This week, NATO defence ministers are meeting in Bratislava for their thrice-annual regular meeting. Topping the agenda will be a discussion about the current status of Allied defence capabilities – specifically, the need to improve and invest in such capabilities. The discussion comes in the midst of NATO’s ongoing operations in Afghanistan and Kosovo, and on the heels of the Obama administration’s decision to largely retool and resize America’s ballistic missile defence system in Europe – a decision that has reenergized the debate in Central and Eastern Europe as to whether more emphasis should be placed on procuring military capabilities to defend the territory of the newest Allied member states, or whether NATO members should continue procuring materials for expeditionary operations.

European defence spending, which has been on the decline for the past decade, has been hit hard with the now year-long global economic crisis – and the prognosis for wholesale recovery and increased spending in the next year is not all that encouraging. Some European defence budgets have been hit extremely hard. Most notably, Poland decided to scrap its entire FY09 defence procurement budget (nearly US $2 billion), while most of the Baltic and Balkan nations have dramatically cut their defence budgets – primarily in procurement – by 10 to 40 percent.

The UK has cut its defence budget in recent years, and the possibility of a larger cut in the foreseeable future cannot be ruled. For a country that is the second largest contributor to NATO’s campaign in Afghanistan, such a funding reduction could have serious consequences for Britain’s fighting forces. Other countries in the greater European-Eurasian theatre are being cautious in how they spend their current defence procurement monies, but have not yet made large-scale cuts to their defence budgets. For what it is worth, Norway did recently decide to increase its defence spending for the next few years.

As many Europe watchers have seen, this economic downturn is just the latest negative factor to impact defence spending among NATO and non-NATO members. Over the past decade, the average non-US NATO member defence budget was approximately 1.4% of GDP. This is in direct contravention of a pledge made by NATO defence ministers in 2002 (and repeated again in 2006) to spend a minimum of 2% of GDP per annum on defence. Factors such as diminished political willingness to deploy forces abroad (for fear of suffering casualties and the political consequences that would ensue), concerns about the financial costs of deploying far from a national logistics infrastructure, and the decreased importance of the defence ministerial portfolio in most European cabinets have together made for a general European defence posture that is largely risk-averse, expensive to operate, and lacking in key deployable enablers like helicopters, armored vehicles, UAVs, and common logistics platforms.

The US has for the last several years been pressing the Europeans to spend more on defence in order to modernize their forces and develop expeditionary capabilities. American pressure on its European allies for such spending increased when NATO took on increased responsibilities in Afghanistan under the ISAF mission. From 2003 to 2006, this pressure bore some fruit, albeit with varying degrees of intensity and funding among the NATO members.

Within the past two years, however, the costs of deploying increasing numbers of troops, materiel and enablers to Afghanistan have put a pinch on how modernization monies are being spent. (A tension has developed between ‘replacement’ costs for weapons, vehicles and systems being used in Iraq and Afghanistan, and ‘modernization’ costs for next-generation fighter aircraft, naval ship upgrades, and other expensive systems). The August 2008 war between Georgia and Russia spooked many Central and Eastern European allies into wondering whether NATO still had the military capability (and political will) to fulfill its Article 5 commitments to member states. This lack of faith in NATO’s collective ability to respond has resulted in many new allies turning to the US for bilateral security guarantees, as well as a move by some to consider refocussing defence procurement monies away from expeditionary items and back to more traditional territorial defence needs.

The defence environment is complicated and riddled with spending tensions and political challenges. However, NATO and non-NATO allies participating in the ISAF mission have declared at three successive NATO summits (in 2006, 2008 and 2009) that Afghanistan is the Alliance’s top operational priority. Since October 2006, when NATO assumed full responsibility for the security situation in Afghanistan, European force contributions have increased by more than 25 percent. No major European country has withdrawn from the ISAF mission, and none is likely to do so unless the US either outright ‘Americanizes’ the ISAF mission or abandons the mission altogether. Of course, one cannot rule out that a mass casualty incident (with ‘mass’ appearing to be defined simply as ‘more than one person’ in today’s post-Cold War European political psyche) could have the potential to bring down a European coalition government.

The fact that the EU continues to seek to develop its own robust defence capabilities also means that the 21 of 27 NATO member states that are also EU members will be under pressure to deliver on this EU initiative.

Critical systems and materiel are needed to continue to prosecute the ISAF campaign, as well as to modernize legacy systems and build up territorial defences. In this period where defence budgets are likely to stay underfunded – at best, flat – it is imperative that allies look for ways to make their defence spending more efficient, and also ways to spend their monies more creatively. Such creative expenditures may include investing in common platforms with pooled monies – as was done successfully with NATO’s Strategic Airlift Consortium, where 15 allies and Sweden commonly procured three C-17s for national, NATO and EU purposes. Allies must ensure that their armed forces have the capabilities necessary to achieve the Alliance’s objectives in Afghanistan and Kosovo, defend NATO’s territory from both conventional and non-conventional threats, and continue to ensure that the Article 5 guarantee is an executable deterrent – not a hollow guarantee. This cannot and should not be done on the cheap.

Daniel P. Fata is Vice President at the Cohen Group in Washington, DC, a non-resident transatlantic fellow at the German Marshall Fund of the US, and on the Advisory Council of Global Brief. He served as the US Deputy Assistant Secretary of Defence for Europe and NATO Policy from September 2005 to September 2008.