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Conventional wisdom expects that reductions in spending decline national military capacity. Only an aggregated decline in military capacity derived from reductions in both its indicators potentially implies a detrimental intent behind the observed reductions. Evidence of an aggregated or disaggregated increase in key indicators of military capacity implies potentially non-detrimental relationship between defense spending cuts and military capacity. I find that 70% of DSCP’s related to an aggregated decline in military capacity. This does not, however, necessarily mean that cuts occurred in both military manpower and equipment. Only in 46.7% of the 30 DSCP’s did the aggregated decline in military capacity result from a decline in both military manpower and equipment stock (Table 1).

Table 1. – Change in Aggregate Military Capacity over Defense Spending Cut Period (DSCP)

DSCP Country Period % Change

Equipment Manpower % Change Aggregate Change in Military Capacity 1 Denmark 2010-2012 -76.6% -29.9% Decline 2 France 2008-2012 -13.7% -6.4% Decline 3 Germany 2004-2006 -2.2% 0.0% Decline 4 Greece 2008-2011 -3.5% -11.3% Decline 5 Italy 2004-2006 -17.0% -1.5% Decline 6 Italy 2007-2010 +2.8% +53.4% Increase 7 Netherlands 2008-2012 -9.0% -18.1% Decline 8 Portugal 2002-2004 -6.4% +3.0% Decline 9 Portugal 2008-2012 -10.1% -0.6% Decline 10 Spain 2008-2012 -4.8% -4.1% Decline

11 United Kingdom 2007-2009 +9.1% -16.1% Decline

12 Czech Republic 2008-2012 -40.1% +10.1% Decline

13 Hungary 2003-2006 -57.4% -3.3% Decline 14 Hungary 2008-2012 -61.2% -30.1% Decline 15 Austria 2003-2005 -8.5% +15.3% Increase 16 Austria 2007-2010 -6.5% -31.1% Decline 17 Ireland 2008-2011 -3.6% 0.0% Decline 18 Sweden 2007-2009 +40% -38.8% Increase 19 Bulgaria 2008-2012 -58.0% -23.1% Decline

52 20 Cyprus 2000-2002 +21.1% 0.0% Increase 21 Cyprus 2010-2012 -25.7% +19.4% Decline 22 Estonia 2008-2010 +15.3% +15.9% Increase 23 Latvia 2008-2010 +7.1% +0.9% Increase 24 Lithuania 2003-2005 +0.1% -36.1% Decline 25 Lithuania 2008-2010 +0.6% +6.4% Increase

26 Malta 2003-2007 +na 0.0% Increase

27 Malta 2009-2012 +11.1% -24.8% Decline

28 Romania 2008-2010 -8.8% -1.2% Decline

29 Slovakia 2008-2012 -37.4% -7.8% Decline

30 Slovenia 2008-2012 -17.1% +27.2% Increase

Therefore, most observations challenge the conventionally expected decline in military capacity. In 53.3% of the 30 DSCP’s, declining defense spending related to increases in both or one of the military capacity indicators. As many as 30% of all cut periods directly challenge conventional expectations about how cuts in defense spending relate to military capacity: declining defense spending resulted in an aggregated increase in military capacity. In additional 23.3% of all defense spending cuts, increases one key indicator were obscured by aggregated decline in military capacity: the increase in one indicator failed to overcome the decline in the other indicator of military capacity (Table 2).

Table 2. – Relationship between Military Spending and Military Capacity Change in Aggregate Military Capacity: Conventional

Expectations _{(30 DSCP)} Total

Decline (Both Indicators) Confirmed 46.7%

Decline (One Indicator but not the Other) Disconfirmed 23.3%

Increase (Both Indicators) Disconfirmed 13.3%

Increase (One Indicator) Disconfirmed 17.7%

These findings illustrate that DSCP’s potentially affect individual indicators of military capacity differently. I find that military capacity outcomes resulted from changes in military

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equipment stock about twice as often as from changes in manpower. In 66.7% of DSCP’s reductions in military equipment related to an aggregated decline in military capacity. In 56% of the cases, a rise in equipment stock led to an aggregated increase in military capacity. Declining manpower led to an aggregated decline in military capacity in 28.6% of the cut periods. This finding compares to 22.2% of DSCP’s in which aggregated increase in military capacity was driven by an increase in military manpower (Figure 1.A).

Furthermore, the analysis of the size of defense spending cuts and change in military capacity challenges linear assumptions about direct proportionality. I find that smaller cuts in military expenditure can be more damaging to military capacity than larger cuts. Large cuts in defense spending (over 50%) increased military capacity about twice as often as did minimal spending reductions (below 15%). Small cuts (below 25%) declined aggregated military capacity about 16% more frequently than did large spending reductions (Table 3).151

Although counterintuitive, these relationships are plausible. Deep cuts in aggregate defense spending can result from reduced operational expenditures as countries withdraw their

military forces from operations abroad.152 _{Reduced spending on operations does not have to}

151 _{Relative the pre-2008 period, the size of cut in defense spending was leveled as a predictor of military capacity}

decline after 2008: all types of cuts resulted in an aggregate decline in military capacity. Cuts larger than 25% meant an aggregate military capacity decline about 32% more often than an aggregate increase. However, even in the post-2008 period, less defense money sometimes led to military capacity increase: over a quarter of the defense spending cut periods related to an aggregate increase in military capacity.

152 _{Decrease in operational readiness or conflict drawdown provide potential explanations for these cuts but I}

could not effectively control for them in the empirical portion of the analysis. To my knowledge operational expenditures for the 27 European states are either unavailable or limited. NATO source on financial and economic data related to NATO defense refers to defense spending categories that do not directly identify operational expenditures. These categories relate to percent of defense spending devoted to personnel, equipment, infrastructure, and ‘other.’ EDA’s data on national defense expenditures begin reporting on ‘Operation Costs’ only in 2006, accounting for less than half of the biannual differentials between 2000 and 2012. Regarding crisis drawdown, I explore patterns of foreign deployment of military forces in Chapter 6 on buck- passing. Where possible, issues of operational expenditures and crisis drawdown are addressed in case studies.

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significantly diminish states’ existing military force structures or equipment stock: when a fraction of the savings from diminishing operations is invested in military equipment acquisition, aggregated equipment stock can increase despite a large cut in defense spending. Large reductions in defense spending related to small changes in military capacity can mean that cuts in spending affected other aspects of the defense sector, rather than manpower or equipment. For example, primarily under pressure from austerity measures after the 2008 global financial crisis, Slovakia decided to reduce all non-essential expenditures to prevent significant cuts in manpower and essential equipment.

Table 3. – Size of Spending Cuts and Military Capacity Outcomes Size of Defense

Spending Cuts during DSCP

Aggregate Decline in

Military Capacity Aggregate Increase in Military Capacity

Large Cuts 10.0% 6.7% Medium Cuts 33.3% 20.0% Small Cuts 13.3% - Minimal Cuts 13.3% 3.3% Post-2008 DSCP Large Cuts 13.6% 4.5% Medium Cuts 45.5% 22.7% Small Cuts 9.1% - Minimal Cuts 4.5% - Pre-2008 DSCP Large Cuts - 12.5% Medium Cuts - 12.5% Small Cuts 25.0% - Minimal Cuts 37.5% 12.5%

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VII. Case Selection

Out of the 46.7% of cases in which defense spending cuts relate to a decline in military equipment and manpower, Ireland appears to be a crucial case153 _{in support of the assumption}

that a decline in military spending is detrimental to military capacity. There are two strategic reasons for why the aggregated decline in military capacity is most likely detrimental. First, Ireland is strategically neutral and decisions to deploy military personnel abroad are subject to a Triple Lock mechanism and UN mandate. Therefore, incentives for military modernization in the context of expeditionary operations appear to be relatively weak. Second, Ireland is not a NATO member. Therefore, even the small reductions in military capacity make a more convincing case of detrimental cuts in military capacity than do for example large reductions in central European states. Theoretically, the latter could be a function of defense transformation to NATO standards rather than detrimental cuts in military capacity.