Opinion: France Pushing Europe to Embrace the “War Economy”
(Source: Defense-Aerospace.com; posted Sept. 15, 2022)

By Comité Rochefort
PARIS --- On June 13, Emmanuel Macron paid a visit to some of the main French players in the defense industry at Eurosatory, near Paris, France’s bi-annual land weapon systems exhibition.

He used the opportunity to deliver a speech on his perception of the current threats faced by Europe, both in the military and economic fields. One sentence in his opening speech triggered a great deal of discussions in both France and Europe: “We are entering a war economy, which, let’s be clear, is a change for most of us.”

Macron’s previous use of a bellicose rhetoric, during his “war against Covid-19,” had previously already led French politicians to describe the set of measures adopted in March 2020 were “organizing a genuine war economy”, though “in vital sectors only and under some conditions”.

Still, the words pronounced by Emmanuel Macron have had a far more considerable echo, on the backdrop of the fear of seeing the Ukrainian conflict spreading to other States, and an even greater concern about the ability of European nations to withstand the multiple economic shocks resulting from the war.

References to the shift towards a “war economy” then became a recurring talking point used by many members of the French government and the broader political majority in France.

A controversial expression

The expression remains however controversial, not least because of its discrepancy with the imagery tied to its traditional understanding, including drastic measures such as the rationing of primary goods, or requisitions of productions tools, for instance. More importantly, the European partners of France have been quite reluctant to endorse the diagnosis put in words by Emmanuel Macron.

Yet, France and other European nations are faced with the same dire economic situation, and military threats. More than the expression itself, it may well be the agenda defended by Emmanuel Macron when referring to the advent of a “war economy” that fails to unite Europe and Western nations more generally.

Drawing the contours of President Macron’s “war economy”

Experts have been discussing the advent of a “war economy” over the last few months. In March Chief Economist of the Natixis bank Patrick Artus, defined this concept as the addition of several elements, among which a quick increase in public spending, the growing rarity of some products, and a rise of inflation often left unaddressed by central banks. Others have been more cautious as to this term, reserving it to situations characterized by the re-earmarking of resources from the civil economy to the military and the weapons industry. As a matter of fact, the “war economy” referred to by the French government is often tied to the fields of energy and defense.

President Macron was not only referring to the energy situation when using this expression, but also —and perhaps most importantly— to the active response of authorities in the field of defense. Though expressing it in rather broad terms, the French President notably referred to necessary changes in military procurement methods and defense industry habits and the interactions between the two.

Following the same orientation, his new French Minister of Armed Forces Sébastien Lecornu recently said that “defense industrials have to get set for the war economy.” These statements remain vague, but the forthcoming debates on the 2023 Finance Bill should provide further elements.

What to expect for defense in France?

While the above description could fail to convince some that France intends to shift towards a proper “war economy”, a reorientation of resources towards defense might actually be underway. Emmanuel Macron expressed his wish to bring forward a new military programming bill to 2023 instead of 2026, with the idea of accelerating the “military resurgence” of the country.

This decision paradoxically seems hazardous for the French military: the current military programming law runs until 2025, with its largest investments scheduled for the 2023-2025 period. Replacing it with a new plan while facing an economic recession would surely raise the temptation to reduce the important means initially devoted to defense.

“The real deal is not to promise the moon in five years, but to produce and deliver right away, otherwise inflation will be there, and we can forget about budget increases", one hi-ranking military officer was warning lately.

However, the interest of such a new bill would not be that much about the budget itself, but rather the choices operated in relation to specific capabilities, the expected output rates, and other changes aimed at addressing critical issues such as the replenishment of munitions stocks.

The ability of the French defense industry to meet tighter deadlines has actually been at the center of the French government’s demands to industry leaders over the last months. The example of the CAESAR howitzer manufactured be Nexter is quite significant: the requirement is undisputedly urgent, but as reveled by French business daily L’Opinion, France can only produce around forty howitzers each year, 18 of which have been delivered to Ukraine, but the manufacturing process takes over 20 months, especially because the very specific forging and casting tooling needed is not usually prioritized for defense. Yet, as of today, the only site which could produce up to 300 parts per year, all types of tubes combined, is currently running at 30% of its capacity…

That’s where other new legal regulations could come into play to support this “war economy” effort: the French daily Le Monde recently reported that the Directorate General of Armaments was lobbying the Ministry of Armed Forces to issue a bill enabling the requisition of materials from civil industries in favor of defense manufacturers.

According to the outgoing weapons acquisition czar, Joël Barre, the top priority is to make greater use of the operational emergency mechanism, which facilitates the acquisition of equipment mainly off-the-shelf "at very short notice, less than one year".

Secondly, the ministry is counting on the €500 million made available by the European Commission to replenish certain stocks. The main industry players - such as Nexter, Safran, MBDA, and Thales - have been asked to make proposals before the end of July, the deadline set by Europe. Joel Barre’s successor, Emmanuel Chiva, will have to trade his usual long-term foresight to much shorter deadlines!

In this context, other members of the French defense community voiced propositions supporting the transition towards a “war economy”, such as the CEO of Nexter Nicolas Chamussy, who recently promoted the idea of a “citizen reserve for the defense industry” which would help expand the workforce of defense manufacturers so as to “enable a massive rise in production” when needed.

His call was heeded, and on September 7, he sat down with his most prominent National defense industry colleagues at a round table chaired by French Armed Forces minister Sebastien Lecornu to go into more details and set a genuine “war economy roadmap”.

The main decisions so far are to replenish ammunitions stocks, drastically reduce production lead-times for several critical equipment and parts, restoring pooling and sharing of strategic components and materials, improve weapon systems maintenance delays, make supply chains more resilient and immune from foreign influence.

No formal commitment, no explicit deadline and no additional funds yet. But that may come as the multiyear military funding law (LPM) is discussed later this year. And military headquarters are strongly advised to set simpler and quicker requirements.

Such measures intend to boost sovereign military capabilities and protect the defense industry from economic shocks, be able to uphold weapons deliveries to Ukraine over time at a sustained rate, as well as be prepared for the worst-case scenario of high-intensity conflicts. All things most European countries could be interested in…

Contrasted reactions in Europe

It is clear that Emmanuel Macron did not obtain the echo he certainly hoped for when calling on his fellow EU member states to embrace the “war economy” paradigm.

Beyond a few sporadic marks of support, France seems to be struggling to shake its European partners on the matter. Apart from Mario Draghi, whose term in office was cut short by a domestic political crisis, no major European leader used the expression after Emmanuel Macron.

Undeniably, after the invasion of Ukraine, most European countries finally decided to increase their military expenditures, with many even vowing to reach the 2% GDP target in the coming years, after decades of stagnation. As important as this fiscal effort may be, it would hardly qualify as a reorganization of societies for a “war economy”, even less so in the absence of a clearly stated common goal, and of a concrete integrated plan supporting it.

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