Leaked paper: Should Greece cut defence spending?

16/6/2015

By  Peter Spiegel   

One of the oddities of Greece’s bailout programme has been that, despite five years of punishing austerity, its military budget remains amongst the highest in the EU.

Early in the crisis, the issue became controversial during a dispute over whether Athens should follow through on a contract to purchase German-built diesel submarines – a move that was criticised as a way to curry favour with Greece’s largest creditor.

More recently, the far-left government of Alexis Tsipras raised questions when it agreed to sign off on a €500m programme to upgrade five aging US-made maritime patrol aircraft.

And according to a document obtained by Brussels Blog and posted here, the issue has come up again during the current standoff between Athens and its international creditors as a way to breach the fiscal gap the two sides are currently wrestling over.

To recap, Greece’s bailout monitors have pushed Athens to make up a €1bn-€2bn annual budget shortfall by cutting public sector pensions and raising value-added taxes on some items like electricity, which Tsipras has resisted. Creditors have insisted they are open to other ideas, but argue Athens has not come back with credible alternatives.

The three-page document, circulated among creditors, shows that two of Greece’s bailout monitors – the European Commission and European Central Bank – think defence cuts would be one way to make up the difference and have suggested changes (particularly moving to a less manpower-intensive force structure, a decision several Nato allies like the US have already taken) in talks with Greek negotiators:

In discussions with authorities, both the Commission and the ECB have been indicating the scope for savings in military spending, while strengthening the defence capacity of the country. It should be possible to generate savings in the order of €200 million in 2016 by putting lower ceilings to the expenditure of the Ministry of Defence.

Defence spending is a highly sensitive subject in any country, and the document notes that the third Greek bailout monitor, the International Monetary Fund, is prohibited in its rules from requiring military cuts as part of a bailout programme.

In addition, officials involved in the talks said the suggestion could be particularly difficult for Mr Tsipras, whose leftist Syriza party is in coalition with the nationalist Independent Greeks party, viewed by many as a defender of the country’s military. The group’s head and founder, Panos Kammenos, is currently the government’s defence minister.

Still, the paper notes that even with cuts undertaken over the course of the bailout programme, as of 2013 Greece was still spending more as a percentage of gross domestic product than any other Nato ally save the US or Britain, and is “by far” the country with the largest share of military personnel to population in the EU.

Greece could move to a more professional army and further reduce military expenditure. Shortening the conscription period, better procurement rationalising the military equipment acquisition plans, and the use of new means should be pursued to achieve savings.

Πηγή