Emmanuel Macron’s government unveiled the long-awaited 100 billion-euro ($118 billion) stimulus plan the French president is betting on to transform the economy and his political fortunes with less than two years to go until elections.
The plan, dubbed “France Relaunch,” includes wage subsidies, tax cuts for businesses and funding for environmental projects. It aims to shift away from the emergency spending of the Covid crisis to addressing longer term problems of weak investment and job creation in the euro area’s largest economy.
The fiscal reboot — much of which was announced over the summer — will be spread over two years and is split in roughly equal parts between competitiveness, jobs and social policies, and financing the transition to a greener economy.
It’s a high-stakes political move for Macron. The French economy was among the worst hit in Europe by lockdowns, and the initial rebound 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.
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% of output — a level the central bank has warned the government should not exceed. Already, France will rely on European financing for up to 40 billion euros of the stimulus plan.
Around 15 billion euros will be spent on employment, including 7.6 billion euros on a long-term furlough combined with training for idled workers, and bonuses for hiring young people, officials said.
Green spending will focus on low-emission transport — particularly rail — and renovations to make buildings more energy efficient. The industrial part of the plan is made up mainly of a cut to taxes on production, at a cost of 10 billion euros a year.
“It’s a wise mix of short-term boosts to demand via job protection and longer-term supply via investment,” said Allianz Chief Economist Ludovic Subran. “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.”
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.
Around half of the 400,000 jobs the government expects to be created in 2020 and 2021 will be attributable to the stimulus plan. Another 300,000 will be saved by a combination of emergency and long-term furlough mechanisms.
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