France to launch 450 million euro defence fund amid growing security concerns

PARIS (Reuters) -France's public investment bank Bpifrance will launch a 450 million euro ($490 million) defence-focused fund, Finance Minister Eric Lombard said on Thursday, ahead of a speech in which he will outline how to finance the military expenditure.

The fund will be part of the country's efforts to ramp up military spending due to fears of a Russian attack and doubts about the future of U.S. protection.

"French citizens will be able, by tranches of 500 euros, to invest their money in the long term," Lombard told TF1.

France has been leading European rearmament initiatives following signs of a potential Washington-Moscow rapprochement, which has heightened fears that Russia could expand its influence westward.

However, with French budgets already stretched, the government faces significant challenges in funding these defence ambitions.

European Central Bank (ECB) member Francois Villeroy de Galhau said on Thursday that while increased defence spending was needed in France, it cannot be unlimited given the country's high public deficit and debt.

"We cannot have a policy of spending whatever it takes regarding defence spending," Villeroy, who also heads the Bank of France, told BFM TV. He emphasized that the defence buildup cannot be approached in the same manner as COVID-19 emergency spending, when France deployed massive financial resources to support the economy.

French companies in the defence sector will need more than five billion euros in additional equity capital over the next few years, according to both the finance and the defence ministries.

President Emmanuel Macron, who has initiated a doubling of the French defence budget over the course of his two mandates, has recently set an even higher target, saying the country should increase defence spending to 3-3.5% of economic output from the current 2%.

($1 = 0.9184 euros)

(Reporting by Benoit Van Overstraeten; Editing by Sudip Kar-Gupta and Saad Sayeed)