* NATO seeks ways to make scarce funds go further
* NATO chief calls for rises in defence spendingpost-austerity
By Adrian Croft
BRUSSELS, Oct 9 (Reuters) - NATO ministers wrestled onTuesday with how to prevent austerity-driven defence cuts inmany member countries from undermining the power of the63-year-old Western alliance.
Many European countries have cut defence spending in recentyears as they try to rein in budget deficits, deepening the gulfin military capabilities between the United States and the other27 alliance members.
On the first day of a two-day meeting in Brussels, NATOdefence ministers were looking at how to make scarce defencedollars go further by increasing multinational cooperation andcutting wasteful duplication of effort.
NATO Secretary-General Anders Fogh Rasmussen urged membernations to commit to increasing defence spending again once thesqueeze on budgets eases.
"Once our economies recover, we must increase our investmentin defence once again," Rasmussen told reporters at the start ofthe meeting. "Because security is the basis of prosperity. Someargue that we cannot afford it. But I say that we cannot affordto be without it."
NATO diplomats say it is unrealistic to expect any increasein defence spending soon although the pressure on alliancebudgets may ease slightly once the NATO-led combat mission inAfghanistan finishes at the end of 2014.
Ministers turn to Afghanistan on Wednesday, when they areexpected to give military experts the go-ahead to draw updetailed plans for a NATO-led training mission that will startwork in Afghanistan in 2015 once combat operations end.
The United States has made little secret of its frustrationwith declining European defence spending and Europeandeficiencies were laid bare during last year's NATO bombingcampaign in Libya, when the Europeans had to rely on the UnitedStates in key areas.
One NATO answer to the cash shortage has been "smart"defence. This means more cooperation between alliance members toreduce wasteful duplication of equipment and to enable membersto access to capabilities they could not afford on their own.
NATO allies are working on 24 multinational programmes andmore are in the works. One example is a "universal armamentsinterface" to enable fighter jets to use munitions from varioussources and nations.
Experts say the proposed merger of Franco-German dominatedEADS and Britain's BAE Systems could encouragegovernments to standardise weapons and equipment.
Rasmussen avoided expressing an opinion on the merger, whosefuture hung in the balance on Tuesday, but said he favouredrestructuring Europe's defence industries to make them morecompetitive.
Another idea debated by ministers was whether NATO's owncentral pool of funds could be used to help develop sharedmultinational capabilities. NATO's central military budget, madeup of contributions from member states, totals 1.45 billioneuros this year, about a third of which is spent on operations.
"As the level of activity in our operations goes down, thequestion arises what do you do with this money?" said a seniorNATO diplomat, speaking on condition of anonymity.
The diplomat suggested some of the funds could be spent ontraining to make sure NATO nations keep the operational edgethey have acquired by working together for years in Afghanistan.
Ministers were also planning to discuss results of a studymeasuring the effectiveness of each country's defence spending.
(Additional reporting by Sebastian Moffett, Claire Davenport,Justyna Pawlak. Editing by Sebastian Moffett and Jason Webb.)