The Untold Story – Arms imports and the Greek debt crisis

Last week I went to a talk by Czech Prime Minister Petr Nečas at LSE in which he made the usual grim diagnosis about the debt crisis in Greece. The country was in dire need of structural reforms, he said, both to its economy and society. Leaders across the continent have been making similar criticisms, with Sarkozy and Merkel warning the Greek government last month that it wouldn’t receive new bailout funds unless it fully implemented austerity measures. And despite the significant debt swap agreed on today, any EU bail-out remains conditional on the country implementing a further round of budget cuts. Yet one area of the Greek budget doesn’t seem to have received such scrutiny, its huge military spending. The reason is simple, France and Germany still account for the vast majority of arms sales to Greece.

Admittedly, Greek military spending has been reduced massively over the last few years, although not nearly as much as government expenditure on healthcare, pensions or social welfare. However it still spends the most in the EU as a percentage of GDP, and remains one of the biggest weapons importers in the world. Moreover, in 2010 when the first bail-out package was being negotiated, the Greeks spent €7.1bn on its military, compared with €6.24bn in 2007. £1 billion was spent on French and German weapons, plunging it even further into debt. Many suspect that this is no co-incidence, and that the rescue package was explicitly tied to burgeoning arms deals. In particular, there is evidence of pressure from France to buy six frigates, whilst Germany was content to sell off some faulty submarines.

The fact that Greece, a relatively small and democratic country with not much in the way of global ambitions, should spend so much on its military is fairly perplexing. In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. It has a standing army of 156,000 men, more than the UK which has 6 times its population, and still has a compulsory military service of 9 months. Over the last 10 years its military budget has stood at 4% of GDP, over $1500 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent 1.7% like a typical EU country over the last 20 years, it would have saved 52% of its GDP – meaning instead of being completely bankrupt it would be one of fairly average countries struggling with the recession.

Of course, the supposed threat from Turkey is always used as a justification by Greece for its profligate arms spending. However, this argument just doesn’t hold up on several grounds. Firstly, both countries are part of NATO and share a number of mutual allies, not least the US, and so all-out war between the two is highly unlikely to occur. Secondly, Turkey has proposed on several occasions a mutual reduction in arms spending, something Greece has repeatedly refused to do. Finally, despite all this relations between the two countries have markedly improved in recent years, making such a massive military build up seem even more unnecessary. All Greece’s military spending seems to achieve is antagonise the situation and goad Turkey into an arms race.  So why has Greece continued to spend such huge amounts on its army? It’s not altogether clear, although it may well be due to populist pressure on the previous right-wing government not to appear soft in the ongoing tensions with Turkey over Cyprus.

What is certain is that the French and German arms industries have gained a lot from Greece’s extravagant spending. In the five years up to 2010, Greece purchased more of Germany’s arms exports than any other country, buying 15 per cent of its weapons. Over the same period, Greece was the third-largest customer for France’s military exports, and its top buyer in Europe, with 12 per cent. The Netherlands also has been a significant exporter. However, the US is perhaps the biggest beneficiary, accounting on average for 40% for Greek imports, and has been known to intervene in military spending decisions. In addition, with each new new fighter plane or battleship sold creating yet more sales to regional rival Turkey, it is easy to see why Greece has made such a lucrative market.

In the current context, it is easy to blame all Greece’s troubles on its problems with corruption, tax evasion and its oversized state sector. These are all undeniable issues which no doubt require significant ‘structural reforms.’ Yet, arms imports aside, is Greece really that different from Spain or Portugal, countries also in dire straits but not standing on the brink of collapse? I cannot help but speculate that if Greece’s military spending had been reined in sooner, at the expense of the French and German arms industries, we might not be facing the crisis we are now. And the Greek people, instead of facing austerity measures which have reduced living standards by 30%, might have been able to take a more moderate and sustainable route to reform.

Edited version published in The Guardian, 21st March 2012