NATO's latest foe: lack of cash

Ask the deputy director of London's International Institute for Strategic Studies, Jonathan Alford, to list the main problems facing NATO, an dyou get one reply: "Money, money, and more money."

Ask a senior American diplomat stationed in Europe about money for NATO, and you get the warning, not for attribution, that this could be "the most contentious issue" ever between America and Europe. It's a sleeper of an issue that planners have just awakened to this fall.

The Soviet invasion of Afghanistan, the steady Soviet outspending of the US in defense throughout the 1970s and its acquisition of nuclear superiority in Europe, the threat to Mideast oil from the Iran-Iraq war, and the Soviet shadow over Poland have all stiffened NATO's resolve to get its armies in order.

But, ironically, domestic budget squeezes are sabotaging implementation of this resolve just at the moment when the need seems most urgent.

Thus, the US official request Nov. 4 for larger West GErman payments toward keeping US troops in Germany came at a particularly difficult time. For the Bonn government coalition was just reaching the conclusion that financial straits might force it to: delay procurement of Leopard 2 tanks, frigates, and Tornado fighter aircraft; scrap the projected French-German tank altogether; and probably increase NATO spending by only 1.75 percent next year, short the common NATO pledge to increase spending 3 percent annually between 1978 and 1986.

Britain also seems to be slipping below its 3 percent target, despite Prime Minister Thatcher's commitment to defense. It may have to reduce its army on the Rhine to cut costs, and its armed forces have just undergone the shock of a three-month moratorium on new defense contracts.

Things are hardly better in the rest of NATO. Belgium increased its defense spending by only 2.3 percent this past year. Denmark barely stayed even. Italy actually dropped 7.7 percent. The Netherlands will be down to a 1.5 percent increase next year.

The conspicuous exceptions to the general slump are the US (with a 4.3 percent defense increase t least planned for 1981), and NATO France, a NATO half-member, with an estimated increase of more than 3 percent.

Financial problems start with the obvious pressures of recession, inflation, and rising welfare costs. The Western economy is not doing well anywhere; even West Germany is expecting growth of only half a percent, at best, next year.

But defense problems are compounded by weapons costs that are rising much faster than general inflation, and by a coming shortage of recruits that will require higher military pay to attract soldiers away from civilian jobs.

The result, notes Colonel Alford, is that "you have to have a 6 to 7 percent increase in military budgets even to stand still." And the impossibility of achieving this gives him "a vision of the '80s that is very uncomfortable."

He explains: "For all countries, there are two very unpleasant facts of life: One is that the cost of equipment now is on the steep part of the exponential curve. I'm prepared to believe what the economists say, that the cost of equipment is in excess of other costs. So we are getting between 3 and 10 times increases in costs in generations of new equipment.

"In the British case I think about 40 percent of the defense budget is allocated to equipment. I think of that, two-thirds is allocated to new equipment. So you are only playing with roughly 25 percent of the defense budget. And if what you buy costs three times what you replace, it doesn't require a genius to see the results.

"The other curve -- manpower -- is going through the roof. Britain and the US have voluntary forces. You have to pay them well, or they go away. It's not as steep as the equipment curve, but it's rising in real terms, because you have to attract more people.

"Yet we all face a demographic problem by the 1990s. All of us will be faced with an 18-year-old cohort that is some 40 percent smaller. In Britain this means we will have to attract 1 in 8 instead of 1 in 12 to the armed forces. It's roughly the same for the [conscript West German] Bundeswehr. It's roughly the same for the American forces. So you are going to have to make military service relatively more attractive."

In West Germany, long the chief "paymaster" among the European members of NATO as well as in the European Community, the realization of the intransigent financial problems has hit home only in the past few weeks, as the month-old re-elected Social Democratic-Liberal government has drawn up its budget for next year. The realization thus coincides unfortunately with the new American request for more money from the Germans.

Both West German and US officials are reluctant to discuss details of the US request just presented to Defense Minister Hans Apel by US Ambassador Walter J. Stoessel after a year of preparation. Basically, however, it involves:

* Setting priorities among scattered past American requests for funding of everything from ammunition stocking to GI housing.

* Short-term programs, such as prepositioning of equipment for three US divisions earmarked for quick NATO reinforcement in case of war.

* Medium-term programs, such as shifting some American troops apparently from the less-vulnerable south where they are now concentrated to the more vulnerable north.

* Planning into the 21st century for "infrastructure" support for projected force and weapons levels.

US sources say there is no price tag on the list and that the cost of the total package can be determined only as the Americans and West Germans work out mutual priorities. The prospects, however, are that the West Germans will feel themselves unable to pay as much as the Us wants.

The next questin in everyone's thought is how a German failure to provide additional NATO funds might then affect US congressional appropriations for European defense.