FRENCH DEFENSE BUDGET STABLE AMID WIDESPREAD

C O N F I D E N T I A L PARIS 006896

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E.O. 12958: DECL: 10/12/2016
TAGS: MARR MCAP EFIN PINS KCFE FR
SUBJECT: FRENCH DEFENSE BUDGET STABLE AMID WIDESPREAD
CUTBACKS


Classified By: Political Minister-Counselor Josiah Rosenblatt, reasons
1.4 (b) and (d).


1. (C) Summary: The Ministry of Defense's 2007 budget would
increase defense spending a modest 2.2 percent to 47.7
billion euros, according to the draft budget presented by
Finance Minister Thierry Breton on September 27. The draft
budget dispels earlier rumors that defense spending could
diminish as the Chirac government attempts to reduce the
overall budget deficit in line with EU-mandated limits and
impress upon the public his government's fiscal prudence in
advance of next April's presidential elections. Most
additional funds would be earmarked for large equipment
purchases--including the Rafale multi-role plane and a second
aircraft carrier--and for international operations, such as
those in Afghanistan and Lebanon. The defense budget
contained few surprises, and proposed increases corresponded
with previous commitments established in 2002 for the second
phase (2003-2008) of a multi-year military modernization
plan, which established defense priorities through 2015. The
MoD pointed to the budget as proof that France remains
committed to its status as a global military power, even at a
time when other ministries suffered significant cuts and
other EU member states are scaling back on defense spending.
It remains to be seen what effect the 2007 Presidential
elections will have on the defense budget. End Summary.

Defense Gains Small Victory in Belt-Tightening Environment(
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2. (C) The Ministry of Defense budget should enjoy a 2.2
percent increase from 2006 for a total of 47.7 billion euros,
in contrast with a Central Government (GC) budget widely
hailed as "virtuous" for strict cost-cutting measures that
will trim 15,000 jobs from the public rolls and limit public
spending to a pre-inflation increase of .8 percent. Finance
Minister Thierry Breton presented the draft budget on
September 27 at a time when the GoF is under great pressure
to demonstrate fiscal prudence: the European Union's
Stability and Growth pact requires all member states to
reduce debt as a percentage of GDP to 60 percent by 2010, but
France's overall budget deficit still stands at 65.5 percent
for the second quarter of 2006, one of the highest levels in
Europe.


3. (C) In this fiscally austere environment, many expected
the defense budget to suffer. However, as she did in
previous years, Defense Minister Michele Alliot-Marie waged
an aggressive and successful public campaign to preserve her
funding, claiming it would be "irresponsible" to cut defense
spending at a time when 14,500 French troops are deployed in
theaters such as Lebanon, Afghanistan, Kosovo and the Ivory
Coast. She further called for economic patriotism in
defense-related industries, urging large increases in
research and technology spending to protect French industry
against "the power of American industry." Finally, in the
lead-up to the spring 2007 presidential elections, she
repeatedly invoked the position of Socialist Party (PS) First
Secretary Francois Hollande, that defense spending might be

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better directed toward social projects, to imply that a
Socialist presidency would lead to a weakened military.


4. (U) According to the plan presented to the Council of
Ministers, defense spending would total 36.3 billion euros
(47.7 billion euros including pensions). Defense funds would
account for 2.6 percent of the French GDP for the second year
in a row (as compared to 4.1 percent in the U.S. and 1.5
percent in Germany). Second only to the budget of the
Ministry of Education, this figure represents 599 euros per
French resident per year. The budget closely follows the
five-year plan for 2003-2008 outlined in the Law of Military
Programming (LPM),which aims to achieve specified targets of
military modernization by 2015. Alliot-Marie announced in her
presentation of the budget that 2007 marks the first time in
25 years that an LPM plan has been followed for all five
consecutive years.


5. (U) The additional funds primarily would provide for the
procurement of new equipment and deployment of forces
overseas. The MoF allocated a second tranche of 700 million
euros to begin construction of a second aircraft carrier, 475
million euros to purchase 12 NH 90 helicopters that would
replace the aging Super Frelons, 250 million euros for the
purchase of more Rafale multi-role planes, and 220 million
euros for further development of the Barracuda nuclear attack
submarine. The MoD would also purchase 117 armed combat

vehicles for the infantry (VBCI),50 naval cruise missiles
and 5,000 "integrated infantry systems" (FELIN) that consist
of a uniform, arms and communications equipment that enable
an infantryman to operate efficiently in a wide range of
circumstances. Further, the MoD would increase spending on
"external operations" (OpEx) to 360 million euros from 175
million euros.

(But The MoD Downplays Subtle But Important Shortfalls
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6. (C) Despite Alliot-Marie's claim that the budget
constitutes "dazzling proof of five year's worth of ceaseless
political determination to modernize our defense," the modest
increase in the defense budget conceals notable cutbacks and
unfulfilled promises. The Army would purchase only 12 NH90
helicopters, instead of the 30 helicopters it intended to
acquire as recently as September. While Alliot-Marie boasted
that the gendarmerie will create 1,410 new jobs, she failed
to mention that the MoD would cut 4,410 positions, for a net
loss of 3,000 jobs. (NOTE: the MOD and the Interior Ministry
share responsibility for the gendarmerie, but it relies on
the MOD for its budget.)


7. (C) Alliot-Marie particularly highlighted the doubling of
earmarks for external operations, saying that the additional
funds demonstrated France's ongoing commitment to preserving
peace and fighting terrorism around the world. However,
according to Captain Eric Chaplet, head of the MoD's office
that handles budget matters for NATO and the EU, the increase
marks a newfound fiscal prudence rather than an intention to
increase France's international military engagement. Until
2005, OpEx did not constitute a line-item in the defense
budget, so when crises arose, the MoD was forced to delay or
cancel other existing programs or equipment purchases, thus
weakening the French military in the long-term, Chaplet
explained. Even now, the 360 million euro allocation for OpEx
is far from enough: the MoD went 600 million euros over
budget in 2005 on OpEx, and may do so again in 2006. For
instance, Chaplet expects that France's UNIFIL contribution
alone will cost 100 million euros.

Will Presidential elections affect the Defense Budget?
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8. (C) In the lead-up to the September 27 presentation of the
draft budget, the press and many MoD officials speculated
that the defense budget could be artificially high for
reasons of presidential politics. The prevailing argument
suggested that the GoF would present an optimistic defense
budget in order to project an image of strength, leaving it
to the next government to make "rational" decisions and
reduce funding, as necessary. Separately, some political
observers noted that a positive defense budget could benefit
the center-right Union for the Popular Movement (UMP)
presidential nominee, Minister of the Interior Nicholas
Sarkozy, or (much less likely) Alliot-Marie herself.
Alliot-Marie has implied that a Socialist Party presidency
would lead to budget cuts that would preclude France from
completing essential military modernization.


9. (C) But MoD budget officials remain unconcerned about the
fate of long-term programs following the presidential
elections, according to Chaplet. In his view, both the
center-left and center-right agree on the importance of
maintaing a strong defense and will likely share many of the
same basic priorities. "France wants to play a significant
role in the world and ever since Charles de Gaulle our
defense budget has been a barometer of that role. Therefore,
I am confident the budget will not be cut," he concluded.
Elysee advisors and MOD Cabinet officials have made the same
argument.


10. (C) Comment: While we can can expect Defense Minister
Alliot-Marie to fight major cuts in the 2006-2007 defense
budget, the reality is that to meet current expenditures, she
will likely have to make some cuts in programs in 2007. In
2005, these program cuts were in the range of 600 million
euros. Unsurprisingly, DATT and Office of Defense (ODC)
contacts have noted that MOD staffs are studying budget cut
options, although perhaps only as a contingency measure.
Alliot-Marie will seek to ensure, however, that any potential
program cuts are minimized, as long as she retains the
defense portfolio. End Comment.

Please visit Paris' Classified Website at:
http://www.state.sgov.gov/p/eur/paris/index.c fm
STAPLETON