France's Defence Spending Dilemma: Balancing Security and Fiscal Responsibility

France aims to boost defence spending amid growing geopolitical tensions without derailing its financial stability. Finance Minister Eric Lombard emphasizes the need to integrate these expenses into deficit reduction strategies. The government is exploring ways to channel private savings into the defence sector through existing investment vehicles.

In response to increasing geopolitical tensions from Russia and a potential decrease in U.S. military support in Europe, France is contemplating an increase in its defence budget. The proposed hike seeks to elevate spending from 2% to 3-3.5% of the nation's economic output, translating into an additional 30 billion euros annually. Finance Minister Eric Lombard emphasizes that while enhancing the nation's military capabilities is essential, it is crucial to remain fiscally responsible.

France currently faces one of the largest fiscal deficits within the European Union, and any increase in defence spending must align with plans to reduce the public sector budget deficit from 5.4% of economic output to 3% by 2029. Lombard highlights efforts to ensure that the increased spending neither exacerbates the country's debt nor undermines its welfare system.

The government is set to reveal strategies on March 20 for mobilizing private savings towards defence investments. While some lawmakers suggest creating new tax-free savings accounts for this purpose, existing investment vehicles with tax incentives are favored. The French banking federation concurs that new savings accounts might have limited impact on strengthening underfunded defence firms.

(With inputs from agencies.)