A Diminishing Transatlantic Partnership?

The Impact of the Financial Crisis on European Defense and Foreign Assistance Capabilities

Over the past five decades, the United States, its NATO allies, and other European Union countries have been partners in maintaining transatlantic security and leading contributors to international stability and economic development. This report assesses the impact of the global financial crisis, and the subsequent European recession and sovereign debt crisis, on Europe’s ability to sustain its valuable contributions to this partnership. It concludes that as the ongoing economic and political crisis deepens, Europe is likely to be a less capable, less willing, and less interested partner in those endeavors.

The report examines the already significant and growing transatlantic imbalance of defense efforts and capabilities and cautions that the de facto division of labor that is emerging, where the United States takes on hard-power missions and Europe opts for soft-power tasks, will have a corrosive effect on the transatlantic relationship. Moreover, the analysis concludes that the economic crisis is likely to result in a significant contraction of European soft power as official development assistance budgets come under pressure from governmental austerity measures.

The report is divided into five chapters. It begins with a review of the evolution of the current economic and political context and a survey of major economic forecasts for Europe, as well as an assessment of the impact of these trends on the European Union. Chapter 2 offers an analysis of European foreign assistance budgets. The next two chapters explore the impact of economic trends on European military spending and capabilities and on defense industry. The last chapter considers the broader implications of these trends for the transatlantic partnership and ways to mitigate the effects of economic constraints in the European and transatlantic contexts.