To Help NATO Allies Get Off Russian Equipment, the United States Should Revive Defense Lending
Last June, a Romanian fighter jet crashed in a wheat field along the country’s Black Sea coast. The fighter was participating in a Romanian and Bulgarian military exercise when it experienced a major engine malfunction, forcing the pilot to eject. The crash of a NATO country’s jet may sound like a freak accident, but in this case, it is anything but. The plane that went down was not a modern fighter jet, but a Soviet-era MiG-21 from a fleet of aging Soviet fighters that has experienced a litany of accidents. At any given moment less than half of this fleet is operational. This incident highlights a broader issue: The militaries of NATO’s former communist members remain reliant on Soviet-era equipment, leaving them in pressing need of overhaul.
This is not the first time the United States has faced the dilemma of how to build a strong military alliance with woefully deficient allies. As the Soviet Union turned from ally to adversary after World War II, the militaries of its newly liberated western European allies were in a shambolic state. U.S. efforts to foster the economic revival of Western European countries through the Marshall Plan were soon followed by a similar effort to revive their military capabilities. Through the 1949 Mutual Defense Assistance Act and the 1951 Mutual Security Act the US provided more than $50 billion (in today’s dollars) in military aid to the newly formed North Atlantic Treaty Organization (NATO). U.S. assistance helped get the militaries of Western Europe back on their feet, laying the groundwork for the most successful military alliance in history.
Yet following the end of the Cold War, there was no similar American effort to modernize the militaries of its new Eastern European allies. When NATO expanded in the late 1990s, it incorporated former Eastern Bloc members whose militaries possessed vast aging kits of Soviet and Russian military equipment. As America encouraged Russian integration into Europe, bolstering the military capabilities of NATO’s 10 new eastern members with modern, Western technology didn’t seem to be a pressing need.
Today, however, the United States faces the revival of “great power competition” from Russia and China, as the Trump administration outlined in its National Security Strategy. Just as the United States and NATO helped rebuild the militaries of West European nations to counter the Soviet threat, a similar effort to build up the capabilities of Eastern European NATO countries is needed now. While the United States has doggedly pressed its allies to spend more on defense, it should also help these countries do so by supporting their investment in new military capabilities and encouraging them to spend more effectively. Reviving American defense lending through an Eastern European Security Investment Initiative would be a strategically valuable and fiscally manageable way to invest in the military capabilities of NATO’s eastern allies.
Vulnerable on the Eastern Front
With the alliance facing a renewed challenge from Russia, the aging hardware of NATO’s eastern members creates numerous vulnerabilities. NATO’s former Eastern Bloc members depend on increasingly decrepit and unreliable Soviet-era equipment that breaks down frequently. Echoing Romania’s troubles, Bulgarian pilots in October refused to even fly their MiG-29s for fear the planes were dangerous to operate.
The effectiveness of these countries’ weaponry is also questionable compared to modern Russian systems. For instance, Ukraine’s Soviet-era anti-tank weaponry often proved ineffective against modern Russian tanks with reactive armor. Romania and Bulgaria’s air defense systems are largely of Soviet origin and increasingly obsolete against modern threats.
By continuing to operate Soviet-bloc equipment, Eastern NATO members also have to maintain a relationship with Russia’s defense industry — now under Western sanctions — to perform maintenance and procure spare parts and components. The Czech military’s Chief of the General Staff, Josef Becvar, explained recently that 41 of his country’s 51 helicopters were Russian-made, noting, “It causes enormous problems, spare parts are lacking. We are in fact captives of the Russian suppliers.” This reliance not only injects cash into Russia’s defense industry, but also gives Russia leverage and influence over Eastern European militaries.
Thus, like Western European countries prior to the Marshall Plan, the states of Eastern Europe today form a poor first line of defense against a resurgent Russia. Recognizing this, the United States has invested billions of dollars through the European Deterrence Initiative, formerly the European Reassurance Initiative, to bolster its military presence in Europe. NATO has also bolstered air policing missions over the Baltic Sea and north Atlantic and bolstered its forward deployed presence through multinational battlegroups in Estonia, Latvia, Lithuania, and Poland. But while the United States and NATO have spent billions to bolster the alliance’s military presence, they have not devoted significant resources to help bolster the individual military capabilities of eastern allies.
The United States and NATO have pestered Eastern European states to spend more on defense and modernize their forces off of Russian equipment. But four years after Russia’s illegal seizure of Crimea, progress has been slow. NATO’s eastern members aren’t oblivious to the renewed Russian threat, but building a modern and capable force after decades of neglect and underinvestment is an arduous and expensive undertaking.
To be sure, NATO’s eastern members have finally begun to spend more to phase out their Soviet-bloc equipment. Poland is undertaking an ambitious modernization effort, procuring a Patriot missile system to upgrade its air defenses. Romania, Croatia, Bulgaria, and Slovakia have all expressed interest in modernizing their fighter fleets. And the Baltic states have all procured Javelin anti-tank missiles. But these efforts are often limited one-off procurements hampered by resource shortfalls. New procurements are often limited in quantity, as illustrated by Romania halving its planned acquisition of F-16s from 24 to 12.
These countries may be able to cobble together the cash to buy one system, but they simply lack the money to broadly overhaul their armed forces. Procuring major Western weapons systems — fighter jets, helicopters, air defense systems, tanks — is incredibly expensive. An acquisition in one area, such as new fighting vehicles, could consume the resources for new helicopters or ground vehicles. Worse, attempting to make such expensive acquisitions could require cannibalizing other aspects of their defense budgets, possibly impacting basic force readiness. Therefore, these states face a dilemma: continue pouring money into keeping the old, broken equipment running, or buy new equipment they can’t afford. In Bulgaria, a political row has developed over whether the country should maintain or replace its decaying fleet of MiG fighters. Instead of buying western fighters, Bulgaria now seems to be on the verge of entering into a four-year $50 million contract with Russia.
To complicate the situation even more, new U.S. sanctions on Russia have entered into law, which could expose Eastern European defense officials to penalties, since the law targets persons who do business with the Russian defense industry. While the Trump administration has exhibited no appetite to implement sanctions, these countries could find themselves under added pressure to show progress in divesting off of Russian equipment.
Eastern NATO allies are in effect being told they need to gut and remodel their house when all they can afford is to remodel the bathroom. Moving these countries off of Russian equipment will therefore require outside help — a role the United States can and should fill.
A New Eastern European Security Investment Initiative
Over the last ten years, there has been a dramatic expansion in U.S. security assistance with the creation of regional initiatives, such as the Southeast Asian Maritime Security Assistance Initiative, Ukraine Security Assistance Initiative, and the Counter-Terrorism Partnership Fund, which targeted countries in the Middle East and Africa. To help Eastern Europe move off of Russian equipment, the United States should establish an initiative directed at the region. But such an effort should not simply follow the models of previous security assistance programs.
Previous regional efforts have consisted entirely of grant assistance: The United States effectively gives cash to help mostly lower-income countries buy U.S. systems, to pay for the United States to train and equip their forces, and to address certain discrete capability gaps. The needs of Eastern European states are much more expansive than this — they are seeking to procure entire systems to build capable, modern forces. The costs of modernizing their capabilities will be exorbitant — running into the tens of billions of dollars.
Providing that much assistance funding through traditional grant methods is likely well beyond the willingness of the U.S. Congress and American taxpayers. Moreover, Eastern European countries are on average much wealthier than the typical grant assistance recipients. They should have to demonstrate a political and economic commitment to these acquisitions, instead of America just handing them over.
The United States should establish a new type of security cooperation effort called the “Eastern European Investment Initiative.” Instead of simply buying these countries new systems, the United States could provide financing to help eastern NATO members buy them themselves. This initiative should be run through the State Department’s Foreign Military Financing program and provide a mix of grant assistance, as well as loans to finance these acquisitions. Existing U.S. military assistance to Europe through the Foreign Military Financing program provides only about $40 million annually to the nine former Eastern Bloc NATO members. This mostly funds smaller, discrete efforts, such as providing radios and night vision equipment to two Croatian battalions so they are interoperable with NATO.
For the Eastern European Security Investment Initiative, Congress could initially provide additional lending authority of up to $5 billion to the State Department. This program would entail investing in the recipients, not giving them money, because the countries would be expected to pay the United States back in regular installments. By accepting these loans, countries are also agreeing to spend more on defense, helping to move them closer to their NATO spending commitments.
But just because the United States offers a loan does not mean countries will be interested in taking on the additional financial burden. Therefore, Congress would provide an important inducement by also appropriating $500 million in multi-year grant. This funding is necessary to make the loans more attractive and affordable. For instance, State Department loans may require countries to pay significant loan insurance costs. The grant assistance could help pay for those costs, down payments, or overall cost of the system. The grant assistance provides a real incentive for countries to take on the financial commitments required by accepting loans. This is not dissimilar to the U.S. offer to pay for roughly half of the cost of new F-16s for Pakistan if they paid the rest.
Implementing this initiative will be diplomatically complicated, requiring extensive negotiations with recipient countries and with NATO. That is another reason why the authority to provide loans should reside with the State Department, since providing a loan is not simply a military calculation, but entails a long-term political and financial commitment by both parties. Providing a loan to country is ultimately a foreign policy decision and should be entrusted to the more operationally-minded Pentagon.
How to ‘Rack and Stack’
In implementing the program, the United States should establish six priorities.
First, the United States should prioritize equipment that countries can’t afford to replace on their own. This program won’t replace every piece of Russian equipment, but is intended to spur a transition, especially relating to some of the big-ticket items that cannot simply be gradually phased out.
Second, the United States should assess which inventories of old Eastern Bloc equipment might still be effective against a modernized Russian force. The recipient countries, working with the United States and NATO, should assess what systems are obsolete and require modernizing in the event they have to faces Russian forces.
Third, the United States should prioritize replacing systems that provide significant financial benefits to Russian defense industry or intelligence insights to the Kremlin.
Fourth, to receive a loan or funding from the United States, recipient countries should be required to increase their overall defense spending. This program should incentivize additional defense spending and be accompanied by a high-level U.S. diplomatic engagement. If countries are not willing to spend more, the United States should not invest in developing their militaries. As such, some countries, like Hungary, may be unwilling to participate. This is actually fairly common in U.S. assistance efforts; often America’s appetite to assist countries is greater than their appetite to accept assistance. It is therefore quite possible the administration will not be able to fully spend the money allocated by Congress.
Fifth, states rolling back democratic institutions should be ineligible, as they are not safe investments. The United States should not be providing military aid to states rolling back liberal democracy. While the Trump Administration may choose to ignore these considerations, congressional committees that oversee the State Department (the Senate Foreign Relations and House Foreign Affairs Committees) can, and should, block use of these funds for Hungary and Poland as long as they are working to deconstruct their democracies. Furthermore, the new U.S. sanctions against Russia could be used to deter countries from accepting U.S. assistance while continuing to acquire new equipment from Russia.
Sixth, the United States should encourage NATO’s EU states to pool their resources. The lack of procurement coordination between small European countries has led to a loss of economies of scale and a proliferation of different systems that hinders interoperability.
The Eastern European Security Initiative, however, will likely receive a mixed reaction in Brussels. The European Union has moved over the past year to integrate and rationalize European defense, especially relating to procurement and the EU’s defense industrial base. However, this means the EU will seek to create a common market for defense and push its members to buy European — which is bad news for American defense companies. Therefore, an American effort to modernize Eastern European militaries will lock in U.S. bilateral defense procurement relationships with Eastern Europe before the EU defense effort gets going. The ideal outcome would be for the US initiative to spur the EU, which often moves glacially on defense, to act quickly to replicate and enhance U.S. efforts regarding eastern allies’ militaries.
A Unique U.S. Security Cooperation Program
The Eastern European Security Investment Initiative would be a unique and potentially path-breaking effort for U.S. security cooperation, as the United States is one of the few arms exporters in the world without an established defense-lending or financing program. By providing loans to Eastern Europe the United States can rekindle an important security cooperation tool that could eventually be expanded to other middle-income democracies.
There is also a successful precedent for U.S. lending to Eastern Europe. In 2002, Poland sought to replace its MiG fighters. Realizing the US was going to lose the contract, because unlike France, the United Kingdom, and Sweden, the US did not offer financing, the George W. Bush administration offered a direct loan from the U.S. Treasury to Poland in the fighter competition. Poland ultimately selected the F-16, helping to spur a closer military partnership. However, this one-off loan did not result in an effort to revive U.S. defense lending.
Though the Foreign Military Financing program has “financing” in its name, the State Department has effectively stopped providing military financing to countries and has become almost exclusively an aid or grant program. When I worked in the State Department, helping to oversee the political-military affairs bureau and U.S. security assistance efforts, the United States almost never offered loans to partners. This is largely due to bureaucratic inertia (the State Department wasn’t lending and lost the muscle memory for it) and lack of available funds. Despite having a nearly $6 billion budget, Foreign Military Financing lacks the flexibility to fund loans, as almost all funding is tied to a handful of major recipients (for example, Israel, Egypt, Jordan, Pakistan, and Iraq). But since the program was once a lending program, the State Department has many of the authorities it needs to provide loans. Instead of creating another duplicative assistance bureaucracy at the Pentagon, which also has a checkered past when it comes to military lending, it makes more sense to revive the State Department’s ability to lend.
How to Fund It
The big challenge, of course, is that the department lacks money. Since the 2011 Budget Control Act, the State Department has not sought significant additional security assistance funds for fear of needing to make offsetting cuts to stay under its budget cap. Now that Congress has done away with the budget caps and significantly expanded the Pentagon’s budget, funding this initiative is certainly feasible. Given the near-unanimous vote on Russia sanctions legislation, as well as extensive bipartisan support for past security assistance initiatives (such as for Ukraine), there could conceivably be considerable bipartisan support for an initiative to strengthen America’s eastern NATO allies.
To establish this program Congress can either appropriate additional funds to the State Department or simply allow the Pentagon to retransfer money from its current $700 billion budget to State. To fund the recent spate of new security assistance initiatives, the Pentagon similarly reallocated resources from within its budget. In this case the Defense Department would be simply moving the money across the Potomac to Foggy Bottom. The $500 million in grant assistance for Eastern Europe would be much less than the $1.8 billion the US spent on the Counter Terrorism Partnership Fund program.
While the Eastern European Security Investment Initiative may seem costly to U.S. taxpayers, it would likely end up being a wash financially, and might even be profitable. Since the U.S. government will be providing loans at a set interest rate determined by the U.S. Treasury’s credit rating system, it could make money on the loans over time — which is of course why every arms-exporting country in the world provides loans to potential buyers. It’s true that by offering grant assistance to cover the costs of the loan insurance or the down payment, the United States will be taking on a greater degree of risk should the country default, which could eat into any profits. But the relative economic stability of Eastern European countries within the European Union and NATO makes them fairly safe bets. In some scenarios, the grant funding might never even leave U.S. government bank accounts. For example, if grant assistance was used to pay loan insurance costs required by the Treasury, the Treasury Department would transfer funds to the State Department to allocate the grant assistance and then State would send the funds right back to Treasury to pay for the insurance.
In the best-case scenario, the United States bolsters the combat capability of NATO and strengthens the alliance’s ability to deter Russia — all at little to no long-term cost. Building more capable partners means building a more capable alliance. Additionally, if the program proves successful in Eastern Europe, the United States could expand its defense lending to other middle-income democracies. In the worst case, the loans are not paid back, still leaving the United States with more capable partners but at much greater cost.
Stronger Allies, Stronger America
Bolstering the defense capabilities of Eastern European militaries is not just about deterring Russia. It is fundamentally about strengthening the NATO alliance as a whole. Helping to modernize Eastern European forces will not only bolster NATO’s ability to defend itself, it will also enhance NATO’s ability contribute to global security.
In the years ahead, the stronger America’s alliances are, the stronger its global position will be. By creating an Eastern European Security Investment initiative, the United States will be following the model set forth by President Truman by investing to to strengthen the most successful military alliance in history at a challenging time. The United States has an opportunity to not just strengthen its allies, but, in the long run, to strengthen itself as well.
Max Bergmann is a Senior Fellow at the Center for American Progress. He served in the State Department from 2011 to 2017, where served on the Secretary’s Policy Planning Staff and as Senior Advisor to the Under Secretary for Arms Control and International Security.