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Greece and Its Creditors Should Do a Guns-For-Pensions Deal

by Benn Steil and Dinah Walker
June 23, 2015

Greece NATO Defense Spending


IMF Chief Economist Olivier Blanchard has said that Greece needs to slash pension spending by 1% of GDP in order to reach its new budget targets.  The Greek government continues to resist, arguing that Greeks dependent on pensions have already suffered enough.  But it has yet to put a compelling alternative to its creditors.

What depresses us is how little attention has been paid to one major area of Greek government spending that seems ripe for the ax: defense spending.  Greece spends a whopping 2.2% of GDP on defense, more than any NATO member-state save the United States and France.  Bringing Greece into line with the NATO average would alone achieve ¾ of what the IMF is demanding through pension cuts.

Greece has long argued that its defense posture is grounded in a supposed threat from Turkey – also a big spender on things military.  But surely the United States and the major western European powers can keep a cold peace between NATO allies at much lower cost.

So why don’t they?  German and French arms-export interests surely explain the silence on the creditor side: Greece is one of their biggest customers.

With Greece sliding towards default and economic chaos, such silence is indefensible.


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Post a Comment 8 Comments

  • Posted by Arturo Porzecanski

    Given the collapse of GDP in Greece, all the ratios of “whatever” to GDP don’t accurately portray reality. Greece is NOT a big military spender.

  • Posted by ALEX VLASSEROS

    Do you have the absolute dollar/euro figures on defense spending…. Your chart presenting Greek spending on Defense as a percentage of the GDP overlooks that in dollar/euro terms Greek military spending is extremely small vs. other NATO allies…and shows if anything that Greece (despite its economic hardship and budget shrinkage) carries more of a load than other members that according to the treaty, should be able to assist members.

  • Posted by Mark

    This is a nice idea if Greece was surrounded by friendly neighbours. However, this is not the case. The reason Greece spends so much on defence is that her extremely paranoid and aggressive neighbour Turkey is a constant threat to its sovereignty. If this proposed solution was to work, first Europe would need to force Turkey to remove its threats to Greece, resolve the Cyprus issue and for Turkey to settle any disputes in the Aegean in the international courts. It appears that Mr Blanchard has not does his homework prior to making such statements.

  • Posted by Andrew Nichols

    Well there’s a galringly obvious way to save some dough. Ablish the Armed forces (but keep those pom pomed guys in the white tights and ballet tutus of the Presidential guard to amuse the tourists. Surely that would help pay off some of the debt. how can armed forces rate ahead of education and a decent health service -r paying off german banks. the other benevolent side effect is that it would be a valuable contribution to global peace in the US inspired and Euro paid for ukrainian debacle. (Funny how they keep getting bailed out without conditions)

    If Costa Rica can give up its army so can the greeks!

  • Posted by AAAP

    As long as we’re doing GDP ratios, what is the ratio of the debt service (interest, fees and bailout costs) to Greece’s GDP?

  • Posted by Benn Steil and Dinah Walker

    The IMF expects Greece’s debt service costs to fall to 3.7% of GDP this year, the lowest it has been in 30 years – but even this overstates the cost of debt service because the ECB is returning the interest payments on its Greek bonds to Greece. Zsolt Darvas estimates that the true cost to Greece in 2014 was about 2.6% of GDP.

  • Posted by Ron G.


    This past weekend I was making very similar comments to my friends at July 4th bar-b-que. What the bleep does Greece need with six ultra-expensive submarines… bought from Germany, of course, with the purchase deals based on bribery/corruption?

    This is all soooooo crooked and sordid. While Tsipras is making a big show of being a “man of the people” (e.g. by refusing to cut pensions) he is reportedly also refusing to cut defense spending. THIS IS INSANE! The only emeny that Greece has is fellow NATO member Turkey. If Turkey ever actually attacked Greece, does anybody NOT think that other NATO members would come to Greece’s defense? They could reduce mlitary spending to -zero- and still be just fine. But they won’t because the whole system is dependent on corruption, from Tsipras all the way down to the guy who empties the parking meters.

  • Posted by Patrick Theros

    For Ron G. A little history please. Ron G. asks a legitimate question: Wouldn’t NATO come to Greece’s defense if attacked by Turkey? The answer , of course, is absolutely not!

    Turkey threatened a Greek island (Imia) in 1998. NATO disappeared as did the EU. No one wants to sacrifice anything. Greece and Turkey were two hours from hostilities when Bill Clinton got the Turkish PM on the phone and told him to stand down. That the US speaking, not NATO nor the EU.

    Ron G., by the way, is absolutely correct noting that the German companies bribed the Greek defense Minister (for which he is now in jail), took the bribe off their (German) income tax and jacked up the price of the submarines by much ore than the bribe.

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