Relaunching France: Gov’t unveils $118bn economic stimulus plan

The French government has detailed its 100 billion euro ($118bn) stimulus plan to erase the economic effects of the coronavirus crisis over two years, lining up billions of euros in public investments, subsidies and tax cuts.

The plan – dubbed “France Relaunch” – earmarks, in particular, 35 billion euros ($41bn) for making the euro zone’s second-biggest economy more competitive, 30 billion euros ($35bn) for more environmentally friendly energy schemes and 25 billion euros ($30bn) for supporting jobs, officials told the Reuters news agency ahead of its official presentation late on Thursday.

With the plan equating to 4 percent of gross domestic product (GDP), France is ploughing more public cash into its economy than any other big European country as a percentage of GDP, one of the officials said.

French Prime Minister Jean Castex said he hoped the economic recovery plan would create 160,000 jobs by 2021.

Speaking on RTL radio, he also said the plan aimed to erase the economic impact of the coronavirus crisis over two years as well as helping to avert widespread job losses.

Risky bet

It is a high-stakes political move for President Emmanuel Macron. His government is banking on the plan to return the economy to pre-crisis levels of activity by 2022 after suffering this year what the finance ministry expects to be its worst post-war recession with a contraction of 11 percent, among the biggest slumps in Europe.

The initial rebound following the end of a nationwide lockdown in May appears to be tapering off. Furlough measures have helped contain unemployment for now, but it could rise sharply in the coming months.

Looming over the grim outlook are presidential elections in April 2022, leaving Macron no time for another shot at a defining policy transformation before he faces voters.

The economic recovery plan also aims to put Macron’s pro-business push back on track with already-flagged cuts in business taxes worth 10 billion euros ($12bn) annually and fresh public funds to boost France’s industrial, construction and transport sectors.

Officials said the transport sector would get 11 billion euros ($13bn) with 4.7 billion euros ($5.5bn) targeting the rail network in particular while energy-efficient building renovations would be spurred with four billion euros ($4.7bn) for public buildings and two billion euros ($2.4bn) for homes.

The hydrogen industry, increasingly seen as a key building block in the transition away from fossil fuels, would get two billion euros ($2.4bn) over the two years of the stimulus plan.

Another one billion euros ($1.2bn) would be offered in direct aid for industrial projects, including 600 million euros ($709m) to help firms relocate overseas plants back to France.

‘Very French’

The government estimates that France Relaunch will return economic output to 2019 levels in 2022, according to officials at the prime minister’s office, while also having a lasting impact that will raise potential growth by one percentage point 10 years from now.

“It’s a wise mix of short-term boosts to demand via job protection and longer-term supply via investment,” Allianz’s chief economist Ludovic Subran told the Bloomberg news agency. “But it’s very French in the way it aims to resolve everything in one plan. There are no contingencies for supporting businesses and households in response to a changing pandemic.”

Governments across Europe are planning additional stimulus as the coronavirus continues to hammer economies. In Germany, Chancellor Angela Merkel’s ruling bloc on Tuesday backed plans allowing for extraordinary deficit spending next year.

But many countries have already stretched their finances. In France’s case, emergency spending has pushed the debt burden to around 120 percent of economic output – a level the central bank has warned the government should not exceed. 

Some 80 billion euros of the overall cost of the French plan will weigh directly on the budget deficit, with EU subsidies offsetting 40 billion euros ($47bn), officials said.