Europe’s resolve to improve its defense capabilities has raised the hopes of aerospace companies and arms manufacturers around the world. They shouldn’t hold their breath. Although British Defense Minister Geoff Hoon recently announced the purchase of Raytheon air-to-ground Maverick missiles, European defense budgets have been falling by an average of 5 percent in real terms every year since 1995. Most European governments will be urging their defense departments to cut costs, not to make major investments in equipment to modernize their forces.

So what is to be done? In the absence of more money, European governments should take a closer look at what they are spending their money on. More specifically, they should rebalance how much they spend on recruiting, training, and housing troops and how much on arming them.

The wide gap between defense spending in the United States and Europe is well known. In 1999, total US defense spending was $275 billion, almost double the $140 billion spent by NATO’s 13 European members, excluding the newest: Hungary, Poland, and the Czech Republic. The effects of that spending gap became clear during the war in Kosovo. Fully 85 percent of NATO’s effective firepower in the bombing campaign, whether...