One of the continuous criticisms of Europe from America has been that the NATO allies and European Union countries don't pull their own weight in defense spending and capability. The United States spends a great deal more in total and Per Capita then these nations. According to this article at Seeking Alpha by Scott Sacknoff the U.S. was spending $1,756 per person in 2007 compared to the U.K.'s $990, France's $875 and Italy's $513. The total spending that year by the U.S. was $528.7 billion and for the Top 5 EU nations only $191.7.
The announced 2010 budget for the Defense Department is probably going to be the peak for U.S. defense spending for a long time. The Obama Administration is looking at keeping it flat and probably reducing it as operations in Iraq and Afghanistan wind down. They have already ended the investment in several major acquisition programs and it is not clear if further cuts are to come. It is true that new programs may be started but they probably will not be new large systems.
Europe like the U.S. has had to alter some of their spending plans in reaction to the world economic downturn and the pressure that has placed on government spending. Not only has revenue been reduced due to the decline in economic activity but money has been channeled to stimulus spending, social programs and other needs. This has caused Europe to look at actually reducing defense spending in the short term especially for investment in new systems.
England especially which along with Canada and Australia has been the largest contributor to operations in Afghanistan has discussed a major review of defense spending that may see the end of several major new acquisitions. There has been talk of not buying the A400M transport and the latest batch of Typhoon fighters as well as ending submarine and ship construction programs. It was agreed to in the end to buy the fighters but no final determination has been made on the other programs. Faced with mounting debt and budgetary pressures the Gordon Brown Labor government may not be able to continue this investment.
The United States has seen its annual deficit increase four-or-five fold in the first year of the Obama Administration. There will probably be little improvement in this over the next few years even if the economy does respond and recover. Too much money has been committed to the TARP and "Stimulus" as well as the unknown cost of health care reform. It may be that the U.S. will end up like England and the other European countries and not pay for a large military or combat operations.
The Seventies saw not only a reduction in the size of the U.S. military from the Vietnam Era but also a failure to invest in people and parts. This lead to a low morale, low capability military that ultimately failed in the Iranian desert. The Reagan Administrations saw not only an investment in new equipment but also in pay and benefits as well as increasing fund for training and support. The U.S. military ended that decade not only much better equipped technically but much more effective as Iraq found out in Desert Storm. The greatest fear of those who lead and manage the Armed Services is of a return to the Seventies. It is possible to reduce investment in new equipment but keeping the troops fed, paid and trained is a condition that is much harder to recover from.
Obviously a severe decline in defense spending will have a negative effect on the U.S. "military industrial complex" as the Government will be forced to shed jobs as happened in the Nineties as well as contractors. One fear would be another round of consolidation in the industry that may lead to only two or three main companies instead of the current five. The companies may still exist but they could be out of the defense business.
There is a good possibility that there will be a slow decline in the size and capability of the military much as has happened to the U.K.'s forces over the last sixty years. There may be a capable force that is not very big or well equipped to carry out the operations that the politicians desire. It will be more apparent when the FY 2011 budget is released by the Obama Administration in the next six months if this is a path the U.S. might face.