“Boom” in French

The French government wants to counter the corona crisis with another 100 billion euros. 40 billion of this should come from the EU.

Towards economic growth, please: French Prime Minister Jean Castex presents his investment plan in Paris.

Dhe French government launched what it claims to be the most extensive economic and investment plan in Europe on Thursday. 100 billion euros, more than four percent of the gross domestic product, are to be spent in the next three years. The program was originally intended as a response to the Covid-19 crisis, but it goes far beyond that.

The “economy of the year 2030” should be prepared, said Prime Minister Jean Castex in Paris. The French economy should become “greener, more competitive, more sovereign and more solidary”. Castex called the plan “historic in its ambition and extent”. Businesses are the big winners of the Paris spending plan. The government has heard its long-cherished wish to reduce non-profit taxes by 20 billion euros.

In addition, the companies are recipients of a number of other subsidies: the focus of the spending program is around one third each on the eco-turnaround, increasing competitiveness and spending on social affairs, training and local authorities. With the eco-renovation, 11 billion euros are earmarked for the transport sector, of which almost 5 billion euros for the rail transport of the state railway SNCF. In addition, almost 7 billion euros are to flow into the thermal insulation of buildings and 9 billion euros in the promotion of renewable energies and environmentally friendly technologies.

The companies will also benefit from a further 11 billion euros, which will be used to strengthen the existing plan for future investments, including digitization. The government also wants to convert loans to small and medium-sized companies into equity for 3 billion euros. This is intended to counteract the feared corporate overindebtedness. The government emphasizes that the state becomes a kind of shareholder in a large number of companies, but without being given a say in operational management. If the companies relocate their locations back to France from abroad, there will be further grants. This is part of the government’s increased demand for more economic sovereignty.

“It has never been so inexpensive to hire a young person”

Business can also expect additional resources if it trains more. A good 15 billion euros are planned for vocational training and further education. “It has never been so easy and so inexpensive to hire a young person,” advertised Castex. An extension of the short-time work allowance, in some cases until the end of 2021, is intended to give companies indispensable skills. The Prime Minister expects the plan to create 160,000 new jobs in the coming year alone.

In macroeconomic terms, the government hopes that the plan will increase economic growth by 1.5 percentage points from next year. In 2022, France’s economic performance is expected to return to 2019 levels. The government stresses that it wants to forego tax increases. Instead, the national debt will climb this year from 98 percent to more than 120 percent of GDP. The Prime Minister promised that the current additional expenditure should be balanced out again from 2025 onwards through higher economic growth. 40 billion euros of the 100 billion euros program come from EU funds.

40 billion euros from the EU

In October, France will present its plan to its European partners, said State Secretary Clément Beaune, who is responsible for European affairs. He is optimistic that the other governments will agree. The national plans are checked by the EU Commission and have to be approved by the EU countries with a qualified majority. The 40 billion euros that France is receiving from the EU is currently the subject of heated debate in Paris. Because, as a net contributor, France finances these funds itself at the same time. The amount of the balance cannot be said at the moment, said Beaune, especially since the EU will also raise new taxable resources. In any case, the repayment of the funds raised across Europe will start in 2027 at the earliest. It makes sense to make the expenditure at the lowest point of the crisis and to repay it later. The prime minister emphasized that a long-lasting economic crisis would put a greater strain on public budgets than today’s borrowing.

Independent economists such as Eric Chaney from the Institut de Montaigne criticized the plan because it was not directed enough against the current recession. “A reduction in VAT would have been the better way,” he told the FAZ. Because households and companies had accumulated large amounts of money that had to be brought back into the economic cycle with incentives.

According to surveys, the French are also afraid of price increases, and a reduction in VAT also counteracted this. Trade unions as well as left parties and the Greens criticized the fact that the companies were hardly asked for anything in return for the many donations. Former budget minister Eric Woerth of the conservative opposition party LR called the spending plan “a good excuse to abandon all other necessary reforms”. He included the reform of the pension system or unemployment insurance, for example.