Since the tense exchange between the Ukrainian President, Volodymyr Zelenskyy, and his American counterpart, Donald J. Trump, the United States has disengaged from the Russo-Ukrainian conflict, and the issue of European rearmament is on everyone's lips. After long hours of debates and a multitude of contradictory statements, it is time to take stock of the options being considered by the French government.
Financing Options for Rearmament
To increase the Defense budget from 2% to 5% of GDP—that is, from €50.5 to €90 billion—without increasing the debt or compromising our social model, the President of the French Republic makes a strong appeal:
The nation needs you.
Emmanuel Macron
President of the French RepublicHere are some proposed options:
- Leveraging the record savings rate of the French: Redirecting part of the €1.3 trillion deposited in regulated savings accounts, €750 billion in current accounts, and €2 trillion in life insurance.
Problem: A recurring idea, systematically rejected by the Constitutional Council, which considers that it has no place in a finance law. Moreover, why favor armament when other sectors, such as agriculture or energy, are also struggling to survive? ESG criteria further complicate matters.
- Creating a dedicated savings account for financing armament:
Problem: Finding the right balance between rates low enough to attract defense industry players and attractive enough to convince savers remains a major challenge, especially as banking regulations could hinder its deployment. The previous 'Climate Future Savings Plan' launched by the State did not meet the expected success.
- Appealing directly to the French: As during World War II or the Balladur plan which raised 40 billion francs (approximately €10 billion in today's money) in exchange for guaranteed interest and tax benefits.
Problem: The challenge remains to win the support of the French. However, many are opposed to this project, making this solution difficult to implement.
And what about French savings?
This government maneuver, and not a minor one at that, has sparked sharp criticism from the French, who fear that their savings may be seized by the government to finance— a term we are not used to hearing— the war effort.
The State cannot seize the money in the French people's accounts in the blink of an eye
Jérôme Rusak
President of the L&A Finance FirmImpact on the Markets
The prospect of redirecting a massive part of national savings towards financing rearmament has notable repercussions on financial markets. Investors are closely watching this maneuver, which could alter traditional capital flows.
Some analysts view this rebalancing favorably, believing that it could stabilize long-term investments. As financial analyst Marc Lefèvre points out:
The reorientation of savings towards rearmament creates an unprecedented, albeit temporarily disruptive, dynamic in European financial markets.
Marc Lefèvre
Director at Scope Group | SourceOthers, however, fear that this approach could lead to increased volatility and uncertainty regarding the performance of traditional sectors, especially in an environment already marked by geopolitical tensions.
In view of the downward trend illustrated by this S&P 500 chart, there is a noticeable decline in investor confidence, possibly linked to several geopolitical and economic factors. The accelerated rearmament of Europe, encouraged by rising international tensions and the partial disengagement of the United States, raises questions about the future distribution of capital.
On one hand, Europe is forced to strengthen its defense capabilities, a strategy that could divert a significant portion of savings and investments towards this sector, at the expense of traditional markets, including those in the United States. Moreover, the relative decrease in the military and financial involvement of the United States is prompting economic players to reassess risks and opportunities on a global level.
The S&P 500, a key indicator of confidence and market trends in the United States, partly illustrates this rise in caution: investors are becoming more selective and anticipate a period of uncertainty regarding financial stability and the distribution of public spending on a global scale. This situation, combining increased armament in Europe with American repositioning, could continue to influence capital movements and stock index returns in the coming months.
Analysis and Outlook
The interplay between the evolution of savings and rearmament ambitions reveals deep strategic stakes. On one hand, the redeployment of individual savings underscores the resilience of the French in the face of economic uncertainties. On the other, the desire to strengthen European defense highlights the challenge of financing this transformation without compromising financial stability.
Debates continue and the Ministers of Economy and Defense, along with investors, bankers, and insurers, will meet on March 20, 2025 to evaluate these options. One thing is certain: the future of rearmament policy and national savings will be decided in the coming months.
Hedger Project will continue to closely monitor these developments, offering detailed analyses to enlighten its readers on these decisive issues.
