France: Meeting Higher Defence Spending Will Complicate Fiscal Consolidation

If the increase in defence spending to 3% of GDP or more is not offset by more stringent budgetary efforts and/or burden sharing at the EU level, France’s budget deficit is likely to exceed 4% of GDP by 2029 and consequently, general government debt would increase above 120% of GDP. This is about twice our projection for Germany’s public debt burden of around 60-65% of GDP by 2029.

As per 2023 military planning, France aimed to gradually raise spending towards 2% of GDP between 2025 and 2027, as part of the EU response to heightened geopolitical tensions, and as the sole nuclear power in the EU since Brexit.

Continuation of Current Trend Would Raise Spending to Almost 2.5% of GDP

With defence spending already up at 2% of GDP, above the averages for EU NATO member states, a continuation of the current trend would raise spending to almost 2.5% of GDP by 2029 (Figure 1).

Figure 1. French defence spending set to continue rising up to 2029

EUR bn (LHS), % of GDP (RHS)

Reaching the possibly revised NATO target of at least 3% of GDP would put annual defence spending at EUR 100bn by 2029, almost doubling the 2023 level, which would be a major shift in France’s budget priorities.

Defence expenditure of EUR 59.9bn this year already exceeds the EUR 54.2bn in interest payments on government debt but remains below the EUR 69.4bn allocated to pension payments and the EUR 88.6bn to education.

More Gradual Deficit Reduction, Upward Pressure on Debt-to-GDP

France’s efforts at addressing its wide fiscal deficits and rising debt-to-GDP are likely to prove gradual. At the same time, there are limits to how much further defence spending can rise in the near term.

Capacity constraints in Europe’s defence industry and the European Commission’s Excessive Deficit Procedure for incentivising reductions of France’s large deficits suggest that meeting any upwardly revised NATO defence-spending commitment will be a multi-year process.

Overall, the impact of higher defence spending on France’s fiscal outlook will primarily depend on the government’s budget strategy and co-ordination at the European level, notably with Germany, where a new government might be willing to support some joint-financing of defence spending, and the UK, as Europe’s only other nuclear power.

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Thomas Gillet is a Director in Sovereign and Public Sector ratings at Scope Ratings, and primary analyst on France’s sovereign rating. Brian Marly, Senior Analyst at Scope and secondary sovereign analyst on France, also contributed to drafting this commentary.