Concerns on the issue of defence expenditure in the post-crisis Greece

Abstract

The paper aims to tackle a controversial issue, namely the anticipated developments regarding defence expenditure once the Greek economy returns to growth. Such a comeback is expected to occur following a prolonged recessionary period during which defence spending cuts were a top priority, as recommended by the IMF, the ECB and the EC, members of the so-called "Troika". The paper uses both conventional econometrics as well as neural networks to consider and evaluate the hierarchy's ordering of the determinants used in such a demand for defence expenditure based on their explanatory power. While the role of property resources is certainly pronounced, as expected, human resources variables also seem to be able to explain defence spending developments, especially in the recent past. A forecasting investigation based on this background points to a number of interesting conclusions on the anticipated developments concerning defence spending in the future as well as on the determinants of such developments which might represent a threat to NATO cohesion.1 Popular term widely used in Greece, Cyprus, Ireland, Portugal and Spain to refer to the presence of the International Monetary Fund, the European Central Bank and the European Commission in these countries since 2010 and the economic policy measures that these institutions have proposed and monitored in order to deal with the economic problems arising in each case. 2 In fact there is more to this issue than what meets the eye (Ragies, 2017): Indeed, during the recent NATO summit in July, it has been pointed out that only five allies (US, UK, Poland, Greece and Estonia) contribute 2% or more of their GDP to defence. The fact remains, however, that regarding Greece, roughly 70% of its defence spending represents inelastic spending on salaries, wages and pensions of military and civilian personnel and only about 25% to equipment and infrastructure spending, which includes contributions to the alliance such as the NMIOTC (NATO Maritime Interdiction Operational Training Centre) in Crete.

Defence expenditure and public debt in Greece: A non-linear relationship

“…(2) Following Bragoudakis and Zombanakis (2017) and Katsaitis et al (2019), we use defence spending on equipment rather than the total defence expenditure of the country for two reasons. First, we avoid double counting to a very large extent, in cases in which variables representing the total national budget are included in the model.…”

How to Make Butter out of Guns: The Turkish Case and the Greek Bitter Lesson

“…The demand for defence expenditure function follows the well-established theoretical background (Smith 1980 and1989) with the defence spending on equipment added to the determinants. This modification has proven to be successful (Bragoudakis and Zombanakis, 2017;Katsaitis et al, 2019) for several reasons: First, it avoids double counting in cases in which variables representing the total national budget are included in the model 12 . The second reason is that focusing on the defence equipment emphasizes on the technical progress embodied in it and the ensuing stimulating effects on private investment in R&D (Kennedy, 1987;Herrera and Gentilucci, 2013).…”