In the face of skyrocketing debt, America’s NATO allies are planning massive cuts in their defense budgets. It’s a worrisome prospect given the swelling number of challenges on NATO’s plate: a counterinsurgency war/nation-building mission in Afghanistan, piracy in the Indian Ocean, missile and nuclear proliferation, cyber-attacks against critical infrastructure, rising tensions in the Arctic, and a resurgent and increasingly revisionist Russia. These are real and serious challenges, and one wonders how a shrinking NATO can handle them.

America’s closest and strongest ally, Britain, plans to cut defense spending by 8 percent—$59 billion over the next five years. As a consequence, the British army is shrinking from 102,000 to 95,000; Britain’s fleet of destroyers and frigates will be cut from 23 to just 10 ships; tanks and artillery are being slashed by 40 percent; and entire squadrons of warplanes will be retired. A study by the Royal United Services Institute predicts the elimination of 110 warplanes.

As The Washington Post reports, Britain will withdraw 20,000 troops from continental Europe, delay needed upgrades to its nuclear deterrent and speed up the decommissioning of an aircraft carrier. There has even been talk of deploying a new aircraft carrier without its complement of aircraft.

Speaking of aircraft carriers, Britain and France are so focused on defense-spending cuts that they just agreed to alternate deployment of a shared aircraft carrier.

France, for its part, plans $5 billion in defense cuts over the next three years.

A government commission has recommended that the German defense ministry shed 70,000 troops, shutter a number of army bases and slash spending $13 billion over the next three years.

According to Aviation Week, Italy is planning 10-percent cuts in every ministry, translating into the reduction of 10,000 troops and cancellation of new warships and new fighter aircraft.

NATO Secretary General Anders Fogh Rasmussen, helpless to stop the tidal wave of cuts, has urged NATO members to “take care not to cut too much or in the wrong way, that we might jeopardize our security in the future.”

But in a very real sense, the future is now.

Most NATO members have been cutting their militaries—too much and in the wrong way—since the end of the Cold War. Indeed, NATO’s budget crisis is neither new nor unexpected.

Even before this era of austerity, while the U.S. was spending 4 percent of its GDP on defense, only five NATO members mustered the will to meet the alliance’s set standard of investing 2 percent of GDP on defense. That means countries like Turkey (1.8 percent), Canada (1.3 percent), Germany (1.3 percent), Italy (1.3 percent) and Spain (1.2 percent)—large, important countries—simply haven’t lived up to one of the main responsibilities of NATO membership. Even Britain, generally considered America’s nearest technological peer within NATO, invested only 2.9 percent of GDP on defense in 2010. That figure will plummet in the coming years.

It’s easy to understand why Defense Secretary Robert Gates has warned of the “demilitarization of Europe.” What was “a blessing in the 20th century,” he observed earlier this year, is becoming “an impediment to achieving real security and lasting peace in the 21st.” According to Gates, “Funding and capability shortfalls make it difficult to operate and fight together to confront shared threats.”

If you doubt this, look no further than Afghanistan. NATO members have to hitch a ride with the U.S. Air Force or rent Soviet-era transports to deploy to Afghanistan; they “are not trained in counterinsurgency,” in the blunt words of Gates; and they lack helicopters to move across the mountainous country. At one point in 2009, Britain had only 30 helicopters to support its entire Afghanistan force.

Plus, alliance members have repeatedly over-promised and under-delivered when it comes to troop deployments. In 2008, for example, Canada threatened to withdraw its 2,500 troops if other NATO allies failed to muster a thousand more personnel for operations in Afghanistan’s restive south. When NATO put out a call earlier this year for more trainers to build up the nascent Afghan army, the alliance fell 450 short.

So the Americans fill the gaps. As of October 25, 2010, the United States is contributing 71 percent of all NATO forces in Afghanistan.

This is disheartening for at least two reasons. First, NATO is in Afghanistan because that country spawned an armed attack against a NATO member, which prompted the alliance to invoke Article V—NATO’s “all for one” collective defense clause—for the first time in history. In other words, Afghanistan is supposedly important to each and every member of the alliance—not just to the United States.

A second reason the imbalanced commitment to Afghanistan is so disheartening is the fact that the Europeans have the ability to do more. NATO’s European contingent (the 28 alliance members minus the U.S. and Canada) comprise a population of 567 million, command a GDP of $16.7 trillion, and field some 2.3 million active-duty troops and another 3.04 million reserves. The United States, by comparison, has a population of about 300 million, a GDP around $14.4 trillion, and 1.4 million troops on active duty and less than one million reserves.

As NATO’s European members gut their militaries, those numbers will change in the coming years, and not for the better. The result could be the devolution of NATO from a military alliance that has the means to do great things but merely lacks the will, into an increasingly amorphous political grouping that lacks both the will and the means to do much of anything.