II.1.1.

Military budget development

II.1.1.1. Budget formulation

The NATO Financial Regulations and the implementing rules and procedures govern NATO financial management. Last updated
in 1981, the Regulations focus on budgetary management and control and also address contracting, accounting, treasury
operations, and auditing.
Each Supreme Commander has a board structure to determine resource requirements and to allocate resources. A financial
controller at NATO Headquarters, subordinate financial controllers, and associated staffs manage day-to-day financial
operations. The contracting function also is part of the financial controller organization within NATO.

Budget Formulation

The NATO Military Authorities (Supreme Commanders) receive funds via two appropriation channels:

 Operation and maintenance (O&M) funds emanate from the Military Budget Committee's (MBC) recommendation of a
funding ceiling for over 60 budgets that the North Atlantic Council approves annually in December prior to the
beginning of the NATO fiscal year (which is the calendar year). The O&M budget is approaching US $1 billion per
year.
 Capital investment funds are provided via the NATO Security Investment Program (NSIP). The North Atlantic Council
approves Capability Packages and specific capital projects. The NSIP has over $10 billion of Undelivered Orders. For
2005, the estimated cash outlay for approved NSIP projects is about $800 million.

NATO considers the over 10,000 military personnel to be „donated labor” – in the sense they are paid by their respective
countries. As such, they are not reflected in the preceding values. The 3,000+ NATO civilians are funded by the O&M budget.
The largest O&M budget is for Airborne Early Warning and Control Force fleet operations at $300 million.

Planning and Programming

The resource planning in NATO is developed along a framework used in many of the member countries, under different names
– in some parts similar to the US Planning Programming Budgeting Execution System and the Romanian Planning Programming
Budgeting Evaluation System, in the sense that it follows the phases of planning / programming / budgeting.
As the US DoD uses the Future Years Defense Plan and Romania uses financial documents estimating the financial needs for the
Major Defense Programs, NATO uses a similar document called the Medium Term Financial Plan. The purposes are similar in
attempting to display resource requirements over the medium term. NATO places special emphasis on programming when its
capital investment resource requirements will come on line. In practice, the Resource Policy and Planning Board recommends
and the North Atlantic Council approves only a cash outlay forecast for the next year for on-going NSIP projects and an O&M
budget for the budget year.

Budgeting
The NATO Military Authorities budget process closely follows the budgeting model used in many NATO countries, including
Romania and U.S., with top-line figures approved by the North Atlantic Council, then apportioned to the Supreme Commanders,
and finally allocated to Regional Commands. With over 60 budgets, there is an exceptional amount of detail for trifling amounts.
Budgets are screened by higher-level budget staffs and ultimately by the MBC. The MBC may cut funds for such common
reasons as concern about executabilty and may freeze funds pending clarification of an issue.
After a budget is approved, the financial controller has wide authority to make intra-and interbudgetary transfers, although
above-threshold transfers require MBC approval. NATO has the mid-year review process that is virtually identical to the one
used by most DoD components.

Treasury Operations
The NATO Military Authorities call cash from member nations three times per year: April, June, and October. The October cash
call reconciles financial impacts such as foreign exchange gains and losses, interest earned, and bank fees. The latter are
required since NATO is not a sovereign nation and, as such, must award competitively solicited contracts to obtain banking
services. To minimize foreign exchange fluctuations, cash calls are made in the currency of the member nation to the maximum
extent possible.

Accounting
In the past five years, NATO has made significant progress, bringing its accounting into the twenty-first century. The NATO
Military Authorities fielded a commercial off-the-shelf software package (Oracle Financials) to 23 sites. NATO's adaptation of
Oracle is called the NATO Automated Financial System. In addition, NATO adopted International Public Sector Accounting
Standards that the NATO Military Authorities have implemented. The chart of accounts and transaction sets mirror the U.S.
Government Standard General Ledger, although the NATO version is much simpler. General-purpose financial statements and
budgetary execution data are available in "real-time," and the NATO Military Authorities are developing a managerial accounting
system that will be responsive to the needs of executive management. At present, the NATO Military Authorities are hampered
by an inflexible personnel system that does not allow for staff training and staff movement without the employee's consent.

Audit
The NATO International Board of Auditors (IBAN) conducts external and financial audits. The Supreme Commanders' audit
staffs, which work for the respective financial controllers, perform internal audits. The IBAN reports to the North Atlantic
Council. An ad hoc group of financial counselors resolves disagreements between auditors and clients.
The advent of the use of international accounting standards is forcing a much higher level of professional competence within the
IBAN in terms of information technology and accounting knowledge.
The NATO budget cycle is composed of four stages: planning, formulation, review and approval, and execution.
The aim of the Planning stage, according to NATO Defense Planning Committee Directive (93)7 is, to provide a framework
within which national and NATO defense planning can be harmonized so as to meet the Alliance's agreed military requirements
in the most effective way. The bedrock of this stage is the Medium Term Financial Plan (MTFP), a five-year planning document
that alerts the nations and NATO Military Budget Committee of the principal military requirements, both changes to ongoing
activities and of new requirements. The plan isn't a binding agreement, and the Committee isn't obligated to provide funds,
even if a project is accepted in the MTFP. However, it is the primary vehicle available to obtain funding for new or changes to
existing projects, allowing the Component to identify funding for all requirements validated through the Requirements Board
process.
In a top-down approach, the Alliance's Strategic Guidance is used to scribe the Functional Planning Guidance. Based on this the
MTFP is developed, serving as the principal document for the national authorities to plan their international military
contributions necessary for the accomplishment of agreed and proposed military missions. It provides a mechanism to match
financial resources with the minimum manpower, physical and service requirements, and to help plan, prioritize, phase, and
allocate new or expanding activities. The call is issued in April-May, and the MTFP is typically submitted in June.
In the Formulation (development) stage, the basic budget inputs for the expected resource expenditures are put toghether,
from various sources, depending on the specific of the organization (for example, the budget inputs for NATO Air Base
Geilenkirchen, Germany, home to the NATO Airborne Early Warning and Control (NAEW&C) Force E-3A Component are
gathered by its resource managers from four information sources:
1. E-3A organizations, forecasting costs for their annual day-to-day operations;
2. NAEW&C Force Command, determining certain specific annual logistics requirements;
3. The NATO Maintenance and Supply Activity, which assists in forecasting costs for Depot Level Maintenance, Foreign Military
Sales, and other commercial contracts; and
4. Host Nations, providing estimates according to current Memoranda of Agreement.)
The Budget & Disbursing Branch under the Financial Controller compiles the annual budget inputs and coordinates them within
the Component. Then, the appropriate budget office at NAEW&C Force Command prescreens the draft budget estimates. After
going final and upon approval by the Component Commander, the final operating and support budget is submitted to Allied
Command Operations for onward submission to the Military Budget Committee and the participating nations. This effort
typically concludes in July-August for the following years' budget.
The Review and Approval stage for the previous example involves the 13 nations participating in the NAEW&C Force program.
The NATO Military Budget Committee, consisting of one member from each of the participating nations, reviews the
Component's budget and makes recommendations to the NATO Defense Planning Committee. The Defense Planning Committee
has final approval authority. The approved budget total flows from the Budget Authorization Document distributed by the NATO
Military Budget Committee Secretariat each year.
Finally the Component receives its budget and enters the Execution stage (actually spending the money). Great care is
exercised in spending international funds, and all transactions are subject to audits by the NATO Board of International
Auditors, the Allied Command Operations Audit Branch, and the Internal Review Officers. Expenditure of funds involves
appropriate separation of duties and follows a typical path, where fund managers request commitment of funds, certify bills,
control travel funds, and suggest and justify funds transfers. The Purchase and Contracting Officer reviews purchase requests
and places orders with suppliers. The Budget officer administers the approved budget, including credit allocations, transfers,
fund freezes/ unfreezes, and availability of credits. The Fiscal officer supervises and approves commitments and payment of
funds. A mid-year budget review is conducted to assess the validity and accuracy of the budget for the end of year. The
Component's mid-year review is approved by the Military Budget Committee, usually in August, and is followed by a new
allocation plan. At the end of the fiscal year in December, the Component goes through the process of closeout and
simultaneously begins a new calendar year and a new fiscal year. And the cycle repeats itself.
To review, the annual (for instance for the year 2011) budget activities related to the Military budget could be defined
considering the following categories:
• the starting point is the “Medium (“long”) term Planning” – MTFP (Medium Term Financial Plan / CRP (Consolidated Resource
Plan) drawn for 5 years 2013 – 2017
• based on the date in the medium term plans, updated, the “Short term planning” is the second step, consisting of the budget
preparation for the next year 2012 based on MTFP 2011-2015
• in the same year 2011 the “Execution” step has to be performed, meaning the execution of the budget for the current year
2011 and the execution of commitments carried from the previous budgets for the years 2008 and 2009

II.1.1.2. The role of MTFP/CRP and Miliatry Budget

The role of MTFP/CRP and Military Budget

As stated before, the Medium-Term Financial Plan or Consolidated Resource Plan is the starting point for the developement of
the budget. The document covers 5 years of the following budget year and its purpose is to identify, validate and prioritize the
Total Requirements regarding resources needed for the next years.
The MTFP/CRP also contains estimates of costs related to civilian personnel, Operating and Maintenance (O&M) and NSIP O&M
tail. (The variety of items financed by the O&M appropriation gives rise to the concept of "tooth" and "tail" within the
appropriation. The "tooth" represents the areas of the account which pay for combat operations, operational training, and
maintenance while the "tail" is made up of the parts of the appropriation which provide support to the fighting forces. The
current issue for the O&M appropriation is separating the "tooth" from the "tail", that is, cutting back the "tail" without dulling
the "tooth".)
One of the purposes of the MFTP is to develop and decide management strategies, identifying directions of action and their
appropriate resources. It is submitted to the Military Budget Committee /Military Committee annually, accompanied by a
Commander’s Impact Statement.
The product of this medium term financial planning process is the Medium Term Financial Plan, which is used as input to
Medium Term Resource Plan MTRP, which is the primary common-funded resource planning instrument – a five-year plan on
which NATO member nations agree upon. The MTRP covers resource planning for the following budget year and the four
subsequent planning years. It is forwarded by the RPPB to the Council for decision at the beginning of each year. It is
essentially a resource planning document, expressing resource requirements in broad quantitative terms. By expressing
budgetary requirements within the Capability Package framework, the MTRP establishes the link between NATO’s military
common resources and the Alliance’s strategic objectives.
The MTRP provides an overview of the medium term feasibility and affordability of previously endorsed and future
programmers, including manpower. The MTRP addresses issues which are of particular relevance to each of the military
common resources of NSIRP, military budget and international manpower. Specifically, the MTRP sets resource allocation
ceilings for the NSIP and the military budget for the next budget year and provides planning ceilings for the following four
planning years.
It is reviewed and revised annually and retains an out-year perspective over five years. Through this agreed plan, nations
commit to their annual NATO budget contribution levels. The amounts of the contributions are expressed as national percentage
shares. The actual amounts are in euros - NATO's standard monetary pricing unit
The result of the medium term financial planning consists of information regarding resource allocation needs, which will be
included in and form the basisi of the Near term plan, meaning the budget.
The budget contains financial figures regarding the funding needs for the next fiscal year and should validate and prioritize the
requirements identified in the MTFP. It also validates the costs related to civilian personnel, O&M and NSIP O&M tail. It is
submitted to the MBC togehter with Commander’s Impact Statement. The screening of the proposed budget figures is
conducted by the MBC, as at this point the budget is only a proposal and has not yet been approved. As such, cuts or freezings
can be imposed by the MBC regarding the proposed budget figures. After the screening process, the MBC approves the annual
Budget
Authorizations.

Next

II.1.1.3. Types of MTFP/CRP Projects

Types of MTFP/CRP Projects

The projects featured in the MTFP/CRP are any Minimum Capability Requirement (MCR) considered appropriate for the
Command and eligible for funding by the Military Budget (MB).
Types of projects examples (ACT):
• Mandatory (Legal obligations and Health and Safety requirements)
• Essential to the fulfillment of the mission,
• Important to the fulfillment of the mission
• Desirable to the fulfillment of the mission .
Types of projects examples (ACO):
• Group 1 – Legal obligations, Health and Safety requirements, Spend-to-Save
• Group 2 – Everything else.

II.1.1.4. Budget preparation and approval cycle

Budget preparation and approval cycle
1. Budget guidance: this guidance is issued by the Military Budget Committee MBC, for the NMA’s, containing policy
and guidance for the preparation and submission, within approved resource allocations, of annual budget estimates;
it contains information about currency exchange rates and inflation rates, guidance related to policy changes, outlines
submission deadlines and the Budget Submission Figures (funding ceiling).
2. Preparation of the draft budget: the NMA’s prepare the draft budget based on the inputs requested from Fund
Managers (Feb – Mar); the Budget Officer and Financial Controller review the submission. The draft budget is
developed taking into account the prioritization issue - the funding needs not covered due to this prioritization are
submited for inclusion on the Unfunded List. The Draft Budget Estimates are prepared within April-May.
3. Draft budget pre-screening: the process implies a brief budget submission to Strategic Command budget staff,
which analyse the submission regarding technical compliance/accuracy and give feedback/advice/presentation
strategy. The Commander’s Impact Statement is also analysed for operational issues of concern. Finally, the budget
draft recieves the Financial Controller’s Certification, which underlines activity changes and the level of risk and
assumptions used in the budgeting process.
4. Management Board screening: the ACO Management Board (AMB) performs this screening, after the draft
budget is presented by the SC Financial Controller. During this process, representation of all (subordinate) Principle
Budget Holders are present.
5. Final budget production: after the final screening, the budget is then translated into French, is reproduced if
neccessary and a list of potential errors correctins (Corrigenda) shall be developed if needed.
6. Screening by MBC: The MBC, formed from representatives from all nations, plays a crucial role in this process as
it screens the budgets preseented by the Financial Controllers, which answer the questions from MBC members. It
also reviews the reports of national technical experts on Automated Data Processing (ADP), communications
(COMMS) and Aeronautical Issues (WGAE).
Budget Screening Results
• Funding Requirements Recommended for approval
• Funding requirements Recommended for Freeze (pending further clarification and/or additional information)
• Funding requirements recommended for Reduction
• Confirmations
• Information requests
• Budget Review Documents
The responses to the Budget Review comes in the form of inputs from the Budget holders, consolodated (put
toghether) into Consolidated BR responses, comprised of Confirmations / Freezings / Additional info requests
7. MBC Approval of the budget: the MBC apporved the budget within the resource allocation figure (RAF) and
ensures the interim financing (if no approval). It also issues the Initial Budget Authorisation Document and with this
step provides the shift to budget execution phase (spending of the budget).
The MBC also monitors the execution of the approved budgets and authorizes adjustments to the authorized budgets
which exceed the powers of the Financial Controllers.
II.2.1. Military budget implementation
Objective(s)
Objective SCO 11514
II.2.1.1. Overview of Budget Execution Cycle
Overview of Budget Execution Cycle

The Budget Execution Year begins with the receipt of the Budget Authorizations and the introduction of budget figures into
accounting systems, taking into consideration the Activity/IRM codes. The next step is the calls (requests) for cash – the SCs
co-ordinate calls with NATO HQ and the HQs requisition cash from SCs.
On approval of the annual budget, the Strategic Commanders are authorized:
o To enter into commitments and make payments for the purpose for which credits are approved
o To enter into obligations within the approved Contract Authority granted
The accounting is done in accordance with International Public Sector Accounting Standards (IPSAS).
The encumbrances (budget obligations) are recorded in the form of reservations and (pending) Commitments, with the next
step being the comparison and recording of the actual expenditures against commitments.

II.2.1.2. Steps in the execution cycle

Steps in the execution cycle

Generally speaking the expenditure budget execution cycle includes the following stages:
- Authorization and apportionment of appropriations to spending units: after the budget is approved by the legislative body,
spending units are authorized to spend money through various mechanisms, such as ministry of finance warrants, decrees, and
apportionment plans.
- Commitment: the commitment in the budgetary sense should be defined as the legal commitment, which consists of placing
an order or awarding a contract for delivery of specified goods, services, or physical assets. Such a commitment entails an
obligation to pay (a liability) only when the supplier has complied with the provisions of the contract. If the goods are not
delivered or the services not rendered, the commitment will not entail a liability, and it should be written off.
- Acquisition and verification (at this stage, liabilities are recognized): the verification stage immediately follows the deliveries.
It consists of verifying the conformity of the delivered goods, or rendered services, and the bill with the contract or the order
and recognizing the debt toward a third party (the supplier)
- Issuance of a payment order: when the goods and services are verified, the authorizing officer issues a payment order, which
is forwarded to the officer responsible for making the payment.
- Payment: the bill is paid by cash, check, or electronic funds transfer
The budget transactions in the NATO budget execution stage imply reservations, commitments, expenditures and transfers.
A budget reservation contains information about amounts of money in funds that have been reserved for an initiative or
initiative element.
In the middle of the year a Mid-Year Review (MYR) has to be prepared, with the purpose of advising nations of transfers
completed. It contains a request for the reallocation of funding for remainder of year, compensation for exchange rate changes,
funding for new legal obligations and funding for new items. The aim is to set the transfer counter to zero.
The level of this review is at Strategic Command, with the Military Budget Committee in charge with the review and approval.

The next step in the budget execution cycle refers to the Lapsable Credit reporting. Lapsable credits (a form of temporary
credits, which may be discontinued) are used to used to address unfunded requirements, in a formal call in October. An
informal reporting should be made until 31 December.
The report should also address the carry-forward of unexpended balances of commitments, as exceptional Carry-Forward of
uncommitted credits can be authorized by the MBCs. At the close of third financial year, credits for carried forward
commitments lapse.
At the end of the fiscal year (31st December), the closure of the Fiscal year takes place; at this point are completed the final
transfers. The end-of-year reporting includes the following:
o The Budget Execution Statement, referring to authorizations, commitments, carry forward amounts, payments and lapses
o Trial Balance.
All these reports are consolidated at SC level and result in Statement of Financial Position, Statement of Financial Performance,
and Cash Flow Statement.

II.2.1.3. Audits

The audits are performed during the entire budget execution period. The audits consist of the following procedures:
- an internal review procedure drawn by the Financial Controller (FC), focusing on local procedures/operations and non-
Appropriated Funds (NAF, e.g. MWA).
- an internal audit performed by SC audit organisation, thruogh reports to the Strategic Command FC and an annual report
direct to the Strategic Commanders
- an external audit performed by an International Board of Auditors (IBAN), through Reports via Strategic Commander to
Council; the Council refers the reports to MBC for comment/action and adverse reports reviewed by Ad-Hoc Group of Financial
Counsellors

II.2.2. EFL
 II.3.1. NATO military and civil budget committees

II.3.1.1. The organization and Players

II.3.1.2. The NATO Office of Resources

The NATO Office of Resources

Evolution of the NATO Office of Resources (NOR)

The NATO Office of Resources (NOR) brings together, under the direction and leadership of the Director NOR, all international
staff working on NATO military common-funded issues with the aim of reinforcing military common-funded resource
management at the NATO HQ.
The NOR provides integrated staff advice and support to the Senior Resource Board (SRB), the Military Budget Committee
(MBC) and the Infrastructure Committee (IC) as well as their Chairmen.
It also provides secretariat support for the Civil Budget Committee (CBC). The NOR provides staff advice to the divisions of the
IS and IMS, and other bodies as required, on NATO military resource issues.
It was established in May 2007, with the aim to optimize support to the Resource Committee structure, as it brings together
staff from the Budget Committees Support Section (previously part of the Office of the Financial Controller), and the Resource
Policy Coordination Section and the Security Investment Directorate (both previously part of the Defence Investment Division).
The NOR faces a series of challenges, deriving from the fact that it is dual hatted, serving both the Secretary General and the
three national chairmen. Traditionally it is an Infrastructure organization manned with engineers, which deals with resources
management, including budgets. Also, considering that most of the projects NOR deals with stretch over more than 1 year, life
cycle costing of major projects is a challenge, due to the difficulty of estimating the costs for medium and long term. Another
challenge relates to the tempo in manning vacant positions and the fact that the Military Budget Commitee works at a faster
tempo than NSIP, leading to potential lags in the documents chain.
The NATO Office of Resources (NOR) is composed of Three Branches: Plans & Policy, Secretariat &Finance and Management &
Implementation. The NOR Director has traditionally been a US Civil servant.

II.3.1.3. The Resources Challenges

In terms of resources, the Alliance currently faces a variety of challenges, deriving from the need to correlate the Level of
Ambition with the resources available to NATO.
A vision without resources is a hallucination. And yet the gap between the missions NATO is called to take on and the means it
has to perform them is growing day by day. Even as it conducts operations, NATO needs adequate capabilities to continue the
process of force transformation across the Alliance. The capacity to train to higher standards on more tasks and to transform
forces and practices while conducting high operational tempo deployments requires a larger proportion of usable forces.
Even capabilities that are ready to deploy, however, can be unavailable due to the high cost of deployment itself. For example,
European NATO members own approximately 1,000 attack and approximately 2,000 transport helicopters, but have deployed
no more than a small fraction of these to ISAF, where they are urgently needed. The Alliance urgently needs to examine ways
to alleviate such costs through changes in how operations are funded or essential capabilities are fielded.
NATO has tried the full array of incentives and mechanisms to encourage its members to maintain sufficient levels of ready
forces and defense investment. In each case, the initiative fell short – sometimes very short -- of agreed goals. Moreover, we
are in the midst of a deep economic crisis of indeterminate length. For these reasons, we do not believe that NATO can expect
any growth in resource availability. The opposite is more likely -- declining defense resources on both sides of the Atlantic over
a sustained period.
Generating political will to invest in military capabilities is a unique national responsibility. Each member government makes its
own case to publics and parliaments. Some argue that such investment is necessary to keep the Alliance strong; others stress
concerns over national security; still others point to countering terrorism and instability in Afghanistan rather than dangers at
home. Whatever the rationale, member governments should make it clear that modern defense capabilities cannot be
regenerated from low levels in one or two years’ time, should a threat suddenly come into public focus. Nor should members
rely solely on other allies while foregoing basic defenses of their own.
Political will also affects decisions to employ capabilities already on hand. NATO commanders must constantly navigate the
nature of multiple national caveats, for instance, which represent the conditions under which forces have been committed.
NATO leaders need to achieve as broad a consensus on missions as possible in order to reduce the preference for national
caveats.
Another challenge is related to the dimension of the NATO HQ and the organizational structure, prone to bureaucrary and
intricate documents flow.
One requirement is the need to reform the NATO Bureaucratic Structure: The International Staff and International Military Staff
(IS/IMS) are the backbone of NATO HQ, fulfilling many important day-today functions to support decision-making in the NAC
and the Military Committee.
However, both staffs have hardened into bureaucratic stovepipes, often performing duplicative functions and working in an
uncoordinated fashion that undercuts efficiency. While both staffs should be reviewed by an outside working group to determine
how they might be reorganized, a reform that could be undertaken now is to increase the integration of the staffs at NATO HQ,
which was begun on an experimental basis a few years ago. Such a mix of civilian and military staffs is key to implementing the
“comprehensive approach.”
Streamline the Command Structure: The NATO command structure is in a perpetual state of reform, and has transformed from
the complex organization of the Cold War to a configuration more suitable for expeditionary operations outside the NATO
region. However, as NATO evolves, so must its command structure, and there is still some unfinished business.
 Streamline the Command Structure: The NATO command structure is in a perpetual state of reform, and has transformed
from the complex organization of the Cold War to a configuration more suitable for expeditionary operations outside the NATO
region. However, as NATO evolves, so must its command structure, and there is still some unfinished business.
 One criticism is that SHAPE, despite being a strategic command, still has too much operational control that should belong to
the commander in the field. SHAPE should remain principally a strategic level command.
 Second, NATO headquarters are not standard, often complex and at times incomprehensible. Command relationships can
hamper rather than facilitate command. Most of the NATO command structure is still undeployable, necessitating the creation of
ad hoc headquarters to serve as KFOR and ISAF, while large staffs sit almost idle at fixed locations in Europe.
 Finally, the role of Allied Command Transformation (ACT) as an “engine for ransformation” is also under the microscope. ACT
is criticized as having a weak impact on transformation, failing to have acquisition authority, and lacking credibility at NATO
Headquarters. Some have always been concerned that the current arrangement – a dual-hatted supreme commander as head
of both ACT and U.S. Joint Forces Command (JFCOM) -- may not give that commander the time needed to devote to the
difficult transformation task at NATO.
The peacetime establishment (PE) review provides another challenge to the Alliance resources management. In July 2006, the
NAC tasked the MC to conduct a Peacetime Establishment review of the Alliance’s command structure, including dedicated
headquarters and other NATO installations, to identify a military structure that is more effective with regard to operational and
transformational tasks, and more affordable in manpower and financial terms. Throughout 2006 and 2007, the MC was actively
engaged in overseeing the analysis and work being done to develop a streamlined command structure capable of handling more
operations over longer distances, as dictated by the Alliance’s level of ambition agreed at the 2006 Riga Summit. This proved to
be a challenging task, given the political ramifications of reorganizing infrastructure that exists in some of NATO’s member
nations. By end 2007, the MC was able to gain consensus for modest changes to the NATO command structure footprint. The
review then moved to the next phase, which involves the analysis of key components of the structure to identify areas of
overlap and duplication that could assist in making the organisation more deployable. This work was intended to be completed
by the end of June 2008, with principal recommendations to be provided to Heads of State.
The way NATO spends money for operations and infrastructure is opaque, complicated and does not go far enough to lessen the
financial burden on nations deploying on missions. Changes are needed to improve financial efficiency, increase military
capability and cover costs that otherwise give nations an excuse not to deploy on operations. Because additional common
funding contributions will not come easily from nations, greater effort must be made to re-direct spending of common funds
from political and military bureaucratic structure to improving deployability and capabilities. This is routinely done through such
mechanisms as Peacetime Establishment reviews, but they have not produced the needed results.
The ISAF experience has caused NATO to rethink how it funds operations. However, more work needs to be done to permit the
use common funds to cover operational costs and to purchase common equipment. The “costs lie where they fall” principle,
which places the costs of participating in Alliance operations on the nations actually taking part, has been under attack for
many years. Still, that principle is largely followed, making it not only onerous to take part in deployments, but providing
nations an excuse not to participate because they cannot afford to. The financial crisis makes it imperative for NATO to develop
a new approach to funding operations and common equipment:
 Cost-share operations. Although wealthier allies feel they already pay too much into
 common funds and do not feel it is fair for them to increase their contributions to common funding, poorer allies often cannot
cover costs to deploy on missions. If wealthier nations do not contribute more to common funds, fewer allies will participate in
Alliance missions.
 Increase and broaden the use of common funds to procure common equipment for operations. While the Alliance has
increased the use of common funds to procure common equipment for operations, such use is often blocked by some nations
who “do not want to pay for a capability twice.” Such a short-sighted view makes it easy for some nations to avoid shouldering
the burden by pleading poverty. NATO military authorities should suggest additional equipment that NATO could purchase and
make available to nations and so make it easier for them to deploy.
 Coordinate equipment procurement with the EU. This has the potential for the greatest efficiency, but is the hardest to
implement. Both NATO and the EU share common capability shortfalls that could be met more efficiently if those shortfalls are
met in a common procurement. Much of such cooperation has been stalled by political issues, industrial base issues, as well as
by the sheer complexity that comes with common procurement by nations. Most efforts, even on a small scale, have failed
miserably in the past. However, a new approach at cooperative procurement should be considered by a working group that
includes representatives of transatlantic industry
 The only source of greater capability in the near term is to improve what is already on hand. That requires members to
generate economies within current defense budgets. The Alliance needs to make a number of major changes:
 Reconsider NATO’s ambition of two large and six small operations simultaneously, which it cannot fulfill for at least 10 years,
and is not attuned to the mission set we have set forth.
 Increase the usability of NATO’s 12,500 person formal command structure, none of which is deployable.
 Look for capabilities where the pooling of assets by some members can be agreed, such as the C-17 airlift initiative among 12
members and partners.
 Reorganize where practical into multinational units comprised of national component forces or even national niche forces.
 Expand civilian capabilities available to NATO by energizing and implementing the Comprehensive Approach.
 Renew emphasis on consolidating R&D investment and sharing technologies.
 Look earnestly at collective procurement or contracting for transport helicopters; intelligence, surveillance and
reconnaissance (ISR) assets; and centralized logistics, along the lines of the consortium purchase of strategic airlift by a group
of NATO members described above.
 Redouble efforts to shift spending away from personnel and infrastructure costs in national defense budgets, and towards
investment, training, and readiness. The goal is smaller, better equipped, more deployable forces.
 Bolster Alliance capacities to support member states’ national efforts to safeguard against cyber attacks from whatever
source.
II.3.1.4. The Civil Budget and Future Challenges
II.3.1.6. The NSIP Budget and Future Challenges
II.3.1.7. The New NATO HQ Project