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France Discussing GDP-based Defense Budget Cut

Mar. 25, 2013 - 07:36AM   |  
By PIERRE TRAN   |   Comments
French President Francois Hollande must decide what share of the total cuts in spending will be borne by the military as France seeks to reduce the public deficit.
French President Francois Hollande must decide what share of the total cuts in spending will be borne by the military as France seeks to reduce the public deficit. (Philippe Wojazer / AFP pool)
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PARIS — The French defense and finance ministries are seeking a compromise in cutting military spending, with a reduction to 1.2 percent of gross domestic product (GDP) seen as a possible consensus figure, a defense analyst said.

“What we’re seeing is a search for a compromise, with discussions centered on 1.2 percent of GDP,” said Loic Tribot La Spiere, chief executive of the influential think tank Centre d’Etude et de Prospective Stratégique.

France commits 1.56 percent of GDP to defense and tops that up with exceptional receipts from asset sales. The 2013 military budget is 31.4 billion euros ($40.5 billion), including 1.2 billion euros from the sale of radio frequencies and property.

The Finance Ministry wants to cut annual defense spending to 1.18 percent of GDP, while the Defense Ministry wants spending reduced to 1.25 percent, Tribot La Spiere said.

If the defense and finance officials can agree on a consensus, that “synthesis” will be presented to President François Hollande for approval as the future defense budget.

The compromise figure of 1.2 percent emerged after Hollande chaired a meeting of the high-level defense and security council March 22.

Hollande must decide what share of the total cuts in spending will be borne by the military as France seeks to reduce the public deficit.

However, Tribot La Spiere noted the problem of focusing too much on percentage of GDP spending.

“The focus on a figure is extremely dangerous, as that sets a budgetary vision rather than a vision of the future,” Tribot La Spiere said.

French Sens. Daniel Reiner and Jacques Gautier have called for the government to sell shares in defense companies and property assets to raise money to offset the budget cuts.

“If the president decides to assign the proceeds of the sale of shares in defense companies to the armed forces’ equipment and to research and to development, he will be working for the competitiveness of our economy and the value of our services,” the senators wrote in an opinion piece published in the March 21 edition of the daily newspaper Le Monde.

Selling shares in Thales and Safran would be relatively straightforward, as there would be buyers of the stock, but EADS would be more difficult because of the German holding, said Jean-Pierre Maulny, deputy director of think tank Institut de Relations Internationales et Stratégique.

Selling shares in naval company DCNS and Nexter would take more time due to privatization laws, he said.

One of the key issues is the defense salary bill, as the total pay figure has risen despite staff cuts, Maulny said.

Reiner views the percent of GDP formula with skepticism, as the figures are fiscal projections for 2020 to 2025. Defense officials are trying to protect the size of the armed forces, or the format of the forces, he said.

Defense officials are looking to defend what is known as the Y scenario, which assumes a loss of some 15,000 to 20,000 personnel. Those cuts would come on top of the 8,000 to 10,000 due to leave under a current plan to cut 54,923 staff from 2008 to 2014.

The Finance Ministry is looking to cut 1 billion euros in 2014 and 2 billion euros in 2015 and, if public finances recover in 2016 or 2017, increase defense spending, but not adjusted for inflation, news reports said.

Inflation in the defense sector is around 3 percent to 4 percent because of the technology content, said François Lureau of consultancy EuroFLconsulting and a former head of the defense procurement office.

The national inflation figure is based on consumer prices.

Budget cuts will hit industry in the short term with cuts in production and research, and job losses, Lureau said.

“No new programs will eventually lead to lower operational capabilities,” he said.

Given the general cuts in spending in Europe, a pooling and sharing of assets requires the political will to do so, he said. Time also is necessary, but if the governments order it, militaries will converge requirements, allowing capabilities to be maintained.

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