France's foreign firepower threatened by budget cuts CANJUERS ARMY BASE, DRAGUIGNAN, France (Reuters) - Explosions echo through a valley in southern France, sending up plumes of smoke as four Caesar self-propelled guns fire at distant targets in drills that mirror operations in Mali. It's a show of firepower organized by arms manufacturer Nexter to demonstrate the guns to the press and which underlines the role of the army in a conflict that has bolstered France's standing as a nation that can project military force. Yet the message may fall on deaf ears in Paris. France's 31 billion euro ($40 billion) defense budget, already watered down in recent years, could be on the chopping block as President Francois Hollande seeks savings to offset a groaning deficit and weak economic growth. Cuts could send shockwaves not only through the military but through the economy itself, where the industry employs 165,000 people and accounts for 2.25 percent of output, according to the World Bank, compared with 1.3 percent in Germany. On Monday, the government presents a five-year blueprint for military strategy that the army fears could cut its staff and international bases and undermine France's capabilities in future global conflicts. "We're right at the edge," a colonel at Canjuers, Western Europe's biggest army base, told Reuters, asking not to be quoted by name. Certainly there wouldn't be any more Malis. The document delivered on Monday will define the national security and defense strategy for the coming years, offering clues as to priorities but no hard figures. The actual 2014-19 military budget will be unveiled in the last quarter of 2013. The military and defense contractors such as Nexter, headquartered in Versailles near Paris, say big cuts could hamper the ability of France, a nuclear power with a permanent U.N. Security Council seat, to react to international threats. France intervened in conflicts in Libya and the Ivory Coast in 2011 and was alone in sending troops into Mali in January to drive out al Qaeda-linked fighters who had seized large areas of the West African country. The government, battling to find 60 billion euros in savings over five years, has said it will freeze the defense budget for 2014 and 2015, amounting to a small reduction in real terms, but further out things are unclear. The military's budget is currently 1.5 percent of GDP, already below the 2.0 percent minimum recommended by NATO, and some worry it could fall as low as 1.0 percent. "I sense a bit of an 'eve-of-battle' atmosphere," the head of France's ground forces, General Bertrand Ract-Madoux, said at a recent debate on the future of the army. France, with the world's sixth biggest defense budget, is not alone in paring back its military. Facing similar challenges are Britain, and the United States - whose defense budget is 17 times that of France, allowing it to have an army nearly five times as big. But while France's population is about that of Britain, its military budget is already just two-thirds the size. The prospect of shared defense capabilities in Europe, an idea promoted by NATO as a way to reduce national budgets while assuring security, draws laughter at Canjuers. "The French and the Germans don't even define terms like 'risk' the same way," scoffed one officer. As 21th century warfare has morphed from boots on the ground to drones in the air, France's ground forces have had to make more sacrifices than the air force used in Libya, for example. Nexter's Caesar is part of a large arsenal of French equipment in Mali that includes Dassault's Rafale and Mirage fighters, light Gazelle helicopters and Tiger helicopter gunship by European group EADS. The Caesar guns can hit targets up to 40 km (25 miles) away. Officers say the Caesar is ten times cheaper on average than any aircraft. Also bracing for the upcoming military spending plan is France's 15 billion euro defense industry, Europe's second-largest behind Britain. Nexter and six other defense contractors including Thales and Safran wrote to Hollande in March to warn that workers could lose jobs if cuts are deep. "We believe it's important to maintain investment in defense above a certain threshold to allow the industry to perform not only on the technological level but also for the economy," said Ghislain Passebecq, Nexter's head of export sales for the VBCI, an armored fighting vehicle. The defense industry says it employs 165,000 people, not including thousands more sub-contractors. With 3.2 million people out of work, such specialized jobs are highly coveted. Budget Minister Bernard Cazeneuve sought to calm fears this week, telling BFM TV: "In the crisis, we don't want to add to the difficulties of a promising sector." Nexter, which had sales of 742 million euros in 2012, says its range of products from munitions to tanks relies on 800 to 900 small and medium-sized French suppliers. At its Roanne factory in central France, on the site of a World War One munitions plant, successive generations of local families work on Nexter's VBCI. The 30-tonne vehicle that can fire through 360 degrees and reach 60 mph has been used in Afghanistan, Lebanon and now Mali. France has already ordered 630 VBCIs, which cost less than a tank, go faster and offer a better ride, soldiers say. Some at Nexter are sanguine about the budget uncertainty. "It's a subject that comes up again and again so everyone keeps it in perspective," said Roanne factory head Alain Marcon. "We've already been there." ($1 = 0.7683 euros) Reporting By Alexandria Sage; Editing by Giles Elgood