Potential Cost Efficiencies through Enhanced Military Collaboration in the European Union

Master's Thesis 2015 78 Pages

Economics - Finance


Table of contents


Table of contents

List of abbreviations

List of figures

List of tables

1 Introduction
1.1 Defense economics
1.1.1 Definition
1.1.2 History of Defense Economics
1.2 Relevance of the topic
1.2.1 Economic pressure for cooperation
1.2.2 Need for interoperability
1.2.3 Political levers
1.3 Research questions and structure
1.3.1 Research questions
1.3.2 Structure of the thesis

2 Data

3 Methodology
3.1 Comparative analysis
3.2 Semi-structured interviews

4 Country analyses
4.1 United Kingdom
4.2 French Republic
4.3 Federal Republic of Germany
4.4 Italian Republic
4.5 Existing initiatives and cooperative programs

5 Comparative analyses
5.1 Investments
5.1.1 Focus: European Defense Equipment Market (EDEM)
5.1.2 Further sources of investment savings
5.2 Personnel Expenses
5.2.1 Focus: Benchmarking of EU-US personnel expenses
5.2.2 Further sources of personnel savings
5.3 Operation & Maintenance of Equipment
5.3.1 Focus: Pooling and Sharing
5.3.2 Further sources of O&M savings
5.4 Infrastructure
5.4.1 Focus: EU Headquarters
5.4.2 Further sources of infrastructure savings

6 Results and discussion
6.1 Savings through military cooperation
6.2 Benchmarking with past research
6.3 Benchmarking with interviews
6.4 Limitations
6.5 Conclusion

7 Summary and Outlook




Defense budgets in Europe are under pressure since the financial crisis due to tight fiscal policy and rising equipment costs. An end to these trends is not in sight and military cooperation is seen as a potential solution to release the financial burden on defense and to enhance interoperability. To test the magnitude of these savings and to identify the main drivers, the author conducted a comparative analysis of past research on savings through military cooperation and subsequently tested the results with expert interviews. The analysis yielded that the UK, France, Germany and Italy can expect to save up to 20% of their combined defense expenditures through cooperation and that savings from personnel and investments are the most relevant. The expert interviews largely supported the results, but revealed that their implementation may be difficult due to political and organizational reasons.

Keywords: Military cooperation, European army, cost efficiency, defense economics

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1: Graphical representation of defense economics

Figure 2: Government debt in % of GDP

Figure 3: Comparison of military and economic development of EDA Member States

Figure 4: Augustine's "law" on cost increases

Figure 5: Thesis overview

Figure 6: Military expenditures of the UK (total and in % of GDP)

Figure 7: Military expenditures of the UK by cost type

Figure 8: Military and civilian personnel of the UK

Figure 9: Military expenditures of France (total and in % of GDP)

Figure 10: Military expenditures of France by cost type

Figure 11: Military and civilian personnel of France

Figure 12: Military expenditures of Germany (total and in % of GDP)

Figure 13: Military expenditures of Germany by cost type

Figure 14: Military and civilian personnel of Germany

Figure 15: Military expenditures of Italy (total and in % of GDP)

Figure 16: Military expenditures of Italy by cost type

Figure 17: Military and civilian personnel of Italy

Figure 18: Overview of investment savings potential of different studies

Figure 19: Personnel expenses and proportion of target countries and the US

Figure 20: Overview of personnel savings potential of different studies

Figure 21: Overview of O&M savings potential of different studies

Figure 22: Overview of infrastructure savings potential of different studies

Figure 23: Benchmarking of own findings with past research

Figure 24: Total military expenditure by region

Figure 25: Indexed military expenditures by region

List of tables

Table 1: Comparison of different sources of military data

Table 2: Overview of interviews

Table 3: Overview of R&D costs for combat aircraft programs

Table 4: Results of comparative analyses

Table 5: Overview of R&D costs for combat aircraft programs

Table 6: Overview of the largest European defense companies

Table 7: Savings from benchmarking of EU-US personnel expenses

Table 8: Calculation for adjustments of Briani (2013)

1 Introduction

1.1 Defense economics

This thesis is part of the research field of defense economics. Before going into detail on the relevance of the topic, it is important to understand the mechanics and the history of the framework that it is embedded in.

1.1.1 Definition

Throughout the past, defense economics has experienced different definitions but their common ground is the intersection of economics and political science (see Figure 1 below).

Figure 1: Graphical representation of defense economics[2]

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In 1984, Kanter stated that “defense economics includes those issues in which defense interacts with the economy: with the activities involved in the production, distribution, and consumption of goods and services, as well as the determination of total output and employment.”[3] According to Sandler and Hartley, two main contributors to research in this field, „defense economics applies the tools of economics to the study of defense and defense related issues including defense policies and industries, conflict, arms races, disarmament, conversion, peacekeeping, insurgencies, civil wars, and terrorism.“[4] Later, Hartley argued that “a starting point in the economics of defence focuses on the classic choice between guns and butter, or between defence and social welfare spending.”[5] This means that, because of opportunity costs, even goods and services outside the world of defense have to be taken into account.[6]

Thus, the field goes beyond allocating scarce resources, maximizing utility functions and responding to incentives in the light of a military context. It also involves sub-disciplines such as game theory (e.g. by explaining arms races through the Prisoners Dilemma), public economics (e.g. by conceiving defense as a public good), macroeconomics (e.g. peace dividend after the end of World War II or the Cold War), microeconomics (e.g. monopolies of national armaments manufacturer for their national governments), public choice, public procurement, regional economics, and many more. Furthermore, defense economics overlaps with numerous other disciplines: Scientists who are developing new technologies, engineers that are constructing weapon systems, politicians in national ministries or diplomats on the stage of international relations to name a few. To understand the evolvement and the current interests of this research field, it is inevitable to look at its past.

1.1.2 History of Defense Economics

Defense economics is thought to be a relatively new field of research.[7] But already Adam Smith has discussed ideas of defense economics in The Wealth of Nations in 1776:

“The first duty of the sovereign, therefore, that of defending the society from the violence and injustice of other independent societies, grows gradually more and more expensive, as the society advances in civilization. The military force of the society, which originally cost the sovereign no expense, either in time of peace, or in time of war, must, in the progress of improvement, first be maintained by him in time of war, and afterwards even in time of peace.”[8]

A few decades later, David Ricardo reflected on the cost of wars and its effects on trade.[9] Then, despite of or because of the two World Wars, the topic remained rather untouched by economists and among one of the first scientific publications was “The economics of defense in the nuclear age” by Hitch and McKean in 1960. The authors analyzed the quantity and efficiency of national resources allocated to defense departments and constructed more efficient uses for them.[10] A few years later, Williamson examined the incentives of “defense contractors and government contracting agencies in negotiating and executing defense contracts”[11] by formalizing relations and decisions in a mathematical model.[12] In 1974, Keith Hartley has detected some major issues that have remained unsolved until today: What is “the 'appropriate' size of the defence[13] budget and whether increases in defence expenditure are worth the extra costs”?[14] That “there are no private markets to establish the price of the industry's 'output'”[15] and the difficulty to link inputs to outputs.[16] In 1980, Hartley used the purchase of several Trident submarines by the British government as an opportunity to describe the trade-offs that governments and defense ministries face when allocating scarce resources to procurement programs[17]. Since the 1970s, researchers have focused on the relationship between defense expenditures and economic development.[18] This has remained of interest until today.[19] In 1984, Kanter, whose definition of defense economics we saw earlier, was the first one to take a historic perspective on defense economics by going back as far as 1776.[20] He was using insights from history to better evaluate the plans of the Reagan administration to substantially increase the defense budget.[21] In a qualitative work, Shubik and Verkerke analyzed five different scenarios of international conflicts[22] and contributed to fundamental research by discussing inherent measurement problems, coordination problems and special problems of nuclear war.[23]

The end of the Cold War marked a turning point for defense economics and researchers have been focusing on new topics such as the economics of terrorism, arms trade and peace-keeping, too.[24] Furthermore, the North Atlantic Treaty Organization (NATO) has admitted several new members, the European Union has developed a Common Security and Defence Policy (CSDP) and the military budgets, as is to be demonstrated in subchapter 1.2, are under pressure due to the 2008 financial crisis.[25] Especially with the creation of the journal of Defence Economics in 1990 and its successor, the journal of Defence and Peace Economics in 1995, Keith Hartley and Todd Sandler have widely contributed to a platform of increasing scientific interest. Starting with four issues a year and increasing it to six in 2000, over 380 articles have been published within the last 10 years (yielding almost three articles every month).[26] Already “in late 2006, the typical lag between acceptance of a paper and its publication was about 12 months”[27], which is a clear sign of the journal’s popularity.

Today, “defence economics has [...] developed into a distinctive and academically respectable part of the discipline of economics.”[28] In the future, the world will remain a dangerous place with new conflicts, new threats and new implications for military policy and there is not going to be a “shortage of challenging questions requiring the attention of future generations of economists.”[29] Unfortunately, “the field of defence economics has attracted relatively few economists willing to apply their “tool kit” to the defence sector”[30] which reinforces the importance of this work in the domain of defense economics. Having understood the framework of defense economics facilitates the analysis of current developments in military cooperation (see next subchapter).

1.2 Relevance of the topic

On March 8th 2015, Jean-Claude Juncker, Head of the European Commission, advocated the idea of a European Army in an interview with the German newspaper “Die Welt”[31]. Apart from economic aspects, he argues that “such an army would help us to build a common foreign and national security policy, and to collectively take on Europe's responsibilities in the world.” Representatives of the British Defence Ministry, who continuously regard defense as a national responsibility, strongly opposed the idea,[32] whereas German politicians supported Juncker.[33] The idea is based on (1) an economic, (2) a functional and (3) a political need for an enhanced military cooperation, all of which is explained in greater detail subsequently.

1.2.1 Economic pressure for cooperation

Economically, the idea of a European Army may be sound, because public households in Europe are under pressure since the financial crisis of 2007/08 and the European debt crisis of 2011/12. Increasing debt levels (see Figure 2) force governments to reduce their expenditures in all governmental departments. Naturally, this has a substantial impact on military budgets, too, as numerous papers and reports have shown.[34]

Figure 2: Government debt in % of GDP[35]

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Overall, military budgets in Western Europe have barely increased since the end of the Cold War and (Western) Europe starts to fall behind other regions such as Asia and Oceania.[36] [37] The Stockholm International Peace Research Institute (SIPRI) has found similar trends.[38] From 2006 to 2013 most European countries have either reduced their defense budgets or the budgets have increased less than the overall economy. Other studies have widely covered these phenomena.[39] Figure 3 below shows that the effect is particularly applicable for countries with large defense budgets (France, Italy, Spain and UK) as they are in the top left box of the figure.

Figure 3: Comparison of military and economic development of EDA Member States[40]

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Note: (1) Only EDA Member States with military expenditures greater than €700m in 2013 were taken into account, (2) Bubble sizes represent military expenditures in 2013

This trend will persist for several years because it is estimated that until 2020 all EU Member States together will spend only €147bn to €195bn on their defense budgets.[41] This represents a change of -23% to +3% compared to today’s expenditures of €190bn. To conclude, budgets have fallen significantly in the past and an end to this trend is not in sight.

At the same time, costs for military equipment have exploded. Augustine’s “law” (after Norman Ralph Augustine, former Chairman and CEO of Lockheed Martin) describes how each new generation of combat aircrafts is substantially more expensive than the previous one (see Figure 4 below).

Figure 4: Augustine's "law" on cost increases[42]

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Ironically, Augustine synthesized:

“In the year 2054, the entire defence budget will purchase just one aircraft. This aircraft will have to be shared by the Air Force and Navy 3½ days each per week except for leap year, when it will be made available to the Marines for the extra day.”[43]

Augustine’s “law” is confirmed by Kirkpatrick who argues that the “real unit production cost of tactical combat aircrafts has been growing at about 10% per annum.”[44] This would imply a doubling of production costs every 7 years. Similar growth rates also apply to “submarines, frigates, attack helicopters and self-propelled artillery.”[45] Hartley confirmed these estimates, too.[46] Other studies of Hartley have found annual cost increases of 4%[47] and other researchers have also found lower rates than Kirkpatrick.[48] But what are the reasons behind this increase in cost? Better (and thus more expensive) technology is needed to “match or exceed the performance of equipment deployed by potentially hostile nations.”[49] Moreover, complex prototypes, well-trained personnel and sophisticated test equipment are needed[50] and also governments themselves drive up costs:

“Such are the ingredients for a spiral of cost and delay: technological stumbles hold up development; delay raises costs; governments postpone work further to avoid busting yearly budgets, incurring greater long-term costs. With time, technology becomes outdated, so weapons must be redesigned, giving the top brass a chance to tinker endlessly with requirements. In the end, governments cut the size of the purchase, so driving up unit costs further.”[51]

Two other examples for cost increases can be found in the French military. Researchers from the Institut francais des relations internationals (IFRI) in Paris have found out that France has to pay eight times more to use the helicopter Tigre for one hour compared with the Gazelle[52] and eight times more (again on an hourly basis) to use the infantry fighting vehicle VBCI compared with the older AMX-10P.[53] Overall, these trends are unlikely to stop in the foreseeable future.[54] In sum, there is a double pressure of sinking budgets and rising equipment costs which Hartley has coined “the defence economics problem.”[55] This will force European Defense Ministries to reduce military capabilities or to engage in a closer cooperation with their partners. The latter would also increase their interoperability.

1.2.2 Need for interoperability

Beyond economic reasons, EU Member States have a strong need for interoperability. In the context of defense, interoperability is defined by how efficient and effective military forces of different countries can work together. The ability to conduct operations arises from two levels: In the “armament phase”, new equipment is created through research and development (R&D), tests and production.[56] In the delivery phase, planning, organization and deployment of troops and equipment ensure the accomplishment of a mission.[57] Interoperability is important, because in the future no state will be able to conduct military missions without partners.[58] Having partners, interoperability is not self-evident as the intervention in Kosovo in 1999[59] and the Operation Unified Protector in Libya in 2011 have shown.[60] In the latter case, the two best-equipped military powers in Europe (i.e. the UK and France) heavily relied on US support “to get the job done”.[61] Other researchers even claimed that 90% of the military activities in Libya would not have been possible without the help of Washington.[62] Even today, interoperability is in need of improvement.

Yet today, the Defense and Industrial Base (DIB) still operates mainly on a national level which results in an explosion of varieties for equipment in Europe.[63] This is both inefficient and inhibiting the delivery phase of multinational operations as the equipment is often incompatible.[64] But there are also positive examples of interoperability in Europe such as the EU Battlegroups (BGs), air-to-air refueling (AAR) or Strategic Airlift Capability (SAC). In summary, military cooperation may not only be imperative from an economic perspective but it also increases interoperability and thus the capability to conduct missions successfully. Such missions might even become more frequent as Europe continues to gain political weight on the international stage.

1.2.3 Political levers

Politically, increased military cooperation will improve the negotiating power of Europe internationally and it will allow Europe “to collectively take on Europe's responsibilities in the world.”[65] On the one hand, European countries are risking their sovereignty if military capabilities continue to decline, as Jeanine Hennis-Plasschaert, Defense Minister of the Netherlands, has pointed out at the 2013 Munich Security Conference (MSC):

“The question we have to ask ourselves is, should we really fear the loss of sovereignty? Or should we define the concept of sovereignty in a less traditional way?”[66]

This proposes that sovereignty should not be understood any longer as the autonomy (not) to act but rather as the impact that military actions will generate. Individually creating military impact is currently impossible because no country is currently able to deploy more than 8% of their troops (with an average of 3.4% among all member states of the EDA).[67] In this sense, Thomas Enders, CEO of Airbus Group and Antoine Bouvier, CEO of MBDA have stressed the term “strategic autonomy” meaning “first and foremost assuring freedom of action, i.e. owning the capabilities to effectively conduct military operations, with the ability to make full autonomous use of such capabilities, including the capacity to operate, maintain and upgrade them without recourse to third parties.”[68] In a very pessimistic paper, Mölling even believes that the EU Member States will lose a part of their sovereignty anyway, no matter which path they choose for the future.[69] On the other hand, EU Member States are reluctant to create dependencies on other countries in the EU, for instance by specializing on certain military capabilities and sharing those with their partners.[70] In interviews with EU government officials, Valasek has learnt for example about the fear “that they do not trust their partners to always bring their ‘niche’ forces to the battlefield when they are required.”[71] Moreover, there are concerns of free-riding “like the ability to use advanced training grounds, without contributing much in return”[72] or the restrict access to the full capabilities of foreign technology.[73] Overall, my own interviews have affirmed the fundamental concerns about the loss of sovereignty associated with a too deep cooperation.[74]

To conclude this introduction, the European countries face above all an economic but also a functional and a political need to cooperate. If member states cannot spend more money on defense, they can at least spend it more efficiently. Yet, it is not clear if cooperation can solve the economic imperative at all. And if yes, in which areas is cooperation most efficient and how is it implemented? To put it differently: If EU Member States would decide to intensify their military cooperation, how much can they expect to save without negatively impacting their military capabilities? To date, there are no in-depth analyses of the different drivers of this economic savings potential but only a few high-level estimations that all lack a coherent foundation. In addition, the coherence of past studies has never been tested and, until today, it remained unclear which studies are more likely to be correct. At this point, this thesis is adding value to the scientific community by addressing the following research questions (see next subchapter).

1.3 Research questions and structure

1.3.1 Research questions

What is the range of the economic savings potential from an enhanced military cooperation among the four largest economies in the European Union (Germany, France, UK and Italy) and what are the main drivers of savings (investments, personnel, operation & maintenance of equipment and infrastructure)?

1.3.2 Structure of the thesis

In order to answer the research questions, this thesis is organized into seven chapters (see adjacent Figure). The first chapter explained the fundamentals of defense economics and its history to illustrate the framework of the topic. It continued with the relevance of the research question by outlining the defense economics problem and the functional and political levers. Next, chapter 2 describes the qualitative and quantitative data sources as well as the data limitations to be considered when analyzing defense issues. The two-step methodology of conducting a comparative analysis and the subsequent testing by means of semi-structured interviews is explained in chapter 3. Chapter 4 presents a concise overview of the current trends in the defense expenditures of the countries examined and outlines existing initiatives and cooperative programs. It is followed by the comparative analyses (chapter 5), which closely examine past studies on each cost type (subchapters 5.1 to 5.4). In chapter 6, I discuss the results of the comparative analysis in light of both the past research and the qualitative interviews to answer the initial research question. At this point, the results are also critically assessed in light of possible limitations. Finally, chapter 7 provides a summary of this work and areas for further research. The thesis is completed by the Appendix and the Bibliography.

2 Data

To conduct the analyses, quantitative and qualitative data was used. The quantitative data was extracted to a large extent from public sources such as the European Defence Agency (EDA), the Stockholm International Peace Research Institute (SIPRI), the International Institute for Strategic Studies (IISS), the North Atlantic Treaty Organization (NATO), the World Bank as well as publications from the national Ministries of Defense. Furthermore, some quantitative data was derived from the interviews (see chapter 3 on methodology). Further sources, which are available but which were not used in this work, comprise the United Nations Office for Disarmament Affairs (UNODA), the Organisation for Economic Co-operation and Development (OECD), the World Military Expenditures and Arms Transfers (WMEAT) reports released by the Bureau of Arms Control, Verification and Compliance (AVC) or the International Monetary Fund (IMF). The qualitative part stems from several sources, too. Besides an extensive literature review, a large set of raw qualitative data was generated through semi-structured interviews (see chapter 3). These produced major insights into past, current and future developments of European security and defense policies and the European defense industry.

Throughout the paper, the analysis is limited to the four largest economies of the European Union, which also have the largest defense expenditures in Europe: United Kingdom, France, Germany and Italy. Firstly, they constitute almost three-fourths of the entire European defense expenditures and represent the most important military cooperation initiatives. Thus, it is assumed that also the bulk of savings can be achieved in this set of countries. Secondly, there is much more data available on these countries as they all have reliable statistical institutes and they have been widely targeted by past research. In this sense, it is also easier to reach researchers and specialists related to the defense sector (see section 3 on methodology). Thirdly, covering each country and each bilateral and multilateral initiative in the European Union is far beyond the scope of this thesis. For simplicity, the target countries are occasionally be denoted as “EU4” and a thorough description of them precedes the comparative analysis (see chapter 4).

A major limitation of this thesis is the absent availability of detailed breakdowns of expenses due to the confidentiality of the data out of national security concerns. For instance, the EDA does not publish the German expenditure for Operation and Maintenance[75] which can only be estimated by comparing the overall German expenditures with all categories except for the O&M part and calculating the difference. And even where data is available, it is often difficult to compare the national accountancies[76], for example in France “the Gendarmeries is included in national military expenditure, but comparable forces in other countries are not.”[77] Similar problems arise in other countries (e.g. Italy), too. Moreover, national defense ministries could be inclined to hide the true structure of their defense budgets for political or strategic reasons. Some researchers deal with these problems by using the standardized NATO accountancy[78] but then comparisons with some EU Member states, such as Austria, Finland or Sweden, cannot be drawn as they are not members of NATO.[79] In addition, researchers are often confronted with differences in the data. As an example, the overall defense expenditures of Germany in 2011 and 2012 from different sources are listed below:

Table 1: Comparison of different sources of military data

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Note: The World Bank Dataportal is using the data from the Stockholm International Peace Research Institute, thus their data will always be coherent.

It becomes apparent that there are discrepancies in the data sources and questions arise which source is “the correct one.” Other researchers have found similar issues.[86] On the national level, breakdowns are available but their representation is often misleading. For instance, Hartley analyzed the UK defense budget of 1991/92 and criticized that it is solely concentrated on inputs ignoring the output or combat effectiveness.[87] Moreover, sensitivity analyses (e.g. reducing the number of frigates by 10 per cent) are not possible[88] and the costs of large procurement programs are misleading by being spread unequally over a long planning period.[89] Lastly, further challenges arise through different currencies, for instance when comparing the EU4 to the US, or through different price levels due to the long-term nature of procurement projects (often exceeding 20 years).

To cope with these limitations, the data published by the European Defence Agency was primarily used for four reasons: Firstly, needed breakdowns to the different cost categories are available; secondly, the Agency uses a coherent accounting method for the participating countries; thirdly, all expenses are published in Euros and fourthly, a continued publishing since 2005 allows for time series analysis. Merging different data sources would have “raised the challenge of unintended sample biases and accounting methods with regard to trends and comparisons.”[90] Subchapter 6.4 critically assesses the results in light of limitations concerning data availability and comparability.

In an ideal future, researchers have better access to defense related data for their analyses and this data is standardized across all (OECD) countries. Thus, it would take into account national accountancies, different currencies and price levels. The data would be available in a more timely manner (e.g. the European Defence Agency has published the national defense data of 2013 only on 31st March 2015) and it would include the necessary breakdowns of the different expense categories. This could, in return, be beneficial for the Defense Ministries by having more studies on the efficiency and effectiveness of their budgets and programs as well as more business cases on cooperative initiatives.

3 Methodology

3.1 Comparative analysis

Firstly, I conducted a comparative analysis of all relevant quantitative studies on cost efficiencies through military cooperation in the European Union. Essentially, a comparative analysis tries to “explain similar phenomena by similar features, and different phenomena by different features.”[91] According to Tilly, there are four different types of comparative analyses.[92] This work is using the second type, the universalizing comparison, which “aims to establish that every instance of a phenomenon follows essentially the same rule.”[93] Thus by comparing past studies, it is aimed to extract a general rule on cost efficiencies through military cooperation, which is notably helpful to answer the research question. To be clear, the results from a comparative analysis are not statistically reliable and further validation is needed. This work has used semi-structured interviews (see subchapter 3.2) to test the results of the comparative analysis. Initially, a full-scale meta-analysis, which is a “quantitative methodology for synthesizing previous studies and research on a particular topic into an overall finding,”[94] was planned. Yet, past research has no yet generated enough similar studies on cost efficiencies through military cooperation to achieve statistical significant results. In addition, the research question can be considered of a “width before depth” type covering a considerable range of issues and making it difficult to assess with statistical tools.

The approach of a comparative analysis yields an estimation of overall cost savings through military cooperation. Such studies have already been conducted in the past.[95] Thus, a main contribution of this thesis is to break down the overall savings into their main drivers. At the beginning of such an analysis, it is important to identify the relevant drivers.[96] The savings are composed of the four mutually exclusive but collectively exhaustive categories of defense expenditures according to the European Defence Agency:

(1) Personnel includes “all personnel-related expenditure for military and civilian personnel, including from non-MoD sources“[97]

(2) Operation and maintenance of equipment “covers O&M (spare parts and supplies) of major equipment, other equipment and supplies, and costs related to maintaining utilities and infrastructure“[98]

(3) Investments contains “defence equipment procurement and R&D (including R&T) expenditure“[99]

(4) Infrastructure are “expenditure for all construction of fixed military installations necessary for the exercise of command and efficient functioning of military forces, including country's share in multinationally funded military construction/infrastructure”[100]

Comparing it to other sources, the NATO uses a similar breakdown of expenses[101] but different accountancies (as illustrated in chapter 2). In subchapters 5.1 to 5.4, each of these categories is introduced by a focus topic to provide a vivid example of potential savings and is pursued by a collection of further studies on the matter. To the best of my knowledge, proceeding with this approach has never been done before and it generates major insights into the main drivers of savings through cooperation. These results itself are already contributing to the academic discourse but they also serve as a basis for the qualitative contribution (see subchapter 3.2 below). As most quantitative analyses do not yield an exact value but rather ranges or confidence intervals of possible savings, the comparative analysis will follow the same approach. In sum, this work is limited to the analysis of the efficiency of military cooperation and not its effectiveness. Where possible, it is assumed that military output (i.e. military performance or achievements of military aims) remains constant and that military cooperation is not a trade-off between efficiency and effectiveness.

3.2 Semi-structured interviews

In a second step, these ranges were tested to further validate the results. New raw data stems from six qualitative, semi-structured interviews with professionals from the defense industry, with experts from international peace research institutes and finally with researchers from European universities. Two sample questionnaires are provided in the Appendix. The interviewees cover three of the four nationalities under observation.[102] More than 20 interviews were requested and Table 32 below provides an overview of the interviews finally conducted:

Table 2: Overview of interviews

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Although only six interviews were conducted, they were of very high quality as they comprised leading personalities in the field of defense economics. The sample of interviews is mainly based on judgment sampling which selects “people whose opinion will be important to the research.”[103] Yet, also has some traces of convenience sampling, opportunity sampling and snowball sampling.[104] Thus, there is a risk of a potential selection bias. Semi-structured interviews are the method of choice because they can be used to explore sensitive topics,[105] which is undoubtedly the case when dealing with military problems. Harrell and Bradley describe the use of semi-structured interviews as follows:

“Semi-structured interviews are used often in policy research. In semi-structured interviewing, a guide is used, with questions and topics that must be covered. The interviewer has some discretion about the order in which questions are asked, but the questions are standardized, and probes may be provided to ensure that the researcher covers the correct material. This kind of interview collects detailed information in a style that is somewhat conversational. Semi-structured interviews are often used when the researcher wants to delve deeply into a topic and to understand thoroughly the answers provided.”[106]


[1] This thesis has been composed in American English but many names and quotations stem from sources of British English. Thus, both spellings of defense/defence will occur in this work.

[2] Own representation of Gallhöfer (2014), p. 153

[3] Kanter (1984), p. 426

[4] Sandler and Hartley (2007), p. 611

[5] Hartley (2011a), p. xiv

[6] Hartley (2011a), p. 3

[7] Hartley (2011a), p. 1

[8] Kanter (1984), p. 427

[9] Kanter (1984), p. 427

[10] Hitch and McKean (1960), p. v

[11] Williamson (1967), p. 217

[12] Williamson (1967), p. 234ff.

[13] Despite their different meanings from an accounting perspective, the terms „expenses“, „expenditures“ and “costs” will be used synonymously in this work

[14] Hartley (1974), p. 55

[15] Hartley (1974), p. 56

[16] Hartley (1974), p. 56

[17] Hartley (1980), p. 31

[18] Dunne and Mohammed (1995); Frederiksen and Looney (1983); Deger and Sen (1983); Benoit (1977)

[19] Topcu and Aras (2015); Aye et al. (2014); Chang et al. 2014); Farzanegan (2014); Yilgör, Karagöl and Saygili (2014); d'Agostino, Dunne and Pieroni (2013); Dunne (2012); Dunne, and Nikolaidou (2012); Shahbaz et al. (2012)

[20] Kanter (1984), p. 426

[21] Kanter (1984), p. 439ff.

[22] Shubik and Verkerke (1989), p. 484ff.

[23] Shubik and Verkerke (1989), p. 493ff.

[24] Hartley (2011a), p. 251ff.; Hartley (2007), p. 2f.

[25] Hartley (2011a), p. 1

[26] Own analysis based on Taylor & Francis Online (http://www.tandfonline.com/)

[27] Hartley (2007), p. 3

[28] Hartley (2011a), p. xv

[29] Hartley (2011a), p. xv

[30] Hartley (2011a), p. xv

[31] Die Welt (2015)

[32] The Telegraph (2015)

[33] Die Welt (2015); SPD Bundestagsfraktion (2014)

[34] Mölling (2013); Lisek (2011); Mölling and Brune (2011); Schell (2011); Valasek (2011); Mölling, Brune and Dickow (2010)

[35] Eurostat (2015)

[36] MSC (2015), p. 7

[37] Refer to the Appendix for figures on absolute and indexed military expenditures by region from 1988-2013

[38] Stockholm International Peace Research Institute (2014a), p. 3ff.

[39] Gallhöfer (2014); Stockholm International Peace Research Institute (2014a); Wyss (2013); Berteau et al. (2012)

[40] Own analysis based on European Defence Agency (2013b); World Bank Dataportal (2015b); European Defence Agency (2007b)

[41] Major and Mölling (2013), p. 13

[42] The Economist (2010)

[43] Augustine (1987), p. 143

[44] Kirkpatrick (1997), p. 10

[45] Kirkpatrick (1997), p. 10

[46] Hartley (2003), p. 108

[47] Hartley (2011a), p. 17

[48] Davies et al. (2011), p. 4; Alexander and Garden (2001), p. 516f.

[49] Kirkpatrick (1997), p. 11

[50] Kirkpatrick (1997), p. 10

[51] The Economist (2010)

[52] Lefeez (2013), p. 9

[53] Lefeez (2013), p. 9

[54] Kirkpatrick (1997), p. 11

[55] Hartley (2011a), p. 223

[56] Mölling (2013), p. 9

[57] Mölling (2013), p. 9

[58] European Defence Agency (2013d), p. 17

[59] Briani (2013), p. 30

[60] McKinsey (2013), p. 4; Mölling (2013), p. 8f.

[61] McKinsey (2013), p. 4

[62] Mölling (2013), p. 9

[63] Gallhöfer (2014), p. 110; Ballester (2013), p. 23; Briani (2013), p. 15; McKinsey (2013), p. 14; Hartley (2011a), p. 116f.

[64] Ballester (2013), p. 20; Mölling (2013), p. 9

[65] Die Welt (2015)

[66] Rijksoverheid (2013)

[67] European Defence Agency (2012a)

[68] European Defence Agency (2014), p. 107; European Defence Agency (2014), p. 113

[69] Mölling (2013), p. 21

[70] European Defence Agency (2013d ), p. 5; Hartley (2011a), p. 117

[71] Valasek (2011), p. 40

[72] Valasek (2011), p. 21

[73] Interview no. 2

[74] Interview no. 3 and no. 4

[75] European Defence Agency (2012a), p. 10

[76] Gallhöfer (2014), p. 239f.; Berteau et al. (2012), p. 58

[77] Küchle (2006), p. 11

[78] Berteau et al. (2012); Küchle (2006), p. 11

[79] Küchle (2006), p. 11

[80] European Defence Agency (2012a)

[81] Bundesministerium der Verteidigung (2011a)

[82] Bundesministerium der Finanzen (2011), p. 115

[83] Stockholm International Peace Research Institute (2015)

[84] North Atlantic Treaty Organization (2014)

[85] World Bank Dataportal (2015a)

[86] Briani (2013), p. 28

[87] Hartley (2011a), p. 56

[88] Hartley (2011a), p. 57f.

[89] Hartley (2011a), p. 53

[90] Berteau et a. (2012), p. 58

[91] Pickvance (2005), p. 1

[92] Tilly (1984)

[93] Tilly (1984), p. 82

[94] Burns and Burns (2008), p. 534

[95] Ballester (2013); Briani (2013); Chinn (2013); Schnell (2011)

[96] Burns and Burns (2008), p. 536

[97] European Defence Agency (2015c)

[98] European Defence Agency (2015c)

[99] European Defence Agency (2015c)

[100] European Defence Agency (2015c)

[101] North Atlantic Treaty Organization (2014)

[102] Nationalities: Interview no. 1: German; interview no. 2: German; interview no. 3: French; interview no. 4: British-French; interview no. 5: German; interview no. 6: British. Unfortunately, it was impossible to reach Italian industry professionals or researchers.

[103] Harrell and Bradley (2009), p. 32

[104] Harrell and Bradley (2009), p. 32

[105] Gill et al. (2008), p. 292

[106] Harrell and Bradley (2009), p. 27


ISBN (eBook)
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École des hautes études commerciales de Paris
Military cooperation European army cost efficiency defense economics defense Europe defense policy




Title: Potential Cost Efficiencies through Enhanced Military Collaboration in the European Union