Bringing France's defense effort to 3% of GDP: necessary? sufficient? sustainable?

During his last hearing as Chief of Staff of the Armies by the Defense and Security Commission of the National Assembly, General Lecointre, questioned by a deputy on what the armies would need to find a defensive posture comparable to that of the 60s and 70s, replied not without malice "4% of GDP, as at that time". Beyond the humor of a remarkable soldier with a more than exemplary career, General Lecointre clearly posed before the deputies the problem which underlies the efficiency and the performances of our armies today, namely the 'sinews of war', the budget at their disposal. Afflicted by 15 years of budget scarcity even though operational pressure remained high, the French armies were effectively on the brink of collapse in 2017, and the full implementation of the Military Programming Law which brought the Armed Forces budget to 2% of GDP. today, above all, it will have made it possible to stop the bleeding of capacity and give the military a little respite.

However, the rapid changes in the international security situation, the acceleration of the technological tempo, and the transformations of the geostrategic map, now require to consider a defense effort well beyond the 2% of GDP required by NATO, especially for a country like France. In this article, we will study the hypothesis of a defense effort at 3% of GDP, i.e. € 75 billion per year by 2025, to determine its relevance, sufficiency, and the budgetary and economic consequences, both on the state budget already severely handicapped by the increase in public debt with the COVID crisis, and at the level of the economic and social context of the nation. And as we will see, it is sometimes enough to broaden perspectives and ambitions to see solutions appear until now considered out of reach for the country.

1- Why is 3% GDP necessary and sufficient?

The first question that deserves an answer is to determine at what level the country's defense effort must be situated to meet these 3 criteria, namely to be simultaneously sufficient to counter present and future threats; necessary to guarantee the security of the French, the territory, and the protection of the interests of the country; and sustainable by public finances in a long-term effort. In this sense, taking the GDP as a benchmark is relevant, since it gives the value of the wealth produced by the country each year, and therefore is conditioned by many parameters, such as the economic health of the country, but also inflation, which directly influence the defense effort itself. If we accept that the GDP benchmark is relevant, what should be the optimal value? Today, the objective of a defense effort of 2% of the GDP is consistent with the format of the armies decreed by the White Paper on Defense of 2013 and the Strategic Review of 2017, as well as the overall strategy of France. , namely to base the security of the country on the deterrent force, and to preserve its interests with a deployable expeditionary force. Unfortunately, this format is no longer in line with the present and future threat, since, as all observers of the defense universe will have noted, a new need has arisen in recent years, that of having to face up to commitments. so-called "high intensity", to which the French armies are not ready.

With only 200 modernized Leclerc tanks, the French Armies will not have sufficient capacity to sustain a high intensity engagement, even a small one, over time.

In addition, and as we have repeatedly discussed in our articles, the intensification of international tensions, but also the return to the scene of major geopolitical players such as Russia and China, has profoundly changed the technological tempo of defense which was the benchmark for the last 30 years since the end of the Cold War. Therefore, it is necessary not only to increase the format of the armies to take account of these High Intensity commitments, but also to increase research and development efforts, as well as the pace and volume of acquisitions, in order to to support the comparison with these military powers. What applies to High Intensity also applies to national nuclear deterrence, which over the past 30 years, although politically preserved, has seen its format shrink as the risk of nuclear conflicts diminished, but has not kept up with the reverse path when the threat reappears. In this context, 3%, or € 75 billion in 2025, would make it possible to strengthen the armed forces by 25% in terms of staff, to accelerate and increase industrial defense programs, and to strengthen deterrence to levels consistent with reality present and future threat. Below, it is too little. Above, it is not necessary, for the moment at least

Another criterion to be taken into account, at European level this time, the defense budgets of France and Germany have always been close in absolute value since the rearmament of Federal Germany, so that none of the two former rivals cannot take the ascendancy militarily over the other. However, Berlin is, like all NATO members, required to increase its defense budget to 2% of its GDP, which is more or less 40% higher than that of France (3.800 $ Bn vs. $ 2.700 bn). From then on, with a defense effort of 3%, Paris would maintain the balance essential to security and good European understanding vis-à-vis a Germany at 2%, even pushing the latter to more efforts in this domain. Finally, and we will see it later in this article, 3% of GDP represents the upper limit beyond which the efficiency of the proposed economic model (which will be detailed below) remains optimal, making it possible to guarantee the sustainability of the effort.

2- How to finance such an effort?

Since the end of the glorious 30's, the first oil shock, and the first national budget in deficit in 1974, the defense effort has systematically been presented by the French leaders, whatever their political affiliation, as a necessary effort for security. but trying for public finances. The opposition between defense investment and social or educational investment has become, as such, a reflex of thought for a majority of French people. This is why, as soon as the tensions of the Cold War were eased, the governments, French as everywhere in Europe, undertook to reduce their defense investments, creating the conditions for the difficult operational situation that we are experiencing today. 'hui. Therefore, while it already appears extraordinary to have brought the Army budget to 2% of GDP, how can we imagine that it can reach 3% without having to close half of the schools and hospital beds? ? The macroeconomic analysis of the economic, budgetary and social effects of the State's investments in its defense, particularly in France, shows, however, that this perception is erroneous, and that the impact of this effort on public finances is much less. that we do not want to admit it.

In the 60s, the French defense budget represented between 3,5 and 4,5% of the GDP, which made it possible to develop many programs which brought France to the forefront of the international scene, such as the strategic bomber in long range Mirage IV.

A few figures will shed light on this. First, when the State invests € 1 million in the defense industry, it generates or maintains 10 direct jobs, since the € 20 billion in turnover from the Defense Industrial and Technological Base, or BITD, represent 200.000 direct jobs, according to figures published by the Ministry of the Armed Forces. Micro-economic studies, based on the analysis of the social efficiency of the defense industry by job pool, have shown that per million euros invested in this industry, 8 indirect subcontracting jobs and 7 induced jobs resulting from the consumption effected by the 10 direct jobs and the 8 indirect jobs in the local economy, were also created or maintained. In total, therefore, € 1 million invested in the national defense industry creates or preserves 25 jobs in the country, a very high efficiency linked to the very low exposure of this industry to imports. A similar analysis carried out by the audit firm PWC in Great Britain as part of the Tempest program had, for its part, concluded the creation / preservation of 27 jobs per m € (31 jobs per M £) across the Channel.

€ 1m in the Defense industry => 25 jobs

However, a job in France generates an average of 22,5 k € in social and tax revenue each year. At the same time, a job seeker costs social services and the State an average of 19.000 € per year. That is to say a differential of 42.500 € between a person in employment, and a person in search of employment. This amount applies directly to the State budget, since it compensates each year for social deficits which represent more than € 15 billion per year in normal periods (excluding Covid). In fact, the 25 jobs resulting from the investment of € 1 million in the defense industry, generate € 1,05 million in revenue and social and fiscal savings, all of which are charged to the State budget. , making investment in the defense industry more than self-sustaining for the state budget. Better still, if we include the exports carried out by the defense industry, which represent on average 35% of the turnover of the BITD, that is to say 50% of the investments of the State, the budgetary balance, by million euros invested, exceeds 1,5 million euros.

€ 1m in Defense Industry => 37,5 including export jobs => € 1,5m of budget return for the State

Defense exports represent between 5 and 8 billion € per year for France, and allow the maintenance of 60.000 direct jobs, and 160.000 jobs in total in the country.

But investment in the Defense Industry only represents part of the breakdown of the defense effort, which also includes investments in infrastructure, outsourcing investments, and especially personnel costs. , the most important in absolute value. However, these investments have a much lower budgetary efficiency than industrial investment. Indeed, where industrial investment will lead to an industrial subcontracting chain based very mainly in France, with a multiplier coefficient of 2,5 in terms of employment, the costs of personnel, civil subcontracting and Infrastructures have a shortened economic chain, significantly more exposed to imports, with a multiplier coefficient limited to 1,5. In fact, a job created thanks to investment in these fields will generate only half an additional job in the French economy. The values ​​of budget return per job being the same regardless of the fields, € 1m spent in these sectors will only manage 15 jobs in total, and a budget return of only € 0,55m in the end, brought down to 0,5 m € to take into account the social and fiscal particularities of military jobs.

€ 1m in personnel costs => 15 jobs => € 0,5m in budget return

On the basis of these two parameters, a solution appears on its own to qualitatively design a “sustainable” defense effort for public finances: it is necessary and sufficient for this that the surplus budget balance of investment in defense industry compensates for the investment deficit in other areas. In other words, investment in the defense industry must represent at least 50% of the total investment for the defense effort to have a positive or zero balance for public finances, to the state budget. constant. Who is more sustainable than a defense effort with a budget balance equal to 0?

Self-supporting defense investment => Industrial Investments == Personal Investments / subcontracting

3- Limits and consequences

Under these conditions, why not invest more, and create a large surplus for the State? Unfortunately, this model is constrained by a cyclical limit, because it is essential that a social deficit exists in France and must be compensated by the State budget. Beyond the € 15 billion collected or saved by the jobs created by the model, the budgetary efficiency of the defense effort decreases beyond a threshold allowing the design of a self-supporting model, of the order of 80% for the Defense industry, and 25% for the rest. This is one of the reasons that induce the upper limit of 3% of GDP for this model to guarantee its sustainability over time. Beyond that, it would be necessary for the State to find additional revenue or to make savings in other areas to finance it.

Self-supporting model limit = € 15bn annual social deficits ===> 3% GDP

Unlike other European countries, France has a global defense industry making it possible to produce almost all of the country's defense equipment, making it possible to have greater efficiency in the State's investment in this area.

On the other hand, over the interval between 2 and 3%, the efficiency for the State, in the broad sense of the term, is optimal. And what efficiency! By increasing investments in the defense industry from 18 to nearly € 35 billion (including acquisitions and industrial maintenance of defense equipment), the State will create 425.000 direct, indirect and induced jobs. Additional investments in other areas will create 200.000 jobs, including 60.000 military jobs and 10.000 civilian jobs in La Défense. In total, therefore, this model will create 625.000 jobs, which represents a drop in unemployment of more than 25%. However, these job creations will have to be spread over 8 to 10 years in order to allow industries as well as armies to absorb this change in volume in a reasoned progression. This industrial and operational transformation would also make it possible to redraw the economic map of the country, with many new industrial sites and military bases to be deployed in order to optimize the economic and social efficiency of the investment.

Increasing the Defense Effort from 2% to 3% GDP will create 625.000 jobs in France

The dynamic thus created, both from an economic and technological point of view, will very probably have more than beneficial effects on the national economy in its entirety, both by attracting investment thanks to flattering macroeconomic indicators, and by accentuating the business performance thanks to the technology clusters that will result from these investments. On the international scene, finally, France would see its status reinforced, both within the European Union, NATO and the United Nations Security Council, with increased independence, and the means to carry out actions in autonomy. , or even at the head of coalitions, which could, in the long term, increase the confidence of Europeans in a more autonomous defense.

Conclusion

As we can see, there is no fatality in the military and international downgrading of France. Like other nuclear nations, it can also increase its defense effort to a level of 3% of GDP necessary and sufficient to guarantee its security and strategic autonomy, without jeopardizing public finances, and by drawing substantial benefits of such an initiative, both economically and socially, as well as on the international scene. There is no longer any question today, in view of the acceleration of threats, of simply reacting to recent events. And despite the appeal of stacking programs to fill obvious operational and technological gaps, it is now essential to engage in a broader perspective with much stronger ambitions. The approach presented in this article is only one of the solutions that can be implemented to optimize the effectiveness of the French defense effort in the broad sense of the term.

Many countries have already taken stock of the changes underway in international geopolitics, and have adapted their political posture and defense investments accordingly.

The fact remains that to achieve this, it is necessary, as a priority, to take the right measure of the threat, both in its intensity and in its timetable, and to provide a potential suitable and objective response, regardless of the political postures and ambitions of each, or the aspirations of our European neighbors. Obviously, it is first and foremost at the level of this awareness that the blockage is located in France, as in Europe, while for other countries, in Russia, in China, in Turkey, in South Korea and the United States, this milestone has been crossed, sometimes for several years.

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