurement of advanced weaponry. On the
other hand, should they recognize significant, tangible
prospects for participation of European defense indus-
tries in any new initiative they may be more willing to
allocate government resources in support of specific
projects.
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Appendix A
Major Resource Categories as a Share
of Defense Expenditures
62.29
61.41
63.33
63.46
61.46
64.03
61.08
61.23
62.23
62.2
8.80
9.11
11.10
11.90
13.93
13.14
14.23
15.77
13.66
14.9
Operations and mainte-
nance
18.35
18.91
17.84
17.51
16.90
16.10
17.31
17.90
18.97
17.0
Canadian defense expenditures
(fiscal years)
Personnel
68.60
64.40
63.30
60.90
58.50
56.90
51.00
53.30
51.50
49.90
Procurement
5.83
6.20
7.98
8.45
10.00
12.80
16.10
15.90
17.40
18.80
Operations and mainte-
nance
22.30
26.40
26.00
27.50
27.80
27.00
29.90
27.60
28.80
28.90
Operations and mainte- 17.67 15.84 16.72 16.37 21.14 21.47 21.97 20.83 22.49
nance
West German defense
expenditures
Operations and mainte- 24.54 24.89 25.10 24.45 24.64 24.57 23.97 22.83 22.99 23.90
nance
Operations and mainte- 15.73 15.84 23.21 25.19 23.79
nance
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Major Resource Categories as a Share
of Defense Expenditures (continued)
62.49 6
1.00
64.22
64.82
59.11
61.78
62.27
59.18
59.63
59.49
15.18 1
3.92
13.07
15.65
16.16
15.14
17.48
17.28
18.06
18.18
Operations and mainte-
nance
15.78 1
7.74
18.09
14.80
15.15
14.37
16.42
17.75
17.17
17.17
Personnel
66.41 64
.63
64.44
57.83
61.17
59.27
59.01
56.23
55.03
54.24
Procurement
13.21 15
.66
15.21
20.57
17.95
19.80
17.98
18.79
20.45
22.05
Operations and maintenance
15.99 15
.29
15.66
16.34
16.36
16.60
18.78
19.19
18.55
18.36
Construction
2.08 2
.33
2.66
2.90
2.40
2.05
2.01
2.44
2.47
2.43
Other
2.32 2
.08
2.03
2.35
2.12
2.28
2.23
3.36
3.49
2.92
Norwegian defense
expenditures
Personnel
65.00 64
.40
67.20
66.00
64.40
63.40
62.40
61.40
61.70
61.50
Procurement
8.66 8
.69
8.38
10.50
13.00
14.10
13.60
13.40
13.60
12.30
Operations and maintenance
22.80 22
.80
20.50
20.20
19.30
19.00
20.10
21.10
20.70
21.70
Construction
2.22 2
.63
2.37
2.15
1.78
2.34
2.42
2.37
2.33
2.59
Other
1.28 1
.44
1.49
1.22
1.52
1.13
1.46
1.65
1.69
1.95
Portuguese defense
expenditures
Personnel
61.15 67
.79
67.56
69.11
72.21
67.50
66.62
65.67
64.24
64.23
Procurement
3.06 1
.91
1.95
2.10
1.83
3.83
6.16
6.51
6.02
6.06
Operations and maintenance
15.23 17
.13
22.31
19.00
19.08
20.39
20.80
19.76
22.02
21.90
Construction
1.09 1
.63
1.82
2.76
3.88
5.11
5.13
5.84
5.28
5.57
Other
19.48 11
.53
6.36
7.03
3.01
3.18
1.30
2.23
2.45
2.25
British defense expenditures
(fiscal years)
Personnel
47.84 46
.87
45.69
43.79
43.34
43.23
40.06
39.36
37.38
36.86
Procurement
17.20 19
.28
20.60
22.04
22.98
23.22
25.18
26.44
27.78
27.87
Operations and maintenance
27.38 26
.54
26.48
27.20
28.07
26.46
27.89
27.98
28.64
28.79
Construction
2.39 2
.31
1.90
1.77
0.32
1.75
2.08
1.71
1.82
2.07
Other
5.19 5
.01
5.32
5.20
5.28
5.34
4.79
4.51
4.37
4.41
Turkish defense expenditures
(fiscal years)
Personnel- -
57.1 50
.03
50.0
60.6
49.7
43.2 a
41.6
Procurement
16.6 36
.1
36.1
4.7
9.4
10.8 a
10.1
Operations and maintenance
20.5 5
.8
5.8
21.3
24.2
26.5 a
34.1
Construction
4.2 5
.1
5.1
11.8
14.2
14.5 a
12.0
Other
1.7 2
.9
2.9
1.6
2.5
5.0 a
2.2
In 1982 Turkey changed from fiscal years to calendar years. These figures are for March-December.
Secret 18
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 Approved For Release 2009/07/27: CIA-RDP85SO0316R000200110004-4
Appendix B
Table B-1
NATO Defence Expenditures: Current US Dollars a
Million US $
(current exchange rates)
Belgium
750
3,167
3,632
3,958
3,385
2,892
2,683
2,609
Canada
1,967
4,087
4,119
4,703
5,245
6,205
6,527
7,158
Denmark
368
1,315
1,519
1,618
1,446
1,400
1,417
NA
France
5,882
18,874
22,668
26,425
23,867
22,521
21,503
20,591
Greece
474
2,119
2,424
2,275
2,578
2,639
2,336
2,328
Italy
2,499
6,246
7,785
9,578
8,681
9,090
9,698
10,494
Luxembourg
8
37
42
53
46
41
43
42
Netherlands
1,080
4,227
5,038
5,269
4,527
4,465
4,247
4,027
Norway
388
1,306
1,454
1,669
1,650
1,698
1,706
1,689
Portugal
436
623
702
868
844
803
694
632
Turkey
542
2,728
3,001
2,442
2,815
2,755
2,469
2,156
United Kingdom
5,865
14,619
19,155
26,776
24,627
24,243
24,498
24,794
West Germany
6,167
21,417
24,778
26,692
23,094
22,350
22,127
21,514
Non-US NATO
26,418
80,765
96,317
112,326
102,806
101,102
99,948
United States
77,854
109,247
122,279
143,981
169,888
196,345
217,702
a Defense expenditures expressed in US dollars are valuable in the
analysis of relative transnational defense spending at a point in
time. Because inflationary changes cannot be separated from
changes in exchange rates, however, it is not an accurate reflection
of the relative inflationary trends in defense spending over time.
5 CIA estimate.
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 Approved For Release 2009/07/27: CIA-RDP85SO0316R000200110004-4
Table B-2
NATO Defense Expenditures: National Currencies a
Belgium
(B francs)
37,502
99,726
106,472
115,754
125,689
132,127
137,162
144,126
Canada
(C dollars)
2,061
4,662
4,825
5,499
6,289
7,655
8,086
8,987
Denmark
(D kroners)
3,195
7,250
7,990
9,117
10,301
11,669
NA
NA
France
(francs)
34,907
85,175
96,439
111,672
129,708
148,021
158,792
171,021
Greece
(drachmae)
14,208
77,861
89,791
96,975
142,865
176,270
205,757
237,998
Italy b.
(lire)
1,562
5,301
6,468
8,203
9,868
12,294
14,729
17,445
Luxembourg
(Lfrancs)
416
1,154
1,242
1,534
1,715
1,893
2,100
2,297
Netherlands
(guilders)
3,968
9,146
10,106
10,476
11,296
11,921
12,121
12,403
Norway
(N kroners)
2,774
6,854
7,362
8,242
9,468
10,956
12,447
12,990
Portugal
(escudos)
12,538
27,354
34,343
43,440
51,917
63,817
76,925
84,203
Turkey
(T liras)
6,237
66,239
93,628
185,656
313,067
447,790
556,738
679,220
United Kingdom
(pounds)
2,444
7,616
9,029
11,510
12,144
13,849
16,031
17,283
West Germany
(Deutsche marks)
22,573
43,019
45,415
48,518
52,193
54,234
56,496
58,141
a Expressing expenditures in national currencies at current prices is
valuable in the analysis of each country's trend in defense spending.
Current prices do not distinguish between real changes and infla-
tion in defense expenditures, however, nor do measures in different
currencies permit transnational comparisons.
b Billions.
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Secret
Table B-3
NATO Defense Expenditures: Constant Dollars a
Canada
5,370
5,547
5,508
5,714
5,896
6,200
6,527
6,853
Denmark
1,217
1,389
1,392
1,402
1,410
1,406
1,417 C
1,409 c
France
14,553
19,133
19,603
20,314
21,073
21,503
21,503
21,610
Greece
796
2,066
2,010
1,856
2,341
2,343
2,336
2,324
Luxembourg
17
29
31
37
39
41
42
43
Netherlands
3,464
3,838
4,006
3,924
4,058
4,132
4,247
4,332
Norway
1,325
1,490
1,519
1,547
1,590
1,658
1,706
1,766
Portugal
1,165
601
641
682
688
691
694
700c
a Defense expenditures in constant dollars reflect real changes in
defense spending over time. Relative distortions can develop,
however, depending on the conversion year selected because all
currencies have not revalued at the same pace.
b Forecast.
c CIA estimate.
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 Approved For Release 2009/07/27: CIA-RDP85SO0316R000200110004-4
Secret
Appendix C
Selected Countries: Total Government
Spending as a Share of GDP a
Total outlays
38.6
40.1
40.8
41.5
44.6
48.9
48.0
48.0
47.7
47.6
48.4
49.3
49.4
48.9
Social welfare
21.5
21.8
22.6
23.1
24.6
27.8
27.7
27.6
27.3
26.6
28.7
29.5
NA
NA
Defense
3.3
3.4
3.4
3.5
3.6
3.7
3.5
3.4
3.3
3.3
3.3
3.4
3.4
3.4
France
Defense
4.2
4.0
3.9
3.8
3.7
3.8
3.8
3.9
4.0
4.0
4.0
4.2
4.2
4.2
United Kingdom
Total
39.2
38.2
39.8
40.8
45.0
46.6
45.8
43.8
43.3
43.2
45.4
48.0
47.4
48.2
Social welfare
16.4
16.7
17.4
17.1
18.4
19.5
19.6
19.7
20.4
20.4
21.4
23.5
NA
NA
Defense
4.7
4.9
5.1
4.8
5.0
4.9
4.9
4.7
4.6
4.7
5.1
4.9
5.1
5.6
Italy
Total
34.2
36.6
38.6
37.8
37.9
43.2
42.2
42.5
46.1
45.5
46.1
51.2
53.7
55.6
Social welfare
20.0
21.9
23.1
22.9
23.5
22.6
22.6
22.1
23.0
22.9
22.8
24.7
NA
NA
Defense
2.7
2.9
3.1
2.9
2.6
2.5
2.3
2.4
2.4
2.4
2.4
2.5
2.6
2.8
Belgium
Total
36.5
38.0
38.8
39.1
39.4
44.5
45.0
46.6
47.9
49.5
51.1
55.6
56.6
57.0
Social welfare
18.5
18.9
19.8
20.4
21.4
24.5
24.9
26.2
26.4
27.1
27.6
.30.2
NA
NA
Defense
2.9
2.8
2.8
2.8
2.8
3.1
3.1
3.1
3.3
3.3
3.3
3.5
3.4
3.4
Netherlands
Total
46.0
48.0
48.6
49.3
51.5
56.6
56.6
54.6
55.9
58.0
59.5
61.1
63.7
64.8
Social welfare
20.8
22.0
23.1
23.7
25.2
28.1
28.5
29.2
30.1
31.2
30.5
31.7
NA
NA
Defense
3.5
3.4
3.4
3.3
3.1
3.2
3.0
3.3
3.1
3.2
3.1
3.2
3.2
3.3
Denmark
Total
40.2
43.0
42.6
42.1
45.9
48.2
47.8
48.9
50.6
53.2
56.2
59.5
60.7
63.0
Social welfare
19.5
20.7
20.8
21.1
23.9
25.6
24.6
25.1
26.0
26.9
28.7
29.3
NA
NA
Represents general government spending, including national,
state, and local governments; therefore, data for total outlays is not
comparable to data in table 1.
b Estimate.
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 Secret
Secret
Approved For Release 2009/07/27: CIA-RDP85SO0316R000200110004-4
Approved For Release 2009/07/27: CIA-RDP85SO0316R000200110004-4