Ministry of Defense budget guidelines for 2011-2013
Paris, July 7, 2010
Chairman, ladies and gentlemen deputies, I’m very happy to come before your committee the day after the public finances policy debate.
You’ll readily understand that I couldn’t do so earlier.
The first justification for the effort asked of the Defence Ministry is the deterioration of our public finances; I want to remind you that a 1% rise in France’s interest loan rates would ultimately mean an additional debt of €14 billion, i.e. virtually the whole of the armed forces’ equipment budget. So we can’t allow ourselves to see our financial situation deteriorate too much. Even though the missions set out in the White Paper had to be maintained, the armed forces couldn’t be exempted from making an effort. As I said yesterday (…) during the discussion of the bill on reskilling members of the armed forces, cutting the deficit isn’t incompatible with safeguarding our military capability. In both cases, our sovereignty and influence are at stake: while military power is essential to our country, preventing the debt becoming unbearable is as well.
You know too that in opinion polls a majority of French people cite the defence budget as the first one in which we must seek savings.
Whatever geopolitical approach each of us adopts, our compatriots wouldn’t have understood the Defence Ministry, and it alone, being exempted from the effort under way. Doing that would not have done the armed forces a service.
Moreover, the requirement to make this effort comes after three exceptional years. During the period of the 2002-2007 Military Estimates Act, an average of €15 billion was spent every year on the forces’ equipment; in 2009 and 2010 it was €18 and 17 billion, respectively, far exceeding inflation.
In every European Union country, defence is taking a major hit in the effort to reduce public expenditure: Germany and the United Kingdom are engaged in making drastic cuts. Germany’s will be at least 20% and, according to my counterpart Liam Fox, whom I met ten days ago, the British ones will very probably be of the same order. In other words, in European States confronted with debt problems, defence budgets are being hit far more severely than in France, and this is true even for the United Kingdom despite her ambition to remain a global military power.
MILITARY ESTIMATES ACT/DEFENCE BUDGET
While it wasn’t possible for the Defence Ministry to be spared any effort, it had to maintain the major balances of the Military Estimates Act.
Let me remind you that under it the defence budget was scheduled to rise from €30.1 billion in 2010 to 32.7 billion in 2013, after successive increases of 500 million from 2010 to 2011, of 1.2 billion from 2011 to 2012 and 1 billion from 2012 to 2013. These increases, reflecting the White Paper’s financial trajectory, were totally incompatible with the State spending framework the Prime Minister set out on 11 May this year for the period 2011-2013, i.e. stabilization of every ministry’s budget, not in volume but in nominal terms.
This is consistent with the stability programme France notified to the European Union. Its automatic application to defence would have entailed a cumulated reduction in our funding of €4.8 billion net over the three years compared with the Military Estimates Act, leading to a review of our objectives and consequently of the shape of the armed forces.
That would have been possible, but would have meant a heart-rending abandonment of our ambitions. This is the message I gave President Sarkozy and the Prime Minister and it’s against this background that we started the discussions.
The final budgetary decision is favourable to defence. I believe we have to be responsible and not ask for too exceptional a regime: let’s not forget that every decrease in the effort asked of defence is made to the detriment of another ministry. Since we’ve told the European Union that the State budget would be maintained in nominal terms for three years, when it isn’t the case for one mission, that entails extra efforts for the others.
Despite its severity, the decision made includes another exception: an increase of €350 million from 2011 to 2012, followed by another of 500 million from 2012 to 2013. So the defence budget will be €30.15 billion in 2011, €30.5 billion in 2012 and €31 billion in 2013, i.e. a nominal increase of 3%.
Also and despite the concerns of the members of this committee, I must draw attention to the fact that the exceptional revenue remains a resource for the future. While we haven’t been able to get it until now, in practice this has been fully offset by supplementary credits so as not to create an imbalance in the defence budget.
Moreover, for the first time, the extra cost of the external operations has been wholly financed with non-Defence Ministry funds. This signals a break with the previous system where every year financing them cost the equipment budget at least €500 million.
In a very difficult economic situation, the years 2008-2010 saw the Defence Ministry equipment budget rise, in constant euros, to the level it reached in 1992 after the fall of the Berlin Wall. I think the military aren’t ready to forget those years! The budget decisions made by the Executive, supported by Parliament, are unique in Europe: no other European defence minister can boast of such a high budget.
We have revised up the exceptional revenue of €2.3 billion compared with what was provided for under the Military Estimates Act for 2011 to 2013.
Indeed, M. Jean-Ludovic Silicani, chairman of Arcep [Autorité de regulation des communications électroniques et des postes – French telecommunications regulator], with whom I urge the budget rapporteurs to have a meeting, has told us that the initial estimate of frequency sales was lower than that currently forecast.
We also foresee exceptional revenue from the transfer of property assets worth around €900 million over the three-year period, on the basis of their market value estimated by France Domaine [French government real-estate management office].
BUDGET DECISION IMPACT
I should now like to talk about the impact of this decision on the savings plan we are preparing.
In 2009, we renegotiated most of the major arms programmes: the European Multi-Mission Frigates (FREEM), armoured vehicle for infantry combat (VBCI), Barracuda nuclear attack submarines, FELIN [Fantassin à Équipements et Liaisons Intégrés – Future Infantry Soldier System], etc. Rescheduling the timetables would have been very difficult and costly. It would also have led to an increase in the equipment unit price set by the manufacturers; the Cour des comptes [Auditor-General’s Department or Audit Court] has often warned us about this.
Today, the manufacturers’ situation is relatively comfortable; they have benefited from some excellent years during the implementation of the Military Estimates Act. Also in 2007 our defence industry exports totalled €5.7 billion. Thanks to everyone’s efforts, this year’s figure was over €8 billion: so the defence industry has had an additional €2.3 billion of orders, and I remind you that we record export figures not when the contract is signed but on payment of the first instalment, i.e. when the contract is certain to be carried out.
What are the consequences of the effort demanded of us on our forces’ capabilities and activity?
First of all, we will have to make further savings on our operating costs, so that in 2013 we spend about 10% less than in 2011. That said, we are benefiting from the massification of purchases already under way: the simple reorganization of the system and group purchasing have generated, for example, €9 million of economies a year on purchases of fixed and mobile telephone equipment and €4 million a year on that of office equipment. For 2010 alone, group purchases have saved us over €30 million. We are continuing this group purchasing policy and hope to make €290 million of savings over the period 2011-2013. We’re also going to renegotiate the agreement with the SNCF on the reimbursement of the travel concessions granted to the military on the basis of the recommendations of a recent report by the Contrôle Général des Armées [Defence Ministry department responsible for auditing armed forces’ performance and expenditure].
We will also need to reduce the flows devoted to property maintenance.
Changes in the oil price and euro/dollar parity may impact the force’s activity: when the euro falls, the oil price rises.
We shall also be compelled to defer the launch of programmes not yet subject to contracts, such as the updating of the Mirage 2000 Ds, the SCCOA 4 [Air Operations Command and Control] system, some components of the Scorpion army modernization programme, the MRTT refuelling aircraft and also the purchase of Falcon 2000 aircraft for the government. Some support equipment purchasing targets will also be reduced.
This policy won’t, however, be systematic. Programmes of high strategic importance, such as the Multinational Space-based Imaging System (MUSIS) programme won’t be delayed, unless our partners call their commitments into question.
These measures will be presented to you in detail during the budget debate.
Q. – Are you going to keep the old Falcons?
THE MINISTER – Initially, they were going to be sold, but I refused that option since these planes had been totally amortized. So the idea was to convert them into maritime surveillance planes, particularly as Falcon 50s are already used for this type of task and our maritime assets are inadequate, particularly overseas. The government Falcon 900s which remain potentially usable will be kept, whilst the four Falcon 50s which would have necessitated inspections and large-scale modernization will be removed from the government fleet and converted into maritime surveillance planes. This will admittedly require modernization, but not to the degree necessary had the planes remained in the government fleet.
One of the possible ways of coping with capacity reductions is to envisage stronger operational cooperation with some of our European partners, particularly the United Kingdom who is confronting the same dilemma as we are.
So my British counterpart and I have decided to launch a very ambitious operation. The new British government is keen for us to examine extremely closely which skills and capabilities each of the two countries must retain total sovereignty over, those which can be pooled and those for which interdependence may be possible. On the French side, the task should be completed at the end of July. The British are currently carrying out a Defence Review as France did in 2007. We shall compare notes in November. I can tell you that the British are ready to envisage cooperation even in very confidential areas. (…)./.