THE DEBATE ON ENLARGEMENT (continued)
POST-MADRID
STUDIES
67. In December 1997, an assessment of the costs of enlargement
to NATO's common funds made by NATO authorities was presented
to NATO Foreign and Defence Ministers. This report was based on
the analysis of the minimum military requirements of an
enlarged Alliance provided by NATO's military authorities. This
report comes up with the lowest estimate yet-that the costs that
would fall to NATO's common funds, as opposed to costs payable
by the new members to develop their defence and interoperability
capabilities, would amount to about $1.5 billion over ten years.
The report has been criticised for over-estimating the current
capabilities of the invitees' armed forces.[79]
The NATO Report has not been published, although this Committee
has viewed it.
68. To put this cost estimate in perspective, NATO's commonly
funded budgets will total £945 million in 1998, made up of
spending of £425 million on the National Security Investment
Programme, £420 million on the Military and £100 million
on the Civil Budget.[80]
Thus a total cost for enlargement at $1.5 billion over ten years
would be approximately equal to one year's funding for NATO's
common budgets; or an increase of roughly 10% on those budgets
for each of the ten years.
69. From the NATO Report, the Government has estimated that the
cost to the UK of enlargement will be some £110 million over
ten years in contributions to NATO's commonly-funded budgets,[81]
or around 12% of the estimated cost of enlargement. The UK's current
annual contribution to NATO's common budgets is £130 million,
consisting of £60 million to the Military Budget, £50
million to the Security Investment Programme and £20 million
to the Civil Budget-around 14% of the annual common budget of
approximately £945 million.
70. Published in February 1998, this report[82]
assesses the accuracy of NATO's own report as better than that
of DoD's original on the grounds of its reliance on more recent
and complete information. It estimates the US share of the $1.5
billion enlargement costs outlined by NATO to be about $400 million
over ten years, well below the $1.5-$2 billion considered "affordable"
by the first DoD report. It has been criticised as an obvious
attempt to reconcile the differences between the DoD and NATO
reports in order to reduce anxieties in the US Congress about
costs, but it does outline valid reasons for the differences,
including the number of new members considered and pricing assumptions.
The second DoD report contends that the gap between the two estimates
boils down to differing information and different assumptions
about reinforcement posture; the methodologies are broadly similar.
71. NATO's Article 5 commitments towards the Czech Republic, Hungary
and Poland will be effective as soon as the accession process
is completed in 1999. NATO must be prepared to honour these from
that date. The Polish Minister for National Defence claims that,
were there to be a threat to a CEE country which was not a member
of NATO, the Allies would provide assistance, "driven by
the interest of NATO countries in overcoming serious threats to
European security."[83]
The Foreign Secretary has told the Foreign Affairs Committee that
any aggressor would "think long and hard" about attacking
an EU member who was not a member of NATO, as the consequences
could be "incalculable."[84]
Should these assertions be correct, and we see no realistic scenario
in which they would not be proved so, then the costs of meeting
Article 5 commitments would be met whether or not the threatened
country were a member of NATO. If the threatened country were
a member, then planning for such an eventuality would already
have been made. In other words, as the RAND study says, "if
East-Central Europe had to be defended without NATO, the costs
to the countries in the region and to the Alliance could be much
higher".
72. Costs to the Czech Republic, Hungary and Poland will consist
of their contributions to NATO's common budgets as well as the
costs of upgrading and improving their own capabilities. Their
shares of the common budgets have been agreed at 2.48% for Poland,
0.9% for the Czech Republic and 0.65% for Hungary.[85]
Economic performance in each country has been impressive. Since
1993 the GDP in the Czech Republic and Hungary has grown above
the EU average of 1.7%; Poland averaged 5.5% growth annually in
1993-1996. Analysts suggest that these trends are set to continue,
implying that there may be extra funding available for modernising
the military.
73. Whilst the modernisation of the armed forces of new members
is essential, it must be undertaken incrementally so as not to
be damaging to political support or economic development. The
temptation to the various defence companies to pressurise aspirant
members is overwhelming and must be constrained until such a time
as the aspirant countries can be certain of their economic stability.
74. The International Monetary Fund has criticised US defence
companies for their heavy sales pressure on CEE countries hoping
to join NATO, and is reported to have persuaded Romania to cancel
an ill advised purchase of 96 Cobra from Bell Helicopter Textron.[86]
While aspirant NATO members must have a certain level of capability
and interoperability with NATO forces, we regard the perception
of enlargement as a potential arms sales bonanza as misguided.
This has not been a driving force behind enlargement: as the Secretary
of State for Defence commented, "if it was then we would
be going for five or seven or ten at the enlargement".[87]
We hope that aspirant members will be well advised by NATO as
to what their equipment needs might be.
75. All three countries assure NATO that they can afford the contributions
as well as modernisation costs. The Polish Euro-Atlantic study
asserts that the total costs to Poland will amount to less than
$1.5 billion, which, over fifteen years would amount to an additional
4% annually over the 1995 defence budget. As the Minister for
National Defence pointed out, this is less than projected economic
growth.[88] We believe
that all three invitees will be getting very good value for money
from their contributions to NATO's common budgets; and, as they
are at pains to point out, since armed forces modernisation would
have to be carried out anyway, joining the Alliance may save money
in this area.
76. As the Department of Defense's second study makes clear, the
figure for total projected costs of around US $30 billion can
be broken down into three broad categories: around $8-12 billion
on modernising current member states' forces, around the same
figure for modernising new members' forces, and around $5-6 billion
over 12-13 years for costs directly related to enlargement which
will be met from NATO common funding. This last figure makes the
direct comparison with NATO's own assessment. We are therefore
left with a range of around $1.5-6 billion as the direct, shared
costs of enlargement. We believe this range represents a reasonable
assessment of the narrow but in some ways more legitimate definition
of the costs. It cannot be said, however, to represent the 'true'
costs of enlargement. There are undoubtedly some costs which will
fall to individual member states, especially the new members,
which might not otherwise have been incurred.
77. We have had an opportunity to examine, on a confidential basis,
NATO's own cost study. While we are in no position to challenge
individual costings and estimates, we do conclude that there is
a persistent tendency within it to understate costs and minimise
the problems to be addressed. This has not necessarily been done
for political purposes; it is as much a result of the uncertainties
involved. We conclude that the actual shared costs of enlargement
may well be greater than the $1.5 billion over ten years projected
by NATO, but at this stage it is not possible to estimate how
much with any great certainty.
78. Just how much larger the costs may turn out to be is a more
complex question. We regard the assumption of the RAND Report
that the new members can afford to spend $8 billion on their own
infrastructure to be frankly optimistic, unless their economies
continue to expand without problems. Even were they to do so,
there are many pressing problems which each of these countries
has to address which may tend to depress defence spending, or
at least the popular support for such expenditure. Should they
fail to do so, NATO might have to choose to fund more infrastructure
development from common budgets.
79. We conclude, therefore, that it would be as well, in choosing
to endorse the process of enlargement, to be prepared for the
costs shared among the 19 members of NATO to drift up at least
towards the mid-range between NATO's $1.5 billion over ten years
and the US DoD's $5-6 billion over thirteen years.
80. The costs of enlargement cannot be derived simply from objective
assessments of supposed need. The CBO remarks that "in the
current environment, NATO can probably spend as much or as little
as it likes on expansion."[89]
It could be argued that nothing need be spent on enlargement beyond
the additional costs of installing three countries' representatives
at Brussels. At the other extreme, to bring the military capabilities
of the three invitees to equal those of the larger Allied powers
could cost as much as NATO chose. The eventual costs of enlargement
will therefore be as much a result of political choice as of other
factors.
81. The studies described above have come up with varying cost
estimates for a variety of reasons. In each case the underlying
assumptions about who will join NATO, the timescale over which
costs will be spread, the criteria for allocating costs, the risk
assessment and which costs can be directly ascribed to
enlargement have been different. As we were told by the RAND Corporation
in Washington, this makes comparison of the reports' conclusions
akin to comparing the price of apples and pears. Furthermore,
in all cases, the underlying assumptions have been made with at
least a glance at the political capital of the report. The CBO
focusses on the unlikely possibility of a conventional war in
Europe, along with a low estimation of the invitees' current capabilities-this
naturally leads to a high cost estimate which has been exploited
by those with anti-enlargement views. At the opposite end of the
spectrum, the NATO report produces a low estimate by focussing
on the minimum military capabilities required to meet an
Article 5 commitment to the new members. The first report from
the US Department of Defense, no doubt produced with the aim of
encouraging the US Senate to ratify enlargement, assumes that
full capabilities will not be achieved by the new member countries
until 2009. The second DoD report was aimed at narrowing the gap
between the first report and NATO's own, and concurs with NATO
on the grounds of its "more recent and complete information".
We find the evidence from the invitees' governments that both
the RAND and CBO reports underestimate the capabilities of the
four Visegrad countries, including the three invitees, persuasive;
both "used purely stateside assumptions about military costs
and no site visits".[90]
Furthermore, one of the authors of the RAND report told us on
our recent visit to Washington that, although he believed the
report to have set the methodology of study, he was prepared to
accept that the costings were on the high side.
82. We conclude that the weight of informal opinion and the
evidence we have heard supports the RAND Corporation and DoD in
the assumption that the threat of a direct conventional war in
Europe is insignificant in the near term-and that should such
a threat re-arise, NATO would have sufficient time to adjust its
defensive posture. We accept, therefore, that the permanent forward
positioning of NATO forces in the new members' territories is
unnecessary. To do so when the risk does not justify it would
in any case be interpreted as an action deliberately antagonistic
to Russian concerns. The highest estimates-the CBO's more expensive
options, at costs of up to $125 billion-can accordingly be disregarded.
83. There are three grounds on which we are inclined to accept
the view of the majority of the costs studies that a 'joint power
projection' posture is the appropriate model to choose for the
defence of the new member states. First, it is the cheaper option.
Second, there are clear diplomatic grounds for choosing not to
risk antagonising Russia by the permanent forward stationing of
multinational NATO forces on its borders. Third, it appears to
offer the most effective use of NATO's forces. For these reasons,
the highest priority must be attached to achieving interoperability
between current and new members' armed forces. We do not pretend
that this will be easy or cheap; however, much has already been
achieved to this end, for example by MoD's bilateral outreach
activities.[91] Improvements
and enhancements to each new member's equipment and armed forces
will unquestionably have to be made. We would also stress that
such activities would be likely to continue whether or not
each country became a member of NATO, in order to enhance
stability in Europe. Many of these improvements would have been
part of those states' modernisation programmes; it is possible
that because the new countries are becoming part of a defensive
alliance, they may be able to reorder and refocus their defence
spending priorities. We concur with the view of one of our
Members that "countries can generally achieve a higher degree
of security at lower cost when operating within an Alliance than
would be the case were states to pursue purely national defence
strategies".[92]
No serious evidence exists to disprove the assertion that alliances
are the most cost-effective means of defence. This assumption
is a keystone of NATO's raison d'être, and the history
of the last forty years supports it.
84. It would be idle to pretend that the costing of NATO enlargement
is an exact science susceptible to precise answers. All the costings
so far produced should be treated with a degree of scepticism-the
assumptions underlying each of them are bound to reflect to a
degree the prejudices and preferences of those who proposed them.
We do not however suggest that we can offer a judgement on the
correct figure, but we do accept that broad indicative costings
can reasonably be derived from the studies undertaken by these
various bodies. In summary, our conclusions are these. The risk
assessment underlying the CBO's assessment is overstated. The
reinforcement assumptions within both the RAND and CBO studies
are over-generous. Both these studies include projected modernisation
costs for the armed forces of both aspirant and member states
which are either based on an over-engineered vision of the future
which would only result from a much greater political will for
defence spending that currently exists, or include spending which
would be incurred whether or not NATO was enlarged. We conclude
that they significantly overstate the projected real costs of
enlargement.
85. The US DoD's studies and NATO's own study are based, in our
view, on a more realistic risk assessment, and a more plausible
set of assumptions about trends in defence spending across Europe
and North America. There is at present no real threat of land
invasion by massive armies from the East. So far as it is possible
to ascertain the current consensus of Western intelligence agencies,
it would seem reasonable to assume that at least ten years would
have to pass between the emergence of a new and threatening political
order in Russia and its attainment of the military capability
to pose a significant threat to NATO as a whole.[93]
This would give a long enough warning time to allow reconfiguration
of the Alliances' forces. Should such a threat emerge, the costs
of meeting it would undoubtedly be considerable if the political
will to do so existed. While there is no doubt that US forces
are far more heavily 'capitalised' than Europe's, and that there
is likely to be a need for upward convergence from Europe, there
will be a trade-off between quantity and quality, especially in
the forces of new and potential NATO members. The rate of modernisation
will depend essentially on economic health and political choice.
86. The Secretary of State for Defence is "confident that
the security guarantees can be maintained by the amounts that
have been identified [by the NATO study]".[94]
While we believe this to be a plausible statement of a strictly
minimalist interpretation of what is needed to maintain security
guarantees in a best case scenario, we cannot share the Secretary
of State's confidence that $1.5 billion represents the probable
limit on the true costs of enlargement. It is fairly certain
that NATO will have to go beyond the very minimum capability needed.
However, we do not believe that the balance of the evidence points
to the conclusion that the costs of enlargement will spiral towards
those at the top end of the estimates prepared by CBO and RAND:
the costs are controllable.
87. Derived from NATO's costing of enlargement, the MoD has put
the direct cost to the UK of enlargement at some £110 million
over ten years.[95] As
the Secretary of State pointed out, £11 million is the equivalent
of the purchase price of one-quarter of a new Eurofighter aircraft
in each of those years, or around 0.05% of the MoD's annual budget.
In its supplementary memorandum the MoD makes clear that this
figure will not necessarily represent an increase in the
MoD's contribution to NATO's central budget-indeed, they suggest
that in some of those ten years the costs will be fully absorbed
by other savings.[96]
The Prime Minister told the House of Commons in his statement
after the Madrid Summit that "there is no reason why Britain's
contribution to NATO budgets ... should rise significantly in
real terms".[97]
Nonetheless, we must assume that it is money that would not otherwise
have been spent, so the question of whether or not it represents
a real increase is something of a red herring. Unfortunately,
as the MoD confirms,[98]
it will in any event be impractical to dissaggregate the costs
of enlargement from the MoD's and the FCO's requests for general
funds for their contributions to NATO, so Parliament is unlikely
to be able to establish with any certainty whether the projected
costs prove to be accurate.
88. The question that remains is: even if the costs increase,
are the benefits still likely to be worth it? Even if the UK's
estimated contribution of £110 million over ten years were
to double to the equivalent of half of the purchase price of a
Eurofighter every year[99]
we would still consider that enlargement offers excellent value
for money.
79 US
Drops NATO Cost Estimate,
Defense News, Vol 13 No 7, February 1998 Back
80 Information
provided by the Ministry of Defence Back
81 Ev
p 89 Back
82 Report
to the Congress on the Military Requirements and Costs of NATO
Enlargement, available on
the Internet at www.defenselink.mil/pubs/nato/index.html Back
83 Foreword
to Estimated Cost of NATO Enlargement: A Contribution to the
Debate Back
84 Foreign
Affairs Committee Minutes of Evidence, HC 305 1997-98, Q 17 Back
85 Shares
to common budgets are determined on the basis of member countries'
capacity to pay, ie each country's proportionate share of total
NATO GNP in purchasing power parity terms, and adjusted to take
account of the constrained US cost share (see also footnote 25) Back
86
IMF is urging Romania shelves copter deal, Jane Perlez,
New York Times, 13.9.97 Back
87 Q
493 Back
88 Q
689 Back
89 The
Costs of Expanding the NATO Alliance,
Congressional Budget Office, 1996, p 25 Back
90 US
official quoted in US Drops NATO Cost Estimate, Defense
News, Vol 13 No 7, February 1998 Back
91 Ev
pp 93-101 Back
92 Report
by Mr Cohen to the Economic Committee of the NAA, The Costs
of NATO Expansion: A Survey of Four Major Preliminary Studies Back
93 Russian
Conventional Armed Forces: On the verge of collapse?,
Congressional Research Service, 4.9.97, p 48 Back
94 Q
478 Back
95 Ev
p 89 Back
96 Ev
p 101 Back
97 Official
Report, HC Deb, 9 July 1997, cc 937-949 Back
98 Ev
p 102 Back
99 Q
484 Back
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