Europe’s guns, debt and corruption

Frank Slijper, “Europe’s guns, debt and corruption“, Open Democracy, 27 April 2013

As social infrastructure is being slashed throughout most of Europe, spending on weapon systems has hardly been reduced. Perversely, military lobbyists warn of ‘disaster’ if any further cuts are made to military spending. But the real disaster has emerged from years of high military spending and corrupt arms deals. This second of two essays on military spending and the EU crisis, explores the role of the European arms trade, corruption and the role of arms exporting countries in fuelling a debt crisis, and why these ‘odious’ debts need to be written off.

Booming business

The arms industry has enormously profited from post-9/11 increases in military budgets. The hundred largest companies in the sector sold arms to the value of €318 billion in 2011, 51 per cent higher in real terms than in 2002, but 5 per cent down on 2010 – the first decline in sales since the mid-1990s!

This decline can be seen as a consequence of withdrawals from Afghanistan and Iraq, as well as the most recent cutbacks in the Global North. Long-running contracts and budget cycles had so far spared most procurement programmes. Both oil-rich and developing nations continue to be the primary focus of foreign arms sales activity by weapons suppliers, with Saudi Arabia and India the main recipients.

The global arms industry is dominated by western companies, with 44 of the 100 largest companies from the US, representing 60% per cent of their sales. Thirty EU-based companies make up another 29 per cent of the total. The five largest of them are BAE Systems, EADS, Finmeccanica, Thales and Safran.

All these companies have lobbyists working in Brussels, or else are represented through the AeroSpace and Defence Industries Association of Europe (ASD), the industry’s main lobbying arm. There are ample inducements for them to be active in Brussels: lobbying for a more robust EU military posture, more favourable legislation or access to EU research money. …

With regard to putting national interests over an ethical foreign policy, it appears nothing has been learned from the uproar over arms sales to dictators in countries such as Bahrain, Egypt, Libya, Syria and Yemen, when the Arab Spring broke out in 2011. In early 2013 French president François Hollande visited the United Arab Emirates (UAE) to push them to buy the Rafale fighter aircraft. This came after UK prime minister David Cameron had visited the UAE and Saudi Arabia in November 2012, to promote major arms deals. Such arms sales to controversial destinations are typically facilitated by government-guaranteed export credits.

Similarly there are no lessons learned from the major corruption scandals which  especially exposed the way deals are done – the BAE-Al Yamamah case being the most infamous one. EADS and Finmeccanica are currently under official investigation because of corruption allegations. The UK Serious Fraud Office is investigating corruption claims in a case relating to a £2 billion Saudi National Guard project run by an EADS branch. Finmeccanica is under official investigation because of corruption allegations over a €560 million helicopter deal with India by its AgustaWestland unit, which has already seen the arrest of the former chairman of the company.

But large arms deals and rampant corruption have also troubled European countries – especially those which now face the highest debts.

Greece: reckless military spending

Clearly, Greece is in deep crisis – financial, economic and social. The Greek national debt reached crisis levels in 2010, following which the country received a bailout loan package from the IMF and other EU countries, and also instituted government austerity measures. These have, of course, proved controversial and generated intense debate about what went wrong, who was responsible and how the dire situation could be retrieved.

The question of inflated military spending has loomed in the background, thrown into relief when the governments of lending countries – like Germany and France – are emphatic on the priority of settling outstanding bills with arms suppliers in their jurisdiction, while at the same time insisting on swingeing cuts in public spending and other austerity measures.

Greece has been Europe’s main military spender in relative terms for most of the past four decades, spending twice as much of its GDP on defence as the EU average, from an average 6 per cent in the 1970s and 1980s to 3 per cent in the first decade of this century. According to economist Angelos Philippides, if you could account for Greece’s decades of formidable military spending “there would be no debt at all”. …

The Greek military budget peaked in 2009 at €7.2 billion. Already in 2006 a high-level military official was quoted as saying: “Overspending in the last 10 years has resulted in the accumulation of excessive obligations for the financial servicing of the existing contracts, amounting to more than €9.5 billion”.

For Greece, longstanding tensions with Turkey over the Aegean Sea and Cyprus have provided the justification for high spending levels. Such justifications have lost most of their credibility since both are NATO members and tensions have greatly diminished.

In 2010 a Turkish diplomat said Turkey would reciprocate if the Greeks froze or cut defence procurement, at the same time criticising Germany and France for seeking to sell military equipment to Greece: “Even those countries that are trying to help Greece at this time of difficulty are offering to sell them new military equipment. Greece doesn’t need new tanks or missiles or submarines or fighter planes, neither does Turkey. It’s time to cut military expenditure throughout the world, but especially between Turkey and Greece. Neither Greece nor Turkey needs either German or French submarines.”

Later that year, Greek deputy prime minister Theodore Pangalos said that he felt “forced to buy weapons we do not need” and that the deals made him feel “national shame”. While France and Germany have always denied charges that they pushed their weapon deals with Athens as a precondition for participation in the financial rescue of the country, insiders confirm the pressure was real.

Prominent French Green MEP Daniel Cohn-Bendit recalled that while in Athens in 2010, then-prime minister George Papandreou told him that Berlin and Paris did not want Greece to slash military spending, as that would hurt contracts with French and German industry. These countries also insisted that Greece should use part of the first tranche of financial aid from the EU to pay for arms contracts. “If you really want to balance the budget in Greece, you have to attack the military budget”, said Cohn-Bendit. “The Greek problem is the military budget”. As an aide to Papandreou told Reuters:

“No one is saying ‘Buy our warships or we won’t bail you out.’ But the clear implication is that they will be more supportive if we do”.

The US and Germany have benefited especially from Greece’s decades of excessive military spending, together with France, the Netherlands and Russia. Among the more recent purchases from the US are Boeing Apache attack helicopters, Lockheed Martin F-16s and Raytheon’s Patriot air defence missile systems. In January 2013 the Greek government approved a €184 million deal to buy spare parts for its F-16s.

Greece also paid hard cash for big-ticket items from Germany: submarines, frigates and battle tanks. While Chancellor Angela Merkel told Greece “to do its homework” on debt reductions, “the military deals illustrate how Germany and other creditors have in some ways benefited from Greece’s profligacy, and how that is coming back to haunt them”, according to the Wall Street Journal. …

Italy: cuts in personnel, not procurement

The main target of Italy’s defence cuts is the number of personnel, with reductions proposed from the current 180,000 to 150,000 soldiers, including many senior officers; 30 per cent of the military bases will be closed over the next ten years. Under the proposals personnel costs should make up half of the budget, compared to the current 70 per cent, trying to safeguard equipment programmes as much as possible. Six new frigates, two submarines and a multirole support ship will be commissioned before 2020, besides new drones, helicopters and fighter jets for the navy.

The only seemingly significant cut in arms purchases concerns the prestigious Joint Strike Fighter (JSF) project, with the order reduced from 131 to 90 aircraft. However, the steeply increased costs of the project mean that this reduction is unlikely to save any money from the original budget of €15 billion. “My personal view is that we cannot afford to cut too much, because we still have a strong industrial base, and we think that base has to be supported”, told air force chief Giuseppe Bernardis. …

Spain: crippling debts, unneeded weapons

Spain’s 29 per cent increase in military expenditure between 2000 and 2008 was one of the biggest in western Europe. Spain initiated 19 military programmes from 2000 which “arguably lacked clear strategic justification”, according to SIPRI researcher Sam Perlo-Freeman. The recession means it faces major problems repaying a €26-30 billion debt to arms suppliers. As then-secretary of state for defence Constantino Méndez pointed out in 2010: “We should not have acquired systems that we are not going to use, for conflict situations that do not exist and, what is worse, with funds that we did not have then and we do not have now.”

Due to the deteriorating economic situation Spain reduced its military expenditure by 18 per cent between 2008 and 2011. With one per cent of its GDP spent on defence, Spain now has the third lowest percentage within NATO, after Luxembourg and Hungary. But it still faces huge problems in repaying debts for its unnecessary military programmes. In September 2012 the government arranged a special credit line to pay off €1.8 billion of outstanding debts to the arms industry accumulated over the previous two years. …

Germany greasing the wheels 

Corruption in the arms trade contributes roughly 40 per cent to all corruption in global transactions, according to SIPRI. “This corruption exacts a heavy toll on purchasing and selling countries, undermining democratic institutions of accountability and diverting valuable resources away from pressing social needs“, according to the think tank. Transparency International singles out Greece and Portugal, where “corruption is so deeply ingrained it poses a direct threat to democratic legitimacy and jeopardises economic recovery”. …

Two recent major corruption cases in Europe involve submarine sales to Greece and Portugal by the German Submarine consortium, including among others Ferrostaal.

In 2011, German prosecutors succeeded in convicting two former managers of Ferrostaal for paying €62 million in bribes to key Greek and Portuguese officials in connection with the submarine deals. Two former Ferrostaal managers were given quite lenient sentences, while Ferrostaal itself was fined €140 million for ‘obtaining an economic advantage’ through its two employees. …

“There’s a level of hypocrisy here that is hard to miss”, says Greek SIRYZA MP Dimitris Papadimoulis:

“Corruption in Greece is frequently singled out as a cause for waste but at the same time companies like Ferrostaal and Siemens are pioneers in the practice. A big part of our defence spending is bound up with bribes, black money that funds the [mainstream] political class in a nation where governments have got away with it by long playing on peoples’ fears.”

Read the full article here.