Analysis-Europe placates Trump with NATO pledges it can ill afford

By Mark John

LONDON (Reuters) -In their rush to retain Donald Trump's support for NATO, the alliance's European members have promised to more than double the amount of wealth they set aside for military spending.

The snag is that most can ill-afford to spend 5% of output on defence - so while there will be some unpalatable sacrifices in national budgets, there will also be some creative accounting to divert existing spending to the effort.

"They will not get there," Guntram Wolff, senior fellow of the Bruegel think-tank, said of the 5% goal.

"If you are a highly indebted country you can't issue more debt, it means very difficult budgetary choices," he said of the hefty tax hikes or spending cuts that it would require.

As a piece of political theatre, the Hague summit at least won over its intended audience: Trump himself. Amid concerns about his commitment to NATO's mutual defence clause, he said the United States stood with its European allies "all the way".

While few dispute that Europe needs to do more to ensure its own security as tensions with Russia rise, the fixation on the 5% target cut short a separate debate about how it could be using its existing military budgets more efficiently, for example with national governments agreeing on joint procurement.

Now it has saddled itself with pledges which - with the notable exception of Germany, whose finances are solid after years of fiscal frugality - most members will find hard to keep.

To hit the 5% threshold, European Union countries, whose debt pile already tops 80% of output, would between them have to nearly triple the 325 billion euros ($377 billion) they spent on defence last year to more than 900 billion.

Non-EU Britain - whose debt is 100% of output and which already pays more in debt servicing than for every spending item apart from health - would need an extra 30 billion pounds ($41 billion).

"The potential losers are not just future generations saddled with huge debts, but today's societies," said Nick Witney at the European Council on Foreign Relations.

"Disgruntled populations, whose sense of economic wellbeing has never recovered from the global economic crash of 2008, will likely become even easier prey for populist or nationalist politicians gathering strength across Europe."

GUNS OR BUTTER?

To be sure, the closer a country sits next to Russia, the less domestic angst there is about finding the extra cash - Poland, the Baltics and Finland are all cases in point. Years of rivalry with neighbouring Turkey have meanwhile attuned Greek public opinion to accept higher defence spending.

But Spain's Socialist Prime Minister Pedro Sanchez - whose country is alone in not expressly signing up to the new target - voiced the concerns of others when he said the goal was "incompatible with our welfare state".

Slovakia, one of the central European countries whose budgets face the greatest strains from the defence build-up, has also baulked at the target, arguing that raising living standards and cutting its borrowing were equally important.

Bruegel's Wolff said it remained to be seen whether countries increase their defence quotas by shaving the odd billion here and there off other areas, or whether big-ticket areas such as pensions take a sizeable hit.

"But keep it in proportion - there will still be a welfare state but perhaps less generous," he said of social protections across Europe that can account for anything up to 30% of the economy.

As leaders depart the Hague summit venue, the national conversations on defence will sound strikingly different to those that were had in the run-up to the gathering.

The 5% breaks down into 3.5% to be spent on "core" defence - troops and weapons - and 1.5% on defence-related measures such as adapting roads and bridges to handle military vehicles. The room to wedge existing spending items into the second category will likely prove generous.

In France, for example, there is discussion about whether that could include the gendarmes policing country lanes, who are formally part of the defence ministry but whose existing running costs currently lie outside the defence cost tally.

The long deadlines aired for hitting the target - in some cases up to a decade - are also an opportunity for those pledges to be fudged as the political spotlight shines elsewhere.

"Spending goals will simply be missed," said Witney. "The transformation required will begin to take shape, but less rapidly and less coherently than if more realistic targets had been set."

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(Writing by Mark John; additional reporting by Jan Strupczewski in Brussels; Leigh Thomas in Paris; Maria Martinez in Berlin; William Schomberg in London; Eleftherios Papadimos in Athens; Anne Kauranen in Helsinki; Simon Johnson in Stockholm; Gergely Szakacs in Budapest; Jan Lopatka in Prague; Editing by Alex Richardson)