Mali mission forces Hollande to rethink French defence cuts
* Finance ministry seeks defence budget below 1.5 pct of GDP
* Strategic military review delayed to end April
* Defence industry fears cuts will hit sector hard
By John Irish
PARIS, March 26 (Reuters) - French President Francois Hollande is delaying a decision until later in the year on slashing the country's defence budget as part of cost-cutting measures after meeting stiff resistance from parliament in the aftermath of the Mali war.
The Socialist government is battling to reduce state spending by 60 billion euros ($78 billion) over Hollande's five-year term, and was forced this month to order ministries to save an extra 5 billion in 2014 as its deficit target receded.
The defence ministry has borne the brunt of government cuts in recent years, seeing its annual budget fall from about 2.5 percent of economic output after the Cold War to 1.56 percent of GDP, about 31 billion euros, in 2012.
Those figures are already in stark contrast with NATO's recommendation of 2 percent of gross domestic product, which it says is the minimum to ensure a country's sovereignty.
The Socialist-dominated lower and upper houses of parliament have both indicated that they could veto any decision to cut the budget to below 1.5 percent, or 30 billion euros.
"The finance ministry wants to kill the defence ministry," said Patricia Adam, the Socialist president of the National Assembly's Defence Committee.
According to several members of parliament, the finance ministry is working on two scenarios, "Y" and "Z", which would see the defence budget slashed by 15 billion euros or 30 billion euros respectively between 2014-2019.
Defence analysts say the worst case scenario, which could even include the sale of France's sole aircraft carrier named after former President Charles de Gaulle, is being floated to soften the blow when Hollande does decide.
The five-year military strategy review was pushed back this week to the end of April to give Hollande more time to evaluate the possible cuts.
The review sets the basis for the ministry's spending programme up to 2019, which itself will now only be presented to parliament in September or October.
The cuts will come at a sensitive time for France, a permanent U.N. Security Council member and nuclear power.
Its military has won plaudits for its rapid intervention in Mali to help its former colony to oust Islamist rebels. At the same time the operation highlighted its limitations in refuelling, troop transportation and intelligence gathering.
There is also a fear drastic cuts would hit France's defence industry sector causing thousands of job cuts and irreversible damage to future research and development.
The country's top seven defence contractors including Thales , Safran and Nexter wrote to Hollande this month warning him of the risk of cutting back on defence spending at a time when the number of people out of work in France rose for the 22nd month in a row in February.
"It is essential that what is at stake industrially and socio-economically is taken into consideration as much as budgetary rigour," they wrote in a letter published by Les Echos newspaper.
Among avenues explored by the government is scaling back on key production programmes such as Rafale fighter jets, made by Dassault Aviation, or A400M military transport aircraft orders, built by EADS unit Airbus Military.
"The Mali intervention showed that one has to have the means to carry out operations like this," said a senior French official speaking on condition of anonymity. "We will consider that in the review, but we also have to be realistic."