New Challenges - Better Capabilities

My name is Quentin Peel and I am International Affairs editor of the Financial Times. I’m delighted to be here in Bratislava, for which I confess is the first ever time and it is wonderful to be here at such a splendid conference. We have a rather gloomy subject to discuss - the impact of the economic crisis on European defence budgets. It has been long with American friends on the other side as Europeans with their defence budgets useless, miserable, half-baked and far less than they should be. On the other hand we are now in the middle of a very tough economic crisis, which may very well make matters worse, but I want to try only to analyze where we are, but in a way I want to analyze how we are going to get out of that. So, we have a very distinguished and - I hope provocative - group of speakers here with H.E. Ljubica Jelušič (The Defence Minister of Slovenia) to make the introductory statement and then Marshall Billingslea (former NATO Assistant Secretary General for Defence Investment) now liberated by going into private sector with delights. So, he can be even more provocative than he might have been when he was still at NATO. On my left we have Malcolm Chalmers from The Royal United Institute in London. A great expert on UK defence spending who has just produced a very gloomy paper about coping with the lines to come and finally, Peter Blaschke ( Chef Executive Officer of BWI Informationstechnik, who is heading the largest public-private cooperation in Europe to provide the Hercules  computer project, ten-years programme for German Bundeswehr and German armed forces). So, we will get the private sector view, the academic view, the practitioner view from the front line and Defence Minister’s view. The Defence Minister, please take the lead.

H.E. Ljubica Jelušič:

Thank you very much dear colleagues and friends, especially dear students. I must say that I’m really glad to speak to you on topic that connects problem of crisis and defence budgets because this is something that we are facing everyday at everyday work. I think that this debate is going to influence also our discussions on the New NATO Strategic Concept because it is our future. It will be rooted in what is going on now. So, if we have now discussion on crisis, if we have roots in recession, this recession will probably put also orientation of speaking what is our next NATO Strategic Concept. I think that transparent, all inclusive debate is really what we need and as I said I am very happy to have online students with us because if I do miss something from my previous academic career it is students. When we talk about problem of defence budgets and global crisis I must say that this global economic public spending and everything has negative effect on our security and stability. Most of European societies have to deal with additional constraints on public spending, for example, in social welfare which opens again the debate on guns and/or butter.   The economic crisis has one more or less common European answer and it is decrease of planned defence expenditures which represents I think major challenge for development of national or international security framework. And what are our European countries answers to these questions? I think that we have three groups of countries. The first one is comprised of countries that have a kind of nominal stagnation, which means that they are investing the same amount of money to defence budgets as before the crisis. Usually, it does not mean the lower percentage of GDP because GDPs as such have decreased, too. So, when we are talking in percentages we would not see this problem because we still keep the high percentage of GDPs. But GDPs are decreasing and it means whenever we are having still stable money or, nominally speaking, sable money invested in defence budgets. It means that we are keeping our survival, but we cannot have money for modernisation or for development. And the second group, there are countries with decreased percentages of GDPs nominally and in percentages. So, I think that this group is the biggest one within Europe. We are losing percentages and we are losing, nominally speaking in our budgets. There are also some very few countries that are investing in defence more than before crisis. I think that it is a kind of countercrisis measure because they put additional investment into mainly domestic defence industry. But there are not many countries that are able today to invest to their own domestic defence industries, especially in the countries where we do not have any defence industry anymore. We cannot invest in it to where we can cut. We are supposed to cut, but problem is where we can do it. What kind of changes can we do in defence budgets? If we speak in a simplistic way we say that defence budgets are in a way put into three parts. The three main parts are personal costs, operational and maintenance costs and investment into new equipment and infrastructure. If we go into details of these three parts we can see if we think about personal costs. We know that it is impossible to make immediate response to crisis, when we are speaking about personal costs. Because soldiers have contracts, we have them on missions; we spend many years and big investments to build up good officers – professional officers. It is not easy to kick them out over the night because there is a crisis and we do not have enough money for our defence budgets. So, we can save some money by stop employing new people, but it is not easy to get rid of those that we do have within our armies. And there is also a new challenge that we are facing. In past all our armies, that are professionalised, had problem with recruiting new candidates. Nowadays, with crisis we do have many excellent candidates but, unfortunately we do not have money to pay them, to call them into our armed forces. So, again we see dilemma in which some countries try to answer with even employing more new candidates because we think, for example, also by us in Slovenia. We think there will be times coming when we will again have problem with finding new recruits. So, it is better to employ them now when we have them, especially because we have good candidates. And here is a tendency that soldiers that have already contracts do not like to ask for another job outside the military one. They tend to renew their contracts. What can we do in operations and maintenance? Of course, it is possible to lower our commitments in international peacekeeping in other operations. It is also possible to make less training, less education which will lead to less readiness, less preparedness and in the long run it will affect security and safety and effectiveness of our soldiers, of our troops in any kind of operation’s beat, in defence operations or in international peacekeeping and other missions. So, it is not easy to cut in operational part of our budget. And then the third part which is investments into equipment and infrastructure. Today in the morning, Amb. Versbow talked about procurement. Unfortunately, countries without domestic defence industry are willing to stop buying equipment, to stop investing into infrastructure. We are slowing down the modernisation of our armies. We are slowing down defence reform. Unfortunately, the biggest victim of our cuts is investments, modernisation of our armies. There is also some new redefinition, I would say, on our doctrine on international cooperation or our obligations within international organisations. We see that it is more and more difficult to pay our financial part of obligations in international frameworks. We are less capable to follow so called fair share of burdens and, unfortunately we are less ready to invest in international humanitarian and development aid, which will mean in the long run even bigger gap between developed and underdeveloped parts of the world. There are also some positive results of crisis, in which we are. These positive results are opportunity to work closer with our allies, with our partners. We are more ready, more prone to cooperate in multinational projects. We are more ready to speak about single set of forces. In past we were more inclined to think about being on our own. Now, especially small countries are ready to put together our resources for multinational common projects. We think that it is important to work on greater cooperation between NATO and EU, especially within the framework of European defence agency. And it is going to be even more important to make greater cooperation in European defence markets. Of course, we are searching for new priorities. It is difficult, but now it is time to make difficult choices in future investments. If in past we thought we could afford everything, now it is easier to say that we will choose what we really need. Sometimes on political, operational level it is easier to say rather than choose because of different interests also within our own countries.

Today, we have already heard some thoughts about the public importance and about all those new issues about the new NATO Strategic Concept on development regarding our defence budgets etc. It is also important to be aware of this fact because we are under increasing level of public scrutiny and need to oversight what we are doing in defence sector. Maybe, in past when we had a lot of money in economic rows our taxpayers were not so much aware of what was going on. They had not so much opened eyes about corruption, also in some procurement projects. Now, they are very critical. They are looking at us what we are doing. So, also because of this public scrutiny we must be ready to speak about all issues, for which we were in past ready to say they were classified or in other ways secret in front of our people.

I would like to finish with the issue that was very important in the times at the end of cold war. It was discussion about peace dividend. Now, I think we speak more about it. Also, it is more crisis dividend, not so much peace dividend, anymore. I will finish here and I’m looking forward to listening to your comments and questions and also all presentations by my colleagues. Thank you.

Minister, thank you very much. Can I just ask you one thought as you sit down? When you are sitting at the cabinet table and everybody is discussing where the cuts are going to fall, do you feel very lonely? Do you feel that all your ministerial colleagues want to cut you more than everybody else?

H.E. Ljubica Jelušič:

Yes, yes that is true and there is very interesting new development. They all think that they all know how to deal with that defence issues. I would never try to deal with economic, social or environmental issues, but they think they can speak about NATO, defence, operations, Afghanistan and everything else.

So, the first task of education is inside the cabinet. Marshall Billinglea, I think, well, I expect fireworks. Tell us, actually, how we can cope with this economic crisis and tell us how it looks from the other side of the Atlantic.

Thank you so much men, minister and ministers. It is privilege to be here today. I want to offer a couple of thoughts. Obviously, having been NATO Interactor, but then having finished this as a fellow who built the United States Navy and Marine Corps budget for plans, land troops and ships. I’m very familiar with the tasks you are struggling with. I want to shine a fairly bright light on a significant problem that we have within the lines that is frankly not getting better. If I can remind everybody back to the discussions that we had yesterday I think Maj. Hines did a fantastic job in setting the framework. At least a guide of thoughts for the Strategic Concept and he focused on a series of Rs. If you remember, I personally fail to see how we are going to have meaningful discussion on the future Strategic Concept without the giant Rs in the room which is resources or lack of these Rs within the lines. I’m going to add that R and I’m chipping away from Hines getting included with the Wisemen group. I also will with your indulgence focus just briefly on the further R, which is the issue of reform, which the Secretary General touched on very briefly. The talk about issue of resources. NATO has nearly senseless agreed that 2% of GDP was a meaningful benchmark at least in terms of a political signal of commitment to the lines and to the ability to discharge the Article 5, commitment that we all undertook to defend one another in the event of attack. Today, within NATO you have six of twenty-eight countries that are under 2% mark. Two of those six: Greece and Turkey are motivated by completely different dynamic. I would suggest than perhaps, the other four. Nor is the situation improving, we are seeing significant budget cut looming this year in a number of countries: Italy, Spain, some countries, this country Slovakia, potentially lower than others, Germany friends and United Kingdom. I thought that UK would begin to build back a bit. Malcolm will explain what he sees in terms of foot, but those nations have lost in fact much ground in the first half of this decade and I think they have long restoring funding and of course we have this major physical crisis, which has number of nations: Baltic nations and particularly, hard Estonia was one of the two countries Latvia and Estonia showing most of the major significant defence growth in terms of measuring budgetary increases. The dynamic that you see around the cabinet table you can also see statistically when you look at the growth trend lines of the countries. When things are going well the economies are going down. The cuts inside the defence budgets are perceptibly steeper than we find. There is an underlining problem that we have with the lack of advocacy and statesmanship and political consequences with any individual nations to maintain robust defence budgets. We need to discuss that. We should not be fashioning Strategic Concept without understanding what that dynamic and how it affects our true willingness to engage operations, to engage missions and to actually perform the Article 5 commitment with one another. How the money is being spent within the nations is equally concerning. You have 28 allies, 14 of which spend more than half of their budget on people, on man-power. We have number of allies; Belgium is a good example, who spend close to 75% on man-power for jobs. It is a jobs program. Three quarters of pay you get goes to pay for your people. How on earth are you going to pay for operations in Afghanistan? Little  less for modernisation of your military, or investing in basic research and development to keep your defence industry involved and engaged and growing. Minister has highlighted her delimits in it. The single greatest affect we are seeing of the economic crisis is the hardening of this problem. The defence ministers have long agreed that too much was being spent on man-power that was not useable, not deployable. Problem is that, when you are at the economic downturn cutting jobs whether it is also from other ministries is really politically unacceptable course of action. I think that this is hardening problem that will be intractable problem until the economies improve and people will find employment opportunities elsewhere. Now, I think you find in many countries and certainly the case at United States, where in fact governmental service is the refugee of many people from the unemployment risk. There are several consequences that you will be played out in this debate with virtual collapse of meaningful defence spending in most NATO nations. The most important consequence that you will see is a significant and renewed debate on the matter of burden sharing. You have heard it discussed a couple of times in this conference. I would suggest you that on the other side of the Atlantic this has become a major problem in the way The United States perceives the lines and in the relationship the United States want to have with the lines. Ten years ago we had the last Strategic Concept and The United States was spending around 49%, just under the half, the defence expenditures within the allies. Now, ten years later the New Strategic Concept is going to be enlarged. The United States spend, and it doesn’t matter who you believe statistically, but the minimum is 71-73% of the total defence dollars within the allies. That is not a healthy balance. That is not a balance that suggests that the United States will continue to perceive value added in running the national security concerns and initiatives through NATO structure for supporting resolution. I would suggest that today in formal meeting of defence ministers and tomorrow when secretary Gates appears on matter of Afghanistan as discussed. This is one of the looming issues of the backdrop. Can the allies provide the necessary forces to truly support the forces in Afghanistan? There is a debate how many troops etc., etc. But, it is clear that that is direction the United States How has headed. How will allies themselves keep pace with it? There is also an opportunity cost to NATO operations. Every dollar that our colleagues spend to send a troop to Afghanistan as the dollar they cannot spend to modernisation or investment in RND. We accept it as a given fixed level of personal expenditures but on  every operation dollars and dollars are spent that cannot be spent elsewhere. And it is not a vogue. A CAI just has done a survey study that suggests that only about 8% of allies are actually able to maintain roughly 20% of their budgets for modernisation. Now, when The United States looks at the modernisation account and it’s in accession of 30%. The US spend about 80 000 dollars per service member in terms of modernisation. Every soldier we have, we are spending about 80 000 dollars a year to get that soldier the better equipment, better gear, the next generation of technology. Only 10 allies in the alliance are able to spend 10 000 dollars on. Now, I’m not suggesting that US forces are proper, that are necessarily the benchmarks for the Europeans, but when you are spending 80 000 dollars on an American soldier and 20 000 or less on an European soldier you are going to have significant inability issues. The radios will not talk to each other, the same bullets cannot be fired out of the guns, the tanks and it just goes on and on...  You can see the cascading effect. Finally,  loss and incapacity. If you look at this board and there is a number of companies sponsoring this conference. In a defence industry is the partner within nations conducting and providing the security, but the loss in RND investment we have the deputy in. EDA has published the study that indicates that the US is spending six times of all of the European countries combined on RND. That is not only contribution to the capability gap. The word gap does not work anymore. It is something completely different. It is cardinal divide of proportions that I have not seen in the past and the effect is that you are beginning to see the transition of industries to the United States. We see industry moving overseas, away, out of the European markets, setting up, shopping US and I have seen it in short time if I was left our government and joined private sector. Quite a few significant European firms SOB, BAE, and others trying to move to US markets because that is for defence industry where the money is. That is I submit in a long run not a healthy dynamic for transatlantic relationship. You need a robust viable industry in Europe that can collaborate and collaborate with the United States. So, I indicated a couple of political issues that from the year’s numbers, the statistics, from the economies that all turning into big political issues ministers must struggle with. We will seek an increase in calls for technology that are transfers from US and I think you will see in a following year a growth in search and European interest in resuming ourselves in China which will become a significant political discussion. And I think you will begin to see people to struggle with hopefully presuming more than 17 types of initiatives when you look at common share services and opportunities to chipping collectively pool money and then reinvest them in the corps. areas where left to under devices replications of the army nations which are simply inefficient, not affordable these days. Thank you.

I know you again give us trouble. Can I just ask you two things? One on your 73% of NATO defence spending of the United States. Are you including going to war in Iraq?

Yes, yes you have to.

So, you are including things that are not actually NATOs projects.

All money that goes maintaining the military.

So, European military can turn round for you and say: Hey, we do not want to do that, so why are you blaming us for not doing that?

It is still apples and apples. It is simply how much money has a minister to work with his military.

You are very telling point about the investment per soldier while looking to commitment with each other. Look at the RND spending. Okay, look just for a moment what the other side is doing. So, what is the Chinese and Russia doing in contrast what are the Europeans doing. Have you got the sense of that

Yes, I have. I don’t want to necessarily get into it. You said the United States interacts quite closely.

Do Europeans look hopeless?

Goodness no! If you were hopeless, I would not be here. We the NATO allies are the quartertone of American security. I think that what I desire is to find the way to balance in downturn for the need with new investment which I think they are taking from their bones. There is not much that you can take from the system.

Malcolm, now you have to respond a little bit, cause you are coming next and respond to that will not be easy. In terms of British defence budgets, the cuts that we know that are coming down the line. How do we respond and still deserve the name of ally?

First of all, thank you the organizers for inviting me to this conference in this beautiful city. It is real pleasure to be here. But I think the direct respond to your question really leads to what I want to talk about. From the British perspective it is important to say that each country in the alliance has a different outlook and different commitment to resources both financial and personal and it is not helpful I think to this debate about burden sharing to divide into the American on the one side and everybody else on the other. There is a differentiation and certainly our experience in Afghanistan. Here are some European countries and Canada as well, who are really pruning on ordinary fair share in that country and there are countries that are not. There is a differentiation between European countries and that is something I want to talk about. I think Britain is actually untypical, unusual in Europe on defence. Two specific aspects of where we are now which will decide where we will go in the United Kingdom in the next years. On the one hand The UK is unusual in a fact that its real defence budget   has been increasing over the last decade. It has got a larger commitment in Afghanistan than any other European country by some margins, which is common step of long and difficult deployment in Iraq. And I have seen one figure recently which suggests that out of total armed forces 200 000, more than 70 000 have served in Afghanistan in the last 5 years. So, more than the third of our armed forces have actually served in Afghanistan and that is the indication of real stream and our capabilities on Afghans operations, on which operations we are putting more. And because they are hard operations. We, constantly have to spend more resources on new technologies, new development, helicopters, armed vehicles etc. You name it and we put more resources into it. And that is putting strength for defence budget. And there is a pressure to deploy more personalities from relatively small armies. But the other side of Britain is being outlier because of the particular nature of financial crisis that we have seen over the last couple of years and because Britain is relying on the finance sector and its economic prosperity. The UK is projected having next year one of the highest budget deficits of any OECD country. Over 10% of GDP is our projective to have budget deficit in 2010 and the comparison of those two factors in one hand of a substantial and overstretched military and on the other hand a significant budgetary crisis minus some rocky times in the months and years ahead. Now,  in UK because of general election coming up next spring. Neither of our major political parties is prepared to say very much about what we are doing after public cuts expenditures after the crisis. The Labour and Conservatives say like they want to show their will to cut, but it is relative about the content of these cuts. But what I think is clear is that after our general election 2010, there will have to be very significant sharp cuts across the board on public spending. The most likely winner of our election is the Conservative Party and they promised to exclude from cuts only two ministries: international development and health and everything else is the subject to review includes defence, police, education , social services. You name it. And I think given the statements of politicians of both parties that I will be very surprised indeed if defence is given much higher priority than education, health or social services, as Marshall Billingslea describes the defence as relatively low priority, I do not think that Afghanistan  become much higher priority than before. It would be lucky to get an average level of decrease. Moreover, just to add to gloom, but I think it is relevant, we have just had review of Britain’s defence acquisition processes published by government and independent view commission by independent group of experts which came to conclusion that politicians have very ambitious program for buying new equipment over the next 20 years. It is significantly an access of any likely increase in equipment over that period. Largely, because of the way, in which procurement is organised. It is too easy to allow individual services to get commitments at low cost at the early stage of the project of the capabilities. Because individually, all the programs of the armed services are good ideas and their constituencies, but also in industries, who support them. But, when you actually come to pay for them collectively, the resources simply are not there and that is what has happen to UK already. I think, if we were not careful, it would happen even more in future. Projects get postponed and pushed back. And that cost is that that you get less capability for the money you are putting in than you would have if you have taken a clear sense of priorities at the early stage. If I can conclude and I think Marshall Billingslea has mentioned taxes. After next elections we will have very hard choices. If we are where we are in Afghanistan now, the operations in Afghanistan will be given an absolute priority. I do not think there will be any questions of cutting corners with our soldier lives in Afghanistan providing we are still there. But, I think there will be questioning about how we can dot that sort of operation in the future and whether we can sustain the very high cost model of operations and the size of contribution that we make to such operations. And I can tell you that in the UK the issue of burden sharing is right on the top of agenda. Gordon Brown discussed it in the Commons last week and set down the conditions for the condition that was satisfactory agreement within the burden sharing with other NATO partners. The deployment in army, I think, that is under first cut, that of course refers to ongoing US review levels, but it also refers to Canada and Netherlands who are key partners in the south of Afghanistan and have done the marvellous job, but now considering driving down their contribution there, which will be much harder for the UK in that area. But, if there are scopes for saving in Afghanistan, we will have to look on some major equipment programs that we have. Two major aircraft carriers, large procurement into new technology, new ballistic submarine and the list is going on and on ...
Collectively, they cannot be afforded. However, I think many of you are aware; it is very hard to save a lot of money on procurement in the short term because of contracts of commitment. You can see the money in four, five, six, seven years down the road, but in terms of persuading our ministers of finance that we are making short-term savings. The real worry for many people in defence in the UK is that the cuts will fall where they can rather where they should. I think there is a case of rationalisation for bringing Britain’s capabilities in lines with their resources in the long term over the next five to ten years. But there is a real worry if we cut too fast then we will be cutting things which are substantial for the operation proposes in Afghanistan.

Quentin Peel:

Well finally Peter Blaschke, pretty gloomy point of view, we´ve had from very far last speakers I think and a very challenging point of view. But from the private sector it looked it has a contractor. How tough the things look from your perspective?

Peter Blaschke:

Thank you very much. It´s a perspective from industrial side and maybe a German view but let me share it with you.

Quentin Peel:

At the end you can tell us how much more resources Germans are going to send to Afghanistan.

Peter Blaschke:

As we have read, the budgets will be cut and one rage could be to postpone modernization of infrastructure projects, planning and maybe in that situation it is the only possible way, but it is not the most economic way. Outsourcing could be an option, of course it´s not a solution to all problems, but it could be an option. Not necessarily in areas of co-processes, processes as we still discuss today, but support processes, for example IT and communication services can be delivered. German forces decided and contracted in 2006 full outsourcing model on high degree of control exactly for this area - IT and communication services.

BWI - our company – it´s a Siemens company, it´s a trial adventure between Siemens and IBM and we are in a public partnership with our customers and German forces. Our task is to take over the operations in Germany, to modernize the infrastructure, to add new services and to operate it for ten years as the contract is closed. The budget for the project is 7.1 billion dollars, we are now in the third year, we are running these operations and the modernization is on a good way. We don´t know exactly, but we are running about 5000 projects to transform this infrastructure to target situation. What are the benefits for the customers and what is the budget: on one side, it´s a pre-financing by private industry, by private partners, from the customers´ side it´s flat budget over ten years, what means planning reliability for ten years, what brings a fast modernization and transformation because we as an industrial partner led by economic interest, as faster we get to a target situation, better for us. We prefer better services for the equal budget, because it´s a flat budget, budget of 2000. And at the end, our company will not be closed, our company will hand it over to the customer so he´s the owner of the company after these ten years and he is able to make any decision he wants to do about future of this company. So on one side we are of course influenced by budget cuts, in the budget of our customer. If the number of employees will be reduced, our services will be reduced and of course our money will be reduced. But on the other side, we have stability of planning and reliability for the ten years´ program and projects and in this situation we don´t have to stop the project or postpone it, so we can go on and modernize the infrastructure.

Quentin Peel:

Perhaps it´s a completely unrealistic question, but the FDP the new partner in coalition does have in its policy program the idea of professionalizing the Bundeswehr. Would that have any dramatic effect on just what you are doing, the complete transformation of Bundeswehr or the amazing new contract to come to actually have to provide the entire computer underpinning for professional army.

Peter Blaschke:

No I think FDP program is related to people, to soldiers. So the number of soldiers may change.

Quentin Peel:

But it would be dramatic reduction of the overall number of soldiers.

Peter Blaschke:

Yes, it would have an influence on what we have to deliver from number of the places and the number of sides and it would have an influence on what we do and what we get for this.

Quentin Peel:

Well, thank you very much for your comments.  We have got just about half an hour for the questions from the audience. I´d like to start Marsh, if I may, let me come back to you (to Mr. Bilingslea) we have a combination of circumstances where is the clear popular disinclination in Europe to spend anything like the sort of amount of money that America seems to be prepared to spend on the military and indeed my disreputable thought to Peter Blaschke. I mean Germany´s disinclination to send troops in large number out of area goes very deep in the German psychic. This is not something you´re gonna turn around over night. Add to that the economic crisis and you are hiding nothing, are you? I mean this is the message that is just not getting through. Does that undermine the alliance fundamentally?

Marshall Bilingslea:

If it goes on addressed then it certainly causes friction. It causes friction at a political level, it also introduces dynamics in the collaborate level which can be very unhealthy. For instance, the practice that had sprung up in NATO over many, many decades was to take the amount of money you can contribute to a collective common fund of project and to inner sense expect an equal amount of work share out of that. So it was that Nations puts the money into defense industry and the Nation that rips equal amount of works. We are not in the situation where we can afford those models and you are beginning to see the turn away from collaborative development of technology to a probably collaborative acquisition of existing technology. And if defensive industrial flight to North America continues on checked, then we will increasingly be talking about collaborative acquisition of North American technology by NATO. So there is a circular issue that I think we need to address.

Quentin Peel:

Right. I´m going to Warsaw where are twoyoung people ready to ask the questions.

Question (Warsaw):

1. I would like to ask very important thing as regards claims of today´s discussion of NATO strategy concept -  is there also a place for economic charge of dealing? Would the necessity of the stability of defense budget.

2. What are the ways to increase contribution to the common defense and expenditures?

Quentin Peel:

I´ve got also a question from Brno.

Question (Brno):

My question is mainly for European participants of this panel. Considering the evolution of economic crisis we can expect that it will have an impact on the defense in the future and that Europeans will be pushed much harder to increase their defense. Could the European defense market enhance competition? …significant increase of European defense budgets? 

H.E. Ljubica Jelušič:

Thank you very much. It won´t be easy to increase our defense budget and it will be very difficult to try to convince our publics and also our colleagues in governments. To say that now in times of crisis we must fully turn our discourse into spending more in defense issues. I think that at least two or three years in smaller European country we won´t be able to increase our defense spending, which means that in these two or three years we will have to all make a significant strategic and other operational reviews of what we are doing. It´s time of turning inside and looking where we do have still some internal resources and reserves. And then probably we will have some chances to increase it in future. There was one interesting issue regarding research and development which was raised up also by you in the past. It´s a good question, it is also a way how to have a good and legitimate connection between defense sector and society, especially more developed and more educated society especially with people working in different institutes within universities in academic circle. It is important to keep some percentages invested in research and development because of these good relations and because of future. We can´t see immediately results of research and development, but in long term, there will be results and this is also way how we can make our today´s discussion more optimistic, not to be so pessimistic as it looks like from European perspective nowadays.

Quentin Peel:

Malcom, would you like to pick up on the European defense market and whether we are doing enough to build a common European defense market, when all defense manufactures seem to be rushing over the Atlantic to investment to US.

Malcom Chalmers:

I think more could be done in terms of which is the imperium of defense trade within the European union. I think the most difficult issue for me is creating barriers against transatlantic trade, because certainly from operational point of view and cost-effecting point of view I think it´s very important to be able to buy the best weapons, wherever those weapons come from, and in some cases for all the reasons Marshall explained the best weapons are American weapons, so European should not be trying to re-invent the wheel in defense terms. I don´t think it would be the way the priority for our country to create effective arm forces that can do their job, not to support industry, what is important the secondary object. Back in 1978 we had the NATO 3% target which some countries met and many didn´t. But that was the period when there was a perception of increased threat as result of Soviet action in late 1970s. I think the most acute pressure is in relations to Afghanistan, NATO is critical to its future, credibility. Disparity in contribution is quite considerable and there are some sticks who could do more and who are not doing more. I would like to see what the future trends are in the US defense budget, as far as US defense budget was quite considerable in recent years. US budget documents have to predict very large budget receiving on Iraq operation. US and European are going to maintain defense budgets.

Quentin Peel:

As I understand it, one of the biggest holes is one in the heavy lift aircraft and just outside the EU in Ukraine there is a manufacture of extremely solid reliable heavy lift aircraft and it´s a country that desperately needs more contracts and strategically we should be spending money there. Why doesn´t anybody say the answer to that?

Marshall Bilingslea:

The NATO did, we have an arrangement, collaborate lease. There are not manufactures of forces anymore. US need to restore the capacity. So in NATO structure you actually find both C17 collective ownership of aircraft as well as the lease of the Antonov.

Quentin Peel:

So, we´ve got a summary. Peter, I know your defense contract is not political, but the German contribution to Afghanistan - there is where the country could make much bigger contribution. How does it look from Germany, there is not single political party that would send more German troops to Afghanistan, is there?

Peter Blaschke:

In fact, it´s a political question. It has to be solved by politicians.

Quentin Peel:

I´m asking you as a citizen. What is the mood in Germany?

Peter Blaschke:

It´s different in this area.

Quentin Peel:

Let me go back to European defense market question. Is everybody actually still buying national?

Peter Blaschke:

We are not the company of defense market, we are delivering IT and communication services, we lead to using commercial products.

Quentin Peel:

Now question from the audience.

1. My question considers to the relationship between EDA and NATO. There are two systematic paradoxes. One is related to the fact that we have fragmented defense production – there are 16 army programs developing in parallel in Europe, EDA  is designed to fight. The second paradox is two systemic development capabilities. When you read EDA documents, you always see points about transparency and cooperation, but it is not very concrete. I´d like to know which practical steps could be taken to make this as success.

2. I will address my question to Mr. Bilingslea. There is an obvious gap between the level of defense research in US and in Europe. Could you find an example of high-tech or IT production Eastern European allies like Poland, Czech republic or Slovakia where used in US military production. Is the defense production of US just from US or is it mixed?

3. Finance crisis bring risks and also the advantages. What do you think about advantage for NATO to enforce the investment to research and development. I mean structure of the defense budgets of member countries.

Quentin Peel:

Who would like to pick up to the first question of European defense agency.

J:

Maybe we could have a help from experts from the audience – EDA point of view.

Audience (EDA):

There are many practical initiatives and concrete results on the way to create open European common market. These processes are very difficult and it will take time to go to open market solution. Three years ago we have started with conduct regime on defense procurement and we launched electronic bulletin board. Nations are obliged to put all defense offers procurement on the electronic bulletin board, so there is European transparency. In three years the value of these offers is close to 18billion euro. We introduce also other different tools, for example conducts harmonizing of the regulations across Europe, there is a platform on EDA web, where you can see all regulations of every country, what is very helpful for the industry, when they want to deal with these countries.

Quentin Peel:

Marshall, the next question was addressed to you.

Marshall Bilingslea:

We still haven´t answered the question from the students. I think that strategic concept would be the matter for discussion. Strategic concept should be the company and some other fashion is to redact relations of commitment to funding and resources. The topic will definitely be discussed. Probably similarly the reform of command structure. Whether it needs to be a strategic concept is questionable, I think the strategic concept is a strategy, but one should not go about fashioning strategies if one doesn´t have a commitment to resources.

There are many examples on technological side of how Eastern-European technology found home in various both NATO projects as well as national acquisition. Estonia has a project that NATO invested. Bulgaria has an amazing technology to stop racquet, helicopters and combat vehicles. But again, it´s a research and development investment that led to those scientists and engineers. The same it is in Western Europe – 27J aircraft is an amazing aircraft. Tallus provides satellite services to NATO. There are opportunities in this crisis, minister touched on it, and consolidation of redundancy, something the EDA is pushing on with the army combat vehicle program is a good example. In an economic downturn, cutting program that then has people laid off in industrial sector may be hard, but it certainly something to be pursuit. Shared capability and shared services are an example with absolutely no reason for Nations and NATO to explain. Just let NATO do that. With long distance transport, I would suggest we need to go further down into logistics chain and to look at shared logistics services more generally. C4ISR has been homework of what NATO has used common funding to provide if you look on two things that NATO funds out of its big procurement budget, the inset program, it is infrastructure in Nations, especially the newer Nations and it is the connectivity that allows Nations to bring their capability and operate with others. The challenge we have is that (actually it was said this morning that the budget is held in zero real growth is not correct, it´s actually been kept, it´s lost about 18% of its value over the past 5-6 years). There are impressing infrastructural article 5 related investments that need to be made in a newer allies that have not been made and there is a growing evolution in information technology that is so rapid that we need continuingly to invest to technology in various nations.

Quentin Peel:

I will take final round of questions. We have a question from Budapest, which I would like to take.

Question (Budapest):

My question relates to general issue of budget decreases. I was wandering about negative attitudes to defense budget.

Quentin Peel:

I have not clearly caught the question.

H.E. Ljubica Jelušič:

He asks about problems of why everybody looks at the defense budget as to something bad and why there are no projects that would connect different kinds of governmental sectors, which is actually good comment.

Quentin Peel:

Yes. Before your answer, the next question from the audience, please.

Question (Audience):

Speaking about industry both European and American, I was keenly aware of the fact that the capability we were talking about here in this conference really comes from industry. Governments tell us what they need and we are collectively trying to produce and deliver whatever military forces need. As the businessman, we are inclined to cooperate with every possible to make it done. Marshall, you have mentioned, there was a tendency for (because of the crisis) so many European businesses to be looking for the US market but I suggest we shouldn´t lose sight on fact that there was awfully lot of good news in transatlantic defense world. Last ten years we had cooperation, major program for NATO. We are looking all the time for other European partners so we can produce capability. The problem, generally speaking, is not the industry. Lots of times it´s a power of government and its needs we have to deal with here. I have one example of how we helped with European partners, company we were working with in Norway. They have made weapon, we are able to introduce it to US army. If there is a good European product, we can bring it to the US. I would like to ask whether you had the similar experience as you were the assistant of Secretary General.

I would like to ask a question as regards common funding. We have heard this morning that there are many opportunities to improve common funding. I would like to hear, if you think that there is a lot of urge in this area and also a political will to put the funds together. The nations have to increase financial contribution to the common funds and then we can have it commonly funded. Are we ready to trust this round of bureaucracy and is there a will to increase fund of these commonly fund projects?

Question (Audience):

It seems to me that there is a gap between capability and budget between the states and European partners and I´m also convinced that strategic dynamics can´t be maneuvered down with technical maneuvers. Don´t we have to think in strategic dimension because I think that readiness to spend money for military purposes is linked very much to coalition between immediate threat for a country and their model. And therefore we probably will have to improve both sides. How responsible can Europe become in security on its own continent, in security development of Europe and the second that maybe relates to public, is an energy question because people need to understand there is a purpose behind it.

Question (Audience):

Minister, you can pick up the question from Budapest.

H.E. Ljubica Jelušič:

Thank you. I think that student was very right. There is the question of legitimacy of defense budget. We probably are not able to promote what for are the expenditures in our defense budget. For example when we are investing in research and development, it means that we actually support public institutes and it means that defense spending is also very useful for issues that are not for first use of military or of defense needs for example. We are also forgetting to speak about dual use of capabilities that we do have in defense sector and may be used also for civil protection and rescue needs in disastrous relief situations. Sometimes we should show to our people more that military capabilities can be used really usefully in such a kind of operations.

There was a good question from our colleague here in audience how to restructure our defense budget in a best way. To address this question to NATO research capabilities, we have at least two big programs within NATO, it´s research technology organization and science for peace program, in which we can ask for help in this regard.

The next thing we must mention and to follow doctor Faslaben´s comment, problem of Europe is when we never must think about operations and conflicts out of Europe, that not all the problems which we do have within Europe are yet solved. We still have problems in the Balkans, our story with Bosnia and Herzegovina and in Kosovo is not yet finished. Sometimes people are more ready to invest the money and also political will to change situation within Europe into more peaceful and more stable that is serious problem just in front of our eyes which must be solved.

Quentin Peel:

Would you like to pick up common funding?

H.E. Ljubica Jelušič:

This question connected three different problems – common funding, political will and trust. If we are not ready to increase the investment part of the budget within our Nations states, I´m not sure that we will be ready to invest these resources into something that is internationally based – that is actually our first problem. We should also work on international political trust to each other and then to think about common projects, common funding. Sometimes we start with common projects and then we are looking for political will that would support these projects. At first there is a need of regional initiatives for common funding or common projects.

Quentin Peel:

Peter, do you see perhaps Marshall´s stuck picture of spending going to America. It´s too stuck because you have very good example of joined that´s going very well for very large contract to Germany.  

Peter Blaschke:

It is not just cooperation with IBM in this project, we are also using many products from US and we have strong partners from there such as Microsoft, so of course in this situation we are the provider and we have the responsibility, but we use products we have on the market and even if it is US product, it´s fine.