Greece Defence and Security Report Q2 2008

Prime Minister Costas Karamanlis' official visit to Turkey on January 24-26, the first of its type in five decades, was considered a successful move to ease relations between the two traditional rivals, even though no concrete agreements were signed. Both men did not mention the two most sensitive issues in bilateral relations - the dispute over control of small islands in the Aegean Sea (which brought the two countries to the brink of war in 1996) and the frequent confrontations between the two air forces in disputed air space. Erdogan said that there could be progress on some smaller issues, such as the status of the Greek Patriarch in Istanbul and the re-opening of a Greek Orthodox religious seminary on a small island off Istanbul. The scope for boosting trade relations between the two countries was seen as being considerable, as it bilateral trade has already surged from US$200mn in 1999 to an estimated US$3bn in 2007. A key factor driving the rapprochement is Turkey's application to join the European Union (EU), which has been supported by Greece since 1999. Turkey's population outnumbers Greece, with 70mn people compared to 10mn, and it military forces are comparably stronger. According to Turkish analyst Necdet Kivanc, 'Greece sees it in is national interest to have a Turkey obliged to EU norms rather than a more bellicose one left outside'.

The Greek defence industry's good relationship with the US, plus NATO and EU membership, should ensure that it continues to benefit from a significant number of subcontracts and plays an important role in the exporting of arms to the Middle East and emerging European countries. There appear to be no immediate threats on the positive path that Greece, a long-term member of Europe, is steering.

Government reforms are boosting consumer and business confidence, and the economy is expected to continue growing in 2008.

In early December 2007, Greece agreed to buy 415 BMP-3 fighting vehicles from Russia, worth an estimated EUR1.7bn (US$2.5bn). Defence spending in Greece runs at around 3% of GDP, one of the highest levels in the EU, partly because of a policy to keep an arms balance with Turkey. Greece has a 10-year defence procurement plan worth a total of EUR27bn in 2006-2015, including the purchase of fighter planes. Russian-built Sukhoi SU35s are being considered among other models to meet the country's need for 30 fourth-generation fighter jets in a contract worth EUR4bn expected to be awarded during 2008. Greece's relations with Russia have improved in recent years, with a joint oil pipeline project launched in 2007. Russian President Vladimir Putin visited Greece three times in 2006-2007.

Greece's military expenditure has remained at a steady level over recent years, but decreased over 2005.

Growth will be limited by Greece's ongoing EU obligation to bring its budget deficit down to under the 3% GDP limit applied to eurozone countries. The Greek defence industry continues to be involved in the manufacture and export of ammunition of all classes. Its imports, although slow over the last year or two, are expected to recover over the next couple of years. However, the arms trade continues to be affected by cuts to the defence budget.