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France Hits Snags on Path to a Euro-Defense

EU nations worry their industries could suffer from French reforms

France is leading the Continent in a forced march toward a joint European-based defense, but is running short on the funds to finance it.

This week, German, French, British, and Spanish foreign ministers gave Airbus Industrie, a four-partner European consortium, the nod to become a single corporate entity. Also, British Aerospace and the French defense group Matra merged their missile businesses to create Europe's largest missile company.

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This is the result of French political moves to unify Europe's defense and lessen its dependence on the United States. On the industrial front, this effort means creating defense giants that can compete with American companies such as Lockheed Martin.

France's 1997-2002 military budget will reduce spending by 30 percent to $37 billion a year, including cuts in a number of joint ventures with European partners. The plan, submitted to the French parliament on Tuesday for debate, aims to create a smaller and more mobile force.

The sharpest criticism for the budget has come not from opposition politicians in the French parliament, but from France's European partners, especially Germany, alarmed that proposed budget cuts would jeopardize joint projects.

French troops have been sent to 27 countries in the last five years, but mainly in small numbers, and France ran up against severe logistical problems in preparing an adequate force to fight in the 1992 Gulf war. In the end, France was only able to send 15,000 troops, while Britain deployed 42,000.

An all-professional army, patterned after the British model, could be more quickly sent to world trouble spots, French defense officials say.

In supporting documentation provided to legislators, the Defense Ministry provided a map of some 40 current world crisis spots, including 15 in Africa, eight in Asia, and eight in the Middle East.

French officials also see another kind of potential crisis spot - the streets of Paris, which could be the site of social unrest as a result of lost jobs. Defense reforms could phase out about 10,000 jobs a year for the next six years, defense analysts predict.

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A big public-transit strike in December already canceled out the expected gains from a $10 billion tax increase designed to close last year's budget gap. French officials hope to avoid a repeat wave of unrest over defense restructuring.

"There will be no flat layoffs," Defense Minister Charles Millon told journalists when he announced the government plans this week. "There will be accompanying social and economic measures to help workers and communities live through this important transformation." Aid to cushion the budget's blows - including base closures and layoffs - amounts to some $430 million over the six years of the budget.

For the French government, the defense cuts were essential in whittling down its deficit to 3 percent of gross domestic product by 1999. According to government officials, that target requires finding nearly $12 billion in cuts in next year's budget.

"This defense budget will give France a professional army by the year 2002 and anchor our national defense in Europe," said Defense Minister Millon. "It will also contribute to lowering public deficits."

But other European nations worried their own companies would suffer as a result of the French cuts and plans for abandoning or scaling down joint ventures. Even before the plan was announced, the head of the No. 1 German military contractor, Dasa, warned that French cuts could jeopardize other Franco-German joint-ventures, such as the joint satellite program.

"If we want to maintain certain capacities in Europe, we can't keep stepping on the accelerator and the brake," Dasa chief Manfred Bishoff told the French business daily Les Echo in an interview last week. "There is a danger if too many elements of Franco-German cooperation are called into question. What's at stake is mutual confidence."

French President Jacques Chirac tried to defuse such criticism in a meeting with German Chancellor Helmut Kohl in Bonn last Friday. There will be "respect for our engagements," Mr. Chirac said.

The French president also traveled to Britain this week, saying that he hoped Britain would join the proposed European Armaments Agency, a Europe-wide arms buyer. In the past, Britain has wanted to be free to buy its arms from any supplier, including the US.

"France is now catching up with the restructuring process Germany went through in the 1980s," says Alex Sauder, an analyst with the Bonn-based German Society for Foreign Policy. "Recent threats from German industrialists might boil down to a poker game in order to redraw the shares in joint armament programs."

But for many European businessmen, this week's budget flap is another example of how European governments are lagging behind the pace set by European industry.

The French decision to cancel participation in the Future Large Aircraft [FLA] military transport - a concept initially proposed by the French - especially riled European industrial partners. France had committed about $1 billion toward the FLA project.

"France has been a traditional leader in developing a European aviation industry, and the abandon of the FLA will be a severe blow for those who want to develop a strong aeronautics sector in Europe," said Andrew Lewis, commercial director for the Airbus Military Company.

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