Emmanuel Macron throws a €100bn lifeline towards France’s economic recovery
THE French government has unveiled a €100bn (£89bn) four-year stimulus package in an effort to boost the economy and keep the recovery moving.
Funds are on the way for green projects, tax cuts and employment support after the country’s economy shrank by 13.8pc in the second quarter.
Emmanuel Macron’s hope is to push the economy back to its pre-Covid size in two years and create 160,000 jobs, then keep spending beyond that to keep the momentum going. But the package is also about increased national self-reliance, with the president noting the coronavirus pandemic’s impact on longer global supply chains.
“The France of 2030 will have to be more independent, more competitive, more attractive. It is about no longer depending on others for essential goods, no longer risking critical supply disruptions,” he said.
Called France Relance, or Relaunch France, the four-year scheme comes on top of €470bn announced earlier in the year. The scheme contrasts with Britain’s current hot topic of tax rises, with officials looking at potential ways to raise more revenue to plug the gaping holes in the public finances. Spending will begin with a series of cuts to business taxes in an effort to make the French economy more competitive. Of €35bn aimed at competitiveness, €20bn is expected to go on tax cuts.
Corporation tax in France is the highest in the OECD, with a headline rate of 32pc, indicating there is room to make the tax environment more welcoming. By contrast, Britain’s is 19pc, making it the fourth-lowest in the group of developed economies.
However, the UK is considering raising the rate, potentially taking policies on each side of the Channel in different directions, despite warnings from economists that tax increases could undermine the recovery.
The rest of the money aimed at enhancing national competitiveness is earmarked for skills, training and new technologies.
The next €30bn is aimed at reducing carbon emissions across the French economy. Building insulation, bonuses for buying environmentally friendly cars, more public transport, and extra funding for research and development are all on the list.
Social cohesion spending makes up the rest, including employment support. This also contrasts with elements of the British approach.
While the UK is winding down the furlough scheme by November, France is expanding a “short work” mechanism to prop up the pay of those workers who are only required part-time instead of full-time.
Charlotte de Montpellier, an economist at ING, called the French plan “ambitious”, noting that it “is mainly an investment plan, which aims to strengthen the supply side of the economy more than the demand side”.
“By focusing on the long term, there is a risk that the benefits of the recovery plan will not be sufficiently felt by the population by the time of the [2022 presidential] elections,” she said.
She is not the only analyst cautious on the government’s capacity to spend the money.
“The main risk we see is that the disbursement of funds will not be as quick as intended, with the government aiming to commit around 30pc of the €100bn in 2021, with the remaining 70pc disbursed by 2024,” said Guillaume Menuet at Citi.
Not all of the package will be paid for by the French state. As much as €40bn will come from EU funds.