European leaders have two good reasons to reject US President Donald Trump’s call to lift their countries’ defence spending to 2 per cent of GDP.
Firstly, as Martin Schulz the Social Democrats (SPD) candidate for the position of German Chancellor said, Europe doesn’t need another arms race. What it needs is more initiatives for disarmament.
And secondly increased defence spending will lower Europe’s economic growth.
It’s no accident that Germany has had decades of low defence spending and steady growth while Greece has had high defence spending and low growth.
There are of course other factors such as the Euro which has benefited Germany and disadvantaged Greece.
But taken alone, military spending has a negative impact on growth.
Associate Professor Suna Korkmaz from Turkey’s Balikesir University examined 10 countries in the Mediterranean region (Spain, Bosnia-Herzegovina, Croatia, Egypt, France, Greece, Israel, Italy, Turkey and Slovenia) from 2005 to 2012 to determine the effect of military spending on economic growth and unemployment.
Her article published in 2015 in the International Journal of Economics and Financial Issues sets out her thorough process with the essential complex regression analysis.
And her conclusion is clear: military spending negatively affected economic growth and increased unemployment.
Another 2014 analysis conducted by Sefa Awaworyi and Siew Ling Yew of Monash University reviewed 42 primary empirical studies of military expenditure and concluded that military expenditure retarded economic growth.
Theoretically military spending can promote economic growth through the development of new technologies that spill over to the private sector and by increasing aggregate demand and employment.
But so does spending on other activities such as infrastructure and transport systems.
Economists term this the “opportunity cost”: where else could the money have been spent?
Unlike spending on improved transport or education, the economy gains no additional productive capacity as a result of spending on a submarine, or joint strike fighters.
They are non-productive assets that only consume resources.
The negative impact on the economy is even worse if the items are imported, as with the Joint Strike Fighter which will cost us billions, still can’t fly in bad weather, employs next to no Australians in production and is a drain on our balance of payments.
Like all government spending, defence spending increases the budget deficit and adds to government debt.
In the latest Budget papers the government explains that bad debt is borrowing to meet everyday expenses like welfare and health.
But the statement should also have mentioned defence spending which has demanded 9 per cent of our borrowings since 2007-08.
The NATO countries that meet Trump’s defence spending demand – Greece, Estonia, Poland and the United Kingdom – mostly do so because of fear of their neighbours.
The Greeks’ high defence spending is due to their fear of fellow NATO member, Turkey.
Given Turkey’s 1974 invasion of Cyprus and NATO’s failure to do anything about it, the Greeks have little confidence that NATO will come to their aid in the event of conflict with Turkey.
The Greeks well know that many NATO members still see Russia as the only threat and want to keep Turkey on side in the event of confrontation with Russia.
The United Kingdom is the exception, still seeing itself as a world power and also profiting from an arms industry that makes it the sixth biggest exporter in the world.
The United States is by far the world’s biggest producer, buyer and supplier of arms.
According to the Stockholm International Peace Research Institute (SIPRI), US military spending grew by 1.7 per cent between 2015 and 2016 to $US611 billion.
Military expenditure by China, which was the second largest spender in 2016, increased by 5.4 per cent to $US215 billion, a much lower rate of growth than in previous years.
Russia increased its spending by 5.9 per cent to $US69.2 billion, making it the third largest spender.
Saudi Arabia dropped to fourth position in 2016, despite its continued involvement in regional wars.
According to SIPRI’s latest calculations, in 2016 Australia spent $US24.6 billion, dwarfing our neighbours, Indonesia with $US8.1 billion, Malaysia $US4.1 billion, Philippines $US3.9 billion, Thailand $US5.9 billion and Vietnam $US5 billion.
If NATO states were to increase their spending to two per cent of GDP, SIPRI calculates that Germany would become the world’s fourth largest spender, outlaying a total of $US69 billion a year.
Does Europe really want to see a heavily re-armed Germany?
Thankfully it seems the Germans have already answered this question with politicians from all sides telling Trump, no.
But some Europeans believe Russia poses an increasing threat as shown by the fact that the largest relative rise in European military spending between 2015 and 2016 was in central Europe with overall spending growing by 2.4 per cent in 2016.
You’d have to question whether their money would be better spent elsewhere, given SIPRI’s senior researcher Siemon Wezeman’s observation that Russia’s spending in 2016 was a quarter of the combined European NATO members’ total.
Source: The Sydney Morning Herald