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In response to your Subcommittee's request for assistance during your review of U.S. defense commitments, CBO estimated the costs of withdrawing U.S. troops stationed in Europe. This memo summarizes our findings and transmits a final version of our estimates. The memo also discusses the effects of our current overseas forces on U.S. trade balances.

We confined our estimates to costs of withdrawing some of the 205,000 U.S. Army troops now stationed in Europe. We estimated costs of withdrawing from 5,000 to 70,000 personnel.

There are one-time costs and savings associated with these withdrawals, along with recurring savings. The net effect on costs depends mostly on whether the troops that are withdrawn from Europe are also eliminated from the Army's strength. If they are, savings could be substantial. If the troops stay in the Army, the one-time costs for basing them in the United States, and possibly for prepositioning additional equipment in Europe, could be many times the size of annual recurring savings.

If, for example, 70,000 troops are withdrawn from Europe and the Army's strength is reduced accordingly, then recurring savings in costs for personnel and for operations and maintenance would equal $1.9 billion a year (see Summary Table 1). (All costs are in fiscal year 1983 dollars.) Another $6.6 billion in onetime costs would be saved by avoiding buying new equipment for these forces. Savings for the withdrawal of 5,000 troops would be much more modest: $130 million a year in recurring costs and $360 million in one-time equipment costs. While savings would be largest, this approach would also cause the greatest delay in our reinforcement of NATO in the event of war.

Recurring savings would be much smaller if the withdrawn troops were kept in the Army and based in the United States. If, for example, 70,000 troops were moved from Europe back to the United States, recurring savings could amount to $400 million a year. But one-time costs, mostly to build new facilities, could equal $3.5 billion. On the other hand, a small withdrawal of 5,000 troops could save $40 million a year and might require little or no added basing costs, since enough spare facilities might be available at existing bases.

Recurring savings would be still smaller, and one-time costs much larger, if equipment for withdrawn troops were prepositioned in Europe to speed their redeployment in the event of war. Building new stateside facilities for 70,000 withdrawn troops, and buying extra equipment to allow prepositioning while also providing equipment for stateside training, could result in one-time costs of $10.4 billion. Recurring savings would amount to only $330 million a year. A reduction of 5,000 troops under this scheme would result in one-time costs of $520 million compared to annual savings of $30 million. Such large one-time costs and small recurring savings probably makes this approach uninteresting from a cost standpoint. Nonetheless, prepositioning of equipment would minimize adverse effects on the U.S. ability to reinforce NATO in the event of war.

These estimates employed CBO models and data for personnel costs and for some equipment costs. Army estimates, which we carefully reviewed, were used for costs for basing and for some other cost categories (see appendix for details).

We did not consider alternatives that placed withdrawn troops in the reserves or that withdrew personnel from services other than the Army, even though about one-third of U.S. personnel stationed in Europe are not in the Army. Nor did we consider the effects of year-by-year budgets. Finally, we did not analyze in any detail the effects of the troop withdrawals on military effectiveness, though it seems clear that the U.S. ability to aid in the defense of NATO would be diminished if substantial numbers of our troops were withdrawn.

At the Subcommittee's request, we have also compiled data on the effects on U.S. trade balances of current U.S. forces stationed in Europe. In fiscal year 1980, the latest year for which data are available to date, U.S. defense expenditures associated with stationing troops in the Federal Republic of Germany are estimated at approximately $3.2 billion. In all of NATO, expenditures totaled $5.9 billion for fiscal year 1980¹ (see Summary Table 2).

Because these expenditures are not included in calculating U.S. trade accounts, they have no direct effect on trade balances. This conclusion is a consequence of how trade balances are defined rather than the absence of economic effects. To the extent that such expenditures stimulate foreign economic activity, and alter relative U.S. and foreign competitive positions, they will create increased foreign demand for U.S. goods, as well as increased foreign exports to the United States. The magnitude of these changes in volumes of trade, and their net effect on bilateral payments balances, will be a function of the macroeconomic policies of the United States and NATO nations and is likely to be modest because the total volume of trade between the United States and NATO was substantially larger than $5.9 billion in 1980. Nonetheless, if all U.S. troops stationed in NATO were to be withdrawn, the stimulating effect that U.S. spending has on these economies and on U.S. trade would be eliminated.

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1. Data are based on estimates by the Comptroller of the Department of Defense and, in some cases, have been checked for reasonableness against estimates made by the Bureau of Economic Analysis in the Department of Commerce.