Number 128, October 1997

**Costs of NATO Enlargement**

***Moderate and Affordable***

**by Richard L. Kugler**

**Conclusions**- NATO must pursue a sound defense program as it enlarges-not to prepare for a threat, but    to meet its peacetime preparedness standard. 
- DOD's cost estimate of $27-35 billion for all NATO enlargement measures through 2009    causes sticker shock to some, but it is moderate: only about 1% of NATO's total defense    spending. 
- This estimate is not low-sided or prone to major inflation. It is similar to the RAND    estimate, and lower than the CBO estimate because CBO embraced a higher threat and theory    of requirements. 
- The United States will not be carrying unfair burdens. Its expense may be no more than    $2 billion through 2009. The cost of stationing U.S. forces in Europe will not rise    appreciably. 

**The Cost Issue in the Enlargement Debate**

Cost has become an important factor in the NATO enlargement debate. It will influencethe Senate's vote on ratifying the admission of three new members in 1999-Poland, theCzech Republic, and Hungary. NATO's willingness to fund key defense measures willinfluence whether enlargement unfolds safely and effectively.

This *Strategic Forum* explains the costs of NATO enlargement in clear terms. *StrategicForum #129* by David C. Gompert addresses the benefits of a sound defense program. Thispaper focuses on seven key issues: - Why pay costs if no threat exists? 
- What is DOD's cost estimate and its rationale? 
- Is the cost affordable or excessive? 
- Is DOD's estimate accurate or vulnerable to inflation? 
- Is DOD's estimate lower than other estimates, and if so, why? 
- Will enlargement require bigger defense budgets? 
- Will the United States have to carry an unfair share of the burden?

**Why Pay Costs If No Threat Exists?**

The answer is that NATO needs strong defenses even though its new borders today face nomajor threat. NATO's "peacetime preparedness standard" needs smaller forces andbudgets than during the Cold War, but it is still demanding. As NATO enlarges, it mustavoid a two-tier alliance in which new members receive less security than old members.

Strong forces are required for peace support missions, minor crises, as well as otherinterventions. These forces will help build partnership relations with non-NATO powers,deter threats from emerging, and prevent destabilizing trends. Members must be assured oftheir security in the event relations with outside powers sour. NATO also needs to promotesound planning and integration. Members can decide upon defense efforts and multinationalinvolvements only if they are given a clear definition of NATO's commitments to theirsecurity. NATO must ensure that the forces of new and old members are sufficient both nowand for the future.

**What is DOD's Cost Estimate and Its Rationale?**

In February 1997, the Clinton Administration issued a study judging that the costs ofNATO enlargement will be $27-35 billion for the years 1997-2009. This is the cost facingthe entire alliance. The United States will pay only a small portion of it-perhaps no morethan $1.5-2.0 billion. The average annual cost will be $2.1-2.7 billion for NATO as awhole, and $150-200 million for the United States over the decade following accession. Theprimary reason for the low U.S. expense is that the United States already has paid thecost of developing forces for projection missions.

This DOD estimate is notional, but it was a product of a serious review that employedsound methods. It was prepared before NATO began assessing defense requirements forenlargement. It also was prepared in advance of validated cost data for some specifics.Its purpose is not to be definitive, but instead to gauge costs in approximate terms. Itis a starting point for designing NATO's defense relationships with new members. Doubtlessit will be refined as NATO develops better information.

It should be viewed as a basis for judging broad policy and strategy, not as precisetool for programming and budgeting.

DOD's estimate grows out of NATO's strategic concept and defense strategy. It presumesthat new members will take primary responsibility for their self-defense, and that NATO'scurrent members will provide necessary reinforcements. Because it judges that adequatelevels of combat forces already exist, it focuses on steps needed to make existing forcescapable of carrying out enlargement.

Some of these measures are already underway, and many arguably would be neededirrespective of enlargement. The DOD estimate divides costs into three categories:

**1. New Members' Military Restructuring.**This category costs $10-13 billionduring 1997-2009. It includes force structure adjustments and enhancements by new membersso that they improve their self-defense capability. It includes measures to upgrademodernization, readiness, and sustainment.

**2. NATO Regional Reinforcement Capabilities.** This category costs $8-10 billion.It deals with steps for upgrading NATO's capacity to deploy forces eastward in peace,crisis, and war. It includes measures to enhance deployability, logistics, andsustainment. It assumes a NATO reinforcement posture of four divisions and six fighterwings.

**3. Direct Enlargement Costs.** This category costs $9-12 billion. It includesmeasures directly tied to enlargement so that the forces of new members and old memberscan operate together. It includes such measures as improved C3I, infrastructure (e.g.,roads and rail), reception facilities, training sites, and storage areas.

This estimate is based on assumptions that first establish an "initialcapability" and culminate in a "mature capability" by 2009. It calculatesthat new members will pay $13.0-17.5 billion, the non-U.S. NATO members will pay$12.5-15.5 billion, and the United States, the remainder. Because this estimate includesonly enlargement-related measures, it does not include the larger defense preparationsthat all NATO countries will be pursuing. The costs for new members will consume 15%-25%of their future defense spending of $65-100 billion; the remainder will be used fornational programs.

This estimate is based on a "middle-ground" theory of requirements. It is notminimalist. It is not a bare-bones estimate aimed at minimizing costs at the expense ofnecessary capabilities. It does not reflect a high theory of requirements that acquiresall plausible capabilities. It is not threat-based, and it does not expect trouble withRussia. It reflects a normal NATO peacetime preparedness standard in which the goal is toacquire essential capabilities at an affordable price.

**Is the Cost Affordable or Excessive?**

To some, DOD's cost estimate of $27-35 billion causes sticker shock. Seen in a broaderperspective, it is moderate and affordable: - It is similar to the cost of normal defense departures of this type: e.g., a U.S. air    modernization program or defense of another region. 
- It imposes a high financial burden only on new members, who will gain big strategic    benefits. 
- For the West European members of NATO, it will cost only about 1% of the $2 trillion    that they will be spending on defense. 
- For the United States, it will cost only about one-tenth of 1% of DOD's future spending    of $3 trillion. The cost of stationing U.S. forces in Europe will not rise appreciably (by    my estimate 2-5 percent or less). 

Other comparisons reinforce the conclusion of moderate costs: - The cost of $27-35 billion for all of NATO is equal to the full expense of a single U.S.    active division or carrier battle group for a similar period. 
- The annual cost is about 30% of what the United States and NATO spend on military    construction, and 40% of their expense on family housing. 
- The cost is equal to what they spend on revolving accounts and management funds-small    accounts that fluctuate upward and downward. 

For the average citizen, the costs are affordable (see Table 1: A Comparison ofEnlargement Costs). For the average American, the annual cost is equal to the price of acandy bar. For a West European, it is equal to that of a McDonald's hamburger. For the CEEcitizen, the cost would pay for one dinner at a restaurant.

Given the immense strategic benefits of NATO enlargement, all are getting their money'sworth. Moreover, alliances save money. For all participants, NATO enlargement lowers thecost of integrating and defending the CEE region. If NATO does not enlarge, the costscould be double that of enlargement.

**Is DOD's Estimate Accurate or Vulnerable to Inflation?**

Can DOD's estimate be trusted as accurate? Is there a risk that DOD is underestimating?These questions are being asked because many previous defense programs became far moreexpensive as they unfolded. When the details are considered, the DOD estimate meritsconfidence-provided its underlying plan is not changed in a wholesale way.

The DOD estimate is based on judgments about more than 30 measures. No single measuredominates. If the true cost is radically different from the DOD estimate, it will occurbecause several measures are pulling in that direction, not just one measure. As a result,the primary determinant of costs is not the expense of individual items, but strategicdecisions about requirements.

The actual costs for each measure might prove to be different than DOD has estimated.This owes to potential variations in both costs and the measures themselves. For example,the cost of a single prepared airbase might be higher or lower than DOD estimated.Alternatively, NATO might decide to acquire fewer or more airbases. But unless thetotality of measures is greatly expanded or contracted, the final cost for the entire planlikely will be similar to the DOD estimate. Higher costs for some measures probably willbe balanced by lower costs for others. For example, acquisition of Patriot rather thanI-Hawk could elevate costs for air defense improvements, but pursuit of less-costlymeasures for airbases and other facilities could offset this increase. This up-and-downdynamic likely will keep the cost in the $27-35 billion range.

The actual costs will not be known until NATO's force planning process for enlargementis finalized. NATO may decide to trim or delay some of DOD's measures. Moreover, NATOdevelops cost estimates only for common-funded programs (e.g. infrastructure). Thesefactors may lower NATO's estimate, below the DOD estimate. The real issue is not thesenarrow costs, but instead costs for the entire defense program when it is complete.

When the dust settles, the costs could be somewhat lower than DOD has estimated. Thespecific needs of the three invitees might change, thus lowering the cost a little.Another reason is that some measures (e.g., reception facilities) may cost less thanestimated by DOD. Even so, the total cost could be far lower only if the major features ofDOD's estimate are scaled back sharply. This step is inadvisable because it could resultin a weakened effort that fails to meet future requirements.

The cost could rise above $35 billion, but the DOD estimate is vulnerable to major costinflation only if its theory of requirements is elevated far upwards. The DOD estimatedoes not develop new technologies, which can be a principal source of cost inflation.Costs could surge if NATO commits to a much larger reinforcement posture or if new membersbuy more expensive equipment than envisioned by DOD. Such measures could be needed if athreat emerges, but not in today's setting. NATO will be able to control costs, for theyare largely a product of strategic decisions.

**Is DOD's Estimate Lower Than Other Estimates?**

DOD's estimate is in the same ballpark as RAND's estimate. For the same defensestrategy, RAND estimated a cost of $30-52 billion. RAND's mid-point estimate of $42billion is higher than DOD's estimate primarily for a single reason. Whereas RAND costed aNATO reinforcement posture of five divisions and 10 wings (a typical U.S. force practice),DOD costed four divisions and six wings because this commitment reflects NATO's practice.Had RAND costed the DOD program, its estimate would have been $28-34 billion: virtuallyidentical to DOD's estimate.

The General Accounting Office (GAO) has assessed the DOD estimate and, despitequestioning specifics, pronounced its assumptions as reasonable. The Congressional BudgetOffice (CBO) tabled a higher estimate of about $125 billion, but the differences arereadily explained. About $30 billion of the difference owes to CBO's inclusion ofnew-member measures that DOD deemed as falling outside the NATO enlargement account. Theremaining difference owes to CBO's decision to embrace a higher theory of threats andrequirements. CBO costed a NATO reinforcement posture of 12 divisions and 12 wings, adifference of nearly $30 billion. CBO also included more robust measures for C3I systems,munitions, and facilities. To CBO, these measures make military sense. DOD's estimatejudges that they are not needed.

**Will Enlargement Require Bigger Defense Budgets?**

If the DOD estimate is carried out, new members will need to increase their defensespending in order to fund enlargement measures while also improving their forces. NATOmembership will allow them to downsize their currently large postures because they will bereceiving security guarantees. This downsizing will generate savings to help pay for manyenlargement measures. These countries need to increase their defense spending not onlybecause they are joining NATO, but because the quality of their forces has eroded inrecent years. If they do not gain membership in NATO, their defense budgets will need torise far faster. As they join NATO, economic recovery may allow higher spending withoutallocating greatly increased shares of GDP to defense.

NATO's current members can fund enlargement by increasing their defense budgets, orrepriori- tizing, or both. Increased spending avoids the need to pare defense assetselsewhere. Reprioritization is always painful, but the amount required to fund NATOenlargement is feasible-only about $1 billion annually split among all current members. 

If the West Europeans choose to reprioritize, they could trim spending on operationsand maintenance. Alternatively, retiring a few units would not compromise their security.

**Will the United States Have to Carry an Unfair Share of the Burden?**

The DOD commitment to defense of new members is one division and one fighter wing, orabout 25% of NATO's reinforcement posture. The DOD funding commitment of $1.5-2.0 billionis only about 10% of the expense for enlargement facing NATO's current members. The WestEuropeans and NATO's new members will be carrying the bulk of the burdens in forces andmoney.

The U.S. expense could rise if other NATO members fail to carry their fair share of theburden, or if the United States decides to aid new members by giving them securityassistance.

The U.S. costs could rise moderately and still be affordable. The United States willhave control over the expense. If it chooses to spend more, it will act because thestrategic benefits are worth the added costs, not because of circumstances beyond itscontrol.

**Summary**

The costs are moderate and, as Gompert argues, the benefits are compelling. To gainthese benefits, an appropriate set of defense measures must be implemented. NATO hascarried out many similar innovations before, but such efforts are never easy. Carefulmanagement and sustained political commitment will be needed. The outcome will influencethe enlargement's success.

Dr. Richard L. Kugler is a Distinguished Research Professor in INSS. He focuses on NATOand U.S. defense strategy and can be reached at (202) 685-2328.

The Strategic Forum provides summaries of work by members and guests of the Institutefor National Strategic Studies and the National Defense University faculty. These includereports of original research, synopses of seminars and conferences,the results ofunclassified war games, and digests of remarks by distinguished speakers.

Editor in Chief - Hans Binnendijk

Editor - Jonathan W. Pierce

**| Return to Top | Return toStrategic Forum Index | |**

*Return to NDU Homepage**INSS Homepage*