Wednesday, February 21, 2024

Why would bringing the French defense effort to 3% GDP cost public finances less than €3 billion per year?

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Many voices are being raised to denounce the inadequacies of the French defense effort in the face of the rise of international threats, while the ink of the Military Programming Law 2024-2030, passed last July, is at hand. barely dry .

Between the specter of an overpowering China, the rebirth of Russian military-industrial power, the pessimistic outlook regarding the war in Ukraine, tensions in the Middle East and the possible return of Donald Trump to the White House, more than ever Since the end of the Euromissile crisis, the role of the French armies, to guarantee the security of the country, but also of its allies, is today crucial.

The LPM 2024-2030, by taking up the format of the armies designed in 2013 by a White Paper structured around an asymmetric threat, and by only targeting the investment floor set by NATO of 2% of GDP, does not respond neither in volume, nor in its timetable, to the challenges which are accumulating facing the French armies.

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However, the arguments put forward to explain this lack of ambition and resources appear reasonable, with a chronic public deficit failing to fall below 3%, a sovereign debt approaching 120% of GDP, and a still shaky economy with limited growth and persistent unemployment, all of which limits the State's investment capacity.

So, is it illusory to want to bring the French defense effort to the level required to effectively respond to security challenges? As we will see in this article, it all depends on how the problem is posed.

A 2024-2030 LPM at 2% GDP is objectively insufficient to meet future security challenges

If the LPM 2024-2030 boasts an unprecedented increase in defense spending over its duration, with an army budget which will increase from €43.9 billion in 2023 to €67 billion in 2030, the defense effort, that is to say the ratio between these expenditures and the country's gross domestic product, will remain relatively stable, around 2%.

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Gazelle helicopter
Certain army equipment, such as Gazelle helicopters, will have to be extended well beyond what is reasonable, due to the limitations of the 2024-2030 LPM

In fact, in many aspects, this announced increase in credits will be a sham, especially since it will be partly eroded by the effects of inflation, as was also the case during the previous LPM.

In a previous article , we showed that it would be necessary for France to produce a defense effort greater than or equal to 2.65% GDP to meet the challenges of the moment. Since its writing, several factors have worsened the threats, therefore the timetable of needs for the armies, and with them, the investment needs.

Meet the need for recapitalization of the French armies

First, with an effort of 2.65% as recommended, the recapitalization of the French armies, after 20 years of critical underinvestment, was intended to be relatively progressive. Indeed, the peak of threats then assessed was between 2035 and 2040, which left around fifteen years for the defense effort to fill the gaps noted, and replace the most obsolete equipment such as Gazelle helicopters, Patrollers Offshore, and many others.

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However, the tempo has increased considerably in recent months, under the combined effect of a China increasingly self-confident in the Pacific, of a Russia, in full confidence, which has reconnected with a military power -industrial of the first order, of a de facto axis which has formed between these two countries, Iran and North Korea, and the now very perceptible threat of the return of Donald Trump to the White House occasion of the 2024 US presidential elections.

Donald Trump
The return of Donald Trump to the White House is now a credible hypothesis with which it is necessary to come to terms in strategic planning in France as in Europe.

In other words, where a period of 15 years to recapitalize the French armies could be considered reasonable a few months ago, it is now necessary to make the same modernization and transformation effort, on a noticeably shorter time frame, with the peak threat potentially beginning as early as 2028, or even before that, according to the most pessimistic forecasts.

Ensuring conventional transformation towards the European theater

Over this same period of time, the French armies must also ensure a profound transformation of a significant part of their forces, to meet the specific needs of the Central European theater facing Russia.

Indeed, to date, a majority of the French armies, and more specifically the Army, are designed and organized to meet the needs for power projection in asymmetrical theaters, particularly in Africa. Light and very mobile, these units have demonstrated great effectiveness in Iraq or in the South-Saharan zone.

However, it is clear that the VBCI, VAB and even the more recent VBMR and EBRC lack the firepower and protection to evolve against a symmetrical adversary such as Russia, while, in the sky, the air forces suffer from not having any advanced electronic warfare capability or suppression of opposing air defenses, to oppose an efficient, dense and structured anti-aircraft defense, as is the case in the Russian armies.

Expand armies and their resilience

Not only do the French armies appear "too light" for a confrontation in Central Europe, but they suffer, at the same time, from being too small to consider engaging in a symmetrical conventional confrontation.

Thus, with only 200 battle tanks, less than 120 artillery tubes, and at best, two heavy brigades, and two medium brigades, capable of responding to this type of engagement, the French armies barely have the possibility of engaging a complete mechanized division on a possible eastern front.

National Guard 24th Infantry Regiment
The 24th RI is the only French regiment exclusively composed of reservists. On the other hand, it is only very lightly equipped, having no armored combat vehicle of its own.

Worse still, once the two available brigades are committed, the Army has few material reserves to ensure the rotation of forces, even if an effort was made during the LPM 2024-2030, to try to increase reserve forces, in order to strengthen the human resilience of armies.

The situation is not much better in the other armies, with a fighter fleet limited to 185 aircraft for the Air Force, a single carrier battle group for the Navy, and a fleet of first-rate escorts too small for effectively ensure the security of the large major units that are the aircraft carrier and the 3 PHAs, even less to ensure the security of the maritime spaces for which it is responsible.

Strengthening the national defense industry

If the war in Ukraine clearly showed the inadequacies of the format of the French armies, it also highlighted the undersizing and vulnerability of the national defense industry, which struggles to produce even part of the ammunition necessary for Ukraine to face the newfound power of the Russian military industrial complex. Let us remember, in this respect, that France has a GDP almost 60% larger than that of Russia.

Over this same reduced time interval, going until 2028, 2030 at best, it would therefore also be essential to reformat the entire French defense industrial tool, in order to meet the needs for reconstruction and expansion of the armies. , but also to support, over the long term, the military operations of the French armies engaged in a symmetrical conventional conflict, if necessary.

It should also be considered that French industry, by its geographical position, and by the specific status of the country with a deterrent, could have a very particular role to play in supporting European armies in such an engagement, and not only the French armies, in charge of only a portion of the defense line.

Strengthen French deterrence in the face of the Sino-Russian threat

Finally, it would probably prove necessary to review the format and means available to French deterrence, today built on the principle of strict sufficiency, but in peacetime.

SNLA The Triumphant
The increase from a fleet of 4 to 5 or 6 SSBNs would prove more than welcome to counterbalance the 12 Russian SSBNs Borei and Borei-A.

Indeed, Russia has explicitly made it known that it is no longer committed to post-Cold War international agreements, while China is engaged in an unprecedented effort to strengthen its nuclear triad, and bring it to the level of States. -United and China.

Unable to rule out a possible return of American isolationism, and having to anticipate a total commitment of US forces in the Pacific against China, it is therefore up to France, and to Great Britain, to ensure the dissuasive umbrella of European countries.

However, to do this, the two countries suffer from a lack of resources to counter the Russian threat which can rely on a strong nuclear triad of 12 SSBNs (compared to 8 Franco-British), 110 strategic bombers (compared to around twenty Rafale / French ASMPA), and several hundred land-based ICBM and SRBM missiles (compared to 0 in both countries).

A defense effort at 3% GDP as a balance point between immediate and future needs

Meeting the previously outlined challenge by 2030 would require an in-depth study and a national effort going well beyond the sole scope of the Ministry of the Armed Forces, and especially this article.

On the other hand, on the basis of an average balance point established around 2.65% of GDP, as analyzed in previous articles, we can estimate that a transitional defense effort at 3% of GDP would prove necessary. , in the years to come, to finance all the required measures, on the timetable imposed by the deterioration of the international situation.

Nexter munitions defense effort
French ammunition production is far from being sufficient to allow the French armies to support a lasting symmetrical engagement.

However, in the current budgetary situation of the country, which is already struggling to finance the €47 billion of the armies worth less than 2% of GDP 2023, how can we hope to bring this defense effort to €70 billion (2023), or 3 % of GDP?

How much does the 2023 armed forces budget cost the State at €45 billion?

To answer this question, it is first necessary to estimate the sustainability of the defense effort at 2% of GDP in 2023, worth €47 billion. To answer this question, it is necessary to introduce the notion of budgetary return, that is to say the budgetary revenues and savings made by the State Budget, in application of the investments made on the army budget. .

The concept of budgetary return

To calculate this budgetary return, it is first necessary to carry out a synthetic breakdown of the army budget, as follows:

  • €20 billion for military and civilian personnel costs
  • €19 billion for acquisitions, R&D and maintenance of army equipment
  • and finally €8 billion for deterrence, including €4 billion for personnel costs, and €4 billion for industrial and technological investments.

In fact, we can break down the army budget into two categories, €24 billion for personnel costs, and €23 billion for industrial investments. However, each of these categories produces its own budgetary return.

Thus, state revenues relating to personnel expenditure can be assessed through the average levy rate on French GDP calculated by the OECD, which amounts to 47% in 2022. Thus, the €25 billion that would have had to invest the armies for personnel costs in 2023 if the defense effort had reached 2%, would have generated €11.3 billion in tax and social revenue in the country.

The most attentive will certainly have noticed that this calculation takes into account social revenue which, logically, is not allocated to the State budget. However, to the extent that the social accounts are structurally in deficit in France, and compensated each year by the State budget, it is possible, by simplification, to consider that all revenues applying to the social accounts decrease by as much compensation from the State each year, and therefore are charged to its budget.

Calculation of the budgetary return on the theoretical budget of the 2023 armies at 2% GDP

The rate is significantly different for industrial investments, for several reasons. Firstly, the VAT rate applied to all these services is fixed at 20%, whereas the average VAT revenue rate in relation to GDP is only 12%. In other words, the simple systematic application of a VAT rate of 20% increases the average sectoral tax rate applied to the defense industry by 8%, to reach 55%.

Defense industry Rafale assembly line
The French defense industry relies on a rich and efficient subcontracting chain. Thus, the Rafale team is made up of no less than 500 companies ranging from international groups, such as Safran, Thales and Dassault, to SMEs with a few employees.

Secondly, the defense industry is, by nature, much less exposed than the national market to imports, so that the vast majority of its subcontracting network is also national.

A multiplier coefficient of additional revenue for the state therefore applies, which can easily be reduced by default to 65% of the investments made, in connection with the Keynesian multiplier coefficient reduced to this industrial sector alone. On this basis, the €23 billion in industrial and technological investments by the armed forces therefore generate €15 billion in revenue and savings on the state budget.

Thus, of the €47 billion initially invested by the state, we have just shown that the residual cost would only be 47 - (11.3 + 15) = €20.7 billion. This cost must further decrease. Indeed, French defense industries export , on average each year, the equivalent of 50% of national investments made.

Thus, if €23 billion are invested by the State, this empirical rule, but easily confirmed over the last 20 years, would be that on average, French defense industries export €11.5 billion worth of defense equipment each year. defense. Deducting VAT and local production, these exports bring in 40% of the sums invested in taxes and social contributions to the national budget, or €4.6 billion.

In total, therefore, of the €47 billion invested, the state recovers or saves on average €30.9 billion, and must only supplement this budget with other sources of financing to the amount of €16.1 billion.

How much would an army budget (2023) at 3% GDP (€70 billion) cost the state?

Using the same hypotheses, it is possible to calculate what the real additional cost would be generated by an increase in the defense effort of 2 to 3% of GDP, i.e. an army budget of €70 billion based on the same 2023 working hypothesis.

Leclerc VBCI VAB Army
With only 200 Leclerc tanks and 120 artillery tubes, the Army does not have the firepower and protection required to engage sustainably in a symmetrical theater.

The most trivial approach would be to rely on a homothetic growth in costs, that is to say personnel costs increasing from €22 to €32.7 billion, industrial costs from €19 to €28.3 billion. , and deterrence increasing from €8 to €11.9 billion, including €6 billion in personnel costs. Thus stated, the remainder payable by the State would increase from €20.7 billion to €37.7 billion, an increase of €17 billion, without taking into account exports.

However, this hypothesis is as ineffective as it is not very credible. Indeed, increasing total personnel expenditure from €23 billion to €32.7 billion would make no sense, as the armies are already failing to meet their recruitment objectives today . In addition, the needs identified at the start of the article relate more to new equipment, and new industrial and operational capacities, than to forces simply increased by 50%.

Hypothesis of optimized budgetary growth

Let us therefore take a different hypothesis, namely personnel costs brought to €28 billion, deterrence brought to €11 billion including €5 billion for personnel, and industrial and technological investments increasing from €19 to €31 billion. This breakdown generates a total HR investment of €33 billion, for a total industrial investment of €37 billion.

By applying the same data as in the previous calculation, we therefore obtain an HR budget return of €15.5 billion, and an industrial budget return of €24 billion, for an initial total of €39.6 billion. By taking the hypothesis of homothetic growth of exports at 50% of industrial investments, we reach €7.4 billion in additional revenue.

tight order
Human resources are today the most difficult resource for armies to master and expand.

In total, therefore, the €70 billion (2023) initially invested would generate a budgetary return of €47 billion, or a marginal cost of €23 billion. Compared to €16.1 billion today, the additional cost to be borne by the State would only increase by €6.9 billion.

An overestimated budgetary cost of €7 billion

This balance is, however, much higher than what the state budget should actually support in terms of additional charges. Indeed, by increasing investments from €23 to €37 billion, defense industries would create 100,000 to 130,000 direct jobs, and as many indirect and induced jobs, i.e. a total of more than 200,000 jobs created hypothetically. low, to which must be added 100,000 additional jobs linked to the increase in exports.

These 300,000 job creations would, obviously, reduce the social spending of the state and local authorities, in support of job seekers, if not directly, at least by transitivity, in the long term.

With an average cost per job seeker estimated today at around €15,000 per year for the various State services, these 300,000 new jobs would represent €4.5 billion in savings on the State budget. .

Thus, the remaining net responsibility of the state, for having brought the army budget from €47 billion and 2% of GDP, to €70 billion and 3% of GDP, would only reach €2.4 billion per year. , or barely more than 0.09% of French GDP.

Applications and constraints of the model presented

Obviously, the approach proposed here is not without weaknesses. The most obvious of these is the fact of considering that an empirical observation can be transposed as a rule.

Thus, if indeed, over past decades, the exports of the French defense industry have respected, on average, the principle of 50% of national investments, nothing guarantees that an increase in investments in this area can be, automatically , followed by a similar increase in exports.

Maistrance parade
Armies are finding it increasingly difficult to recruit qualified personnel who meet their expectations.

To secure this aspect, it would, in fact, be necessary for the armies to adopt an equipment strategy more favorable to exports, and thus guarantee that the increase in available credits is accompanied by an increase in the markets that can be addressed by the manufacturing industry. French defense.

It should also be noted that to respond to security challenges, it would be necessary to increase the strength of the armed forces, through a rapid expansion of the National Guard. This assumes not only that the National Guard will reinforce existing units of the Army as today, but that it can give rise to autonomous and fully equipped units, like the US National Guard.

Furthermore, it would be essential, in this hypothesis, for the technological armies, the National Navy and the Air Force, to reflect on how to effectively integrate the HR potential of the National Guard and the Reserve, to extend their operational capabilities, and not simply to replace them.

Conclusion

We see that bringing France's defense effort to 3% of GDP, which seemed beyond the reach of public finances at the start of this article, seems much more accessible at the end of it.

To achieve this, however, we must agree to profoundly change the strong paradigm governing the national defense effort, namely only considering it through the prism of expenditure, without ever considering, in its design and balancing, revenue. which will be, or are, generated by these investments.

Sukhoi Su-57 factory
Russia has adopted a war economy, devoting a very significant part of its GDP to the manufacture of weapons and the support of armies.

This dogma, inherited from a Gaullism which had only experienced strong growth and surplus budgets, can no longer, today, respond to the specific issues which govern the financing of the French armies.

However, unlike many countries, France has an asset to increase its spending and investments in this area, a global defense industry capable of producing almost all of the armies' defense equipment. This industry is, moreover, largely exporting, and only slightly exposed to imports, making it an exceptional tool in terms of the efficiency of public investment.

Obviously, €2.4 billion in additional costs is not nothing, especially since it will certainly take a period of growth and adaptation for the balances mentioned to stabilize. However, the effort to be made, to effectively transform the French armies into a protection force responding to the challenges of the moment, appears perfectly within the reach of the public finances of a country like France, what is more by putting them into perspective. risks associated with inaction, or too timid action.

The fact remains that if technological innovation is popular within the Ministry of the Armed Forces, and more generally, the civil service, the disruptive models coming to shake up decades of planning, certainly ineffective, but comfortable, are much more difficult to impose, or simply to assert.

Article from December 5, 2023 in full version until February 22, 2024

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Fabrice Wolf
Fabrice Wolfhttps://meta-defense.fr/fabrice-wolf/
A former French naval aeronautics pilot, Fabrice is the editor and main author of the Meta-defense.fr site. His areas of expertise are military aeronautics, defense economics, air and submarine warfare, and Akita inu.

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6 Comments

  1. I have no confidence in the policies of Macron and his teams of broken arms, who say, on every occasion, everything and its opposite. Macron, we know well, is the stooge of the USA, Gafam, European Union and other Black Rock, Labs and consulting firms. He has no ambition for our Nation, except to “assimilate” us to an extra-national entity, of which he dreams of taking the leadership in the manner of Ursula Von der Layen! He has already seriously damaged France's economy long before he was a minister or president. Our defense doesn't bother him too much and is not his objective. I don't understand why our military leaders don't take more action against him!

  2. “Obviously, €6 billion in additional costs is not nothing.”
    Certainly, that’s a lot!
    but in terms of budget everything is a question of political choice. The monumental losses suffered by EDF, which was forced by politicians to sell electricity at a loss to create artificial competition on the orders of Europe, is proof if it were needed!

  3. Your budgetary and capacity analyzes are very relevant, however one of your favorite things is quite questionable: the difficulty of increasing the workforce. You make it a topos of your analyzes (excellent by the way) when in reality it constitutes not only an absolute necessity for the rise in power of the armies, but it is not unattainable either, far from it. In fact, you are thinking within a constant salary/HR policy scope. However, it is this factor that needs to be changed to enable greater recruitment/retention in this more competitive labor market environment: increase in balances (notably MDR and SOFF), effective commitment/re-signature bonus system and readable, renovated second-half career HR paths, more flexible personnel management, major modernization of infrastructures, calmer pace of missions, etc. These measures will necessarily increase the average budgetary ratio “payroll/personnel” but they are necessary to actually increase at least the FOT from 30 to 40,000 personnel. Nothing will be credible except in a 3% GDP model. The Ukrainian example clearly shows that mass and volume are essential qualities. Therefore, 4 current armored brigades are better than 2 super-equipped NG brigades.

    Finally, the necessary modernization of equipment, training and missions will also have a very positive effect on recruitment through the sense of commitment and service of the military (notably SOFF and OFF).

    In the end, I think you need to review this factor in your analysis to make it more credible on a 3% model, which does not exclude the complementary and probably also necessary rise in power of a national guard.

    Yours truly.

    • Thank you for the comment.
      In fact, I consider that France will never be able to achieve the required format with professional staff, even by increasing the attractiveness of the positions. In fact, as I have often written, it seems preferable to me to concentrate on a reduction in professional numbers, and an increase in the numbers of the National Guard, on a model close to that of the United States. However, from a payroll point of view, a national guard costs between 4 and 6 times less than a professional soldier. In fact, by reducing professional staff by 30,000 hours, you can, at a constant budget scope, obtain a net increase in format of 120,000 hours (at x5, half). In the model presented here, you can even afford to increase salary attractiveness by 25%, while increasing the workforce in the long term by 120k, i.e. a national guard at 200k, and professional workforce at 180k. However, , in such a scenario, it will be essential to form real national guard units, that is to say with the numbers, but also the equipment. From my point of view, the National Guard is undoubtedly the best format to respond to symmetrical threats of high intensity, but low to medium probability in Eastern Europe, where the professional force would remain sized to control the high probability threat , but medium to low intensity, perimeter. These aspects were studied in this 2021 article: https://meta-defense.fr/2021/07/13/la-garde-nationale-un-format-de-predilection-pour-la-haute-intensite/
      Best regards ,

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