France to spend €100bn to revive economy and boost jobs

The two-year package is focused on supporting growth for companies, which would receive funds on a use-it-or-lose-it basis

French Prime Minister Jean Castex presents the government's plan to revive the economy. AFP

France aims to spend €100 billion (Dh434.8bn) to pull its economy out of one of Europe's worst slumps, under a fast-moving recovery plan that revives President Emmanuel Macron's pro-business reforms with a greener tinge.

The €100bn (Dh434bn) stimulus equates to 4 per cent of gross domestic product, meaning France is ploughing proportionally more public cash into its coronavirus-ravaged economy than any other big European country, an official said ahead of a formal launch on Thursday evening.

The two-year package is focused on supporting growth for companies, whom Prime Minister Jean Castex said would receive funds on a use-it-or-lose-it basis.

It earmarks €35bn to make the economy more competitive and €30bn to promote greener energy policies.

Economically and socially it is infinitely better to temporarily worsen the pubic finances to invest, re-arm the economy and move forward than to sink into austerity ...

The rest will go on supporting jobs, training and broader social initiatives with the aim of creating at least 160,000 jobs next year.

"Economically and socially it is infinitely better to temporarily worsen the pubic finances to invest, re-arm the economy and move forward than to sink into austerity and let unemployment and human drama explode," Mr Castex told journalists.

France is on course for one of Europe's worst recessions and its deepest since World War Two, with an 11 per cent drop in GDP forecast for 2020 as a whole following a 13.8 per cent second quarter contraction that coincided with a coronavirus lockdown.

Mr Macron is banking on returning the euro zone's second biggest economy to pre-crisis levels of activity by 2022 – re-election year should he decide to run again – and ING economist Charlotte de Montpellier said the plan would need to be implemented quickly to succeed.

However, it does little to directly support the traditional engine of French growth, consumer demand. By contrast, neighbouring Germany launched a €130bn stimulus in June with a cut in value-added sales tax.

Instead, France is betting that, by supporting jobs, the plan will give consumers the confidence to start spending the €100bn in extra savings that they built up during the two-month coronavirus lockdown.

With already flagged cuts in business taxes worth €10bn in both 2021 and 2022, its timeline would restore Mr Macron's record on the economy while putting back on track a pro-business agenda that has foundered under a pushback by powerful unions and, latterly, the coronavirus crisis.

The government wants the plan's funds to be ploughed into the economy as soon as possible and Mr Castex said companies that failed to make quick use of their share would see the money redeployed.

Focused on the industrial, construction and transport sectors, all of which suffered during one of Europe's strictest lockdowns, much of the new investment seeks to accelerate a transition away from fossil fuels.

Mr Macron has made that a priority since his ruling party suffered losses to environmentalists in municipal elections this year.

"It's good but this can't be limited to two years, we need to keep it up for 10 years," said lawmaker Mathieu Orphelin, who left Mr Macron's party last year to set up a more environmentally-focused party.

About €6bn is earmarked for making public buildings and homes better insulated.

French Prime Minister Jean Castex launched a new economic recovery plan. AFP

The hydrogen industry – used to store and transport energy created by wind turbines and solar panels – will get €2bn over two years, a sector that Germany is also betting heavily on with plans to invest €9bn by 2030.

ING's Ms de Montpellier said that, for France, speed was of the essence.

"It remains to be seen whether the amounts will be quickly released and if this plan will quickly have effect," she wrote in a research note. "This ... will ultimately determine (its) success or failure."