France promises billions as virus crisis sinks economy
€45bn worth of measures will be pumped into the economy to help companies and workers, which is likely to push national debt over 100% of GDP
Paris — France will pump €45bn worth of crisis measures into the economy to help companies and workers, with output expected to contract 1% this year due to the coronavirus pandemic, the finance minister said on Tuesday.
Bruno Le Maire said the package — worth nearly 2% of GDP — will inevitably weigh on the public finances and push the national debt to more than 100% of GDP. “We are going to mobilise €45bn as our first immediate economic assistance to companies and workers,” Le Maire told French RTL radio.
The money comes in addition to €300bn in government loan guarantees that President Emmanuel Macron announced on Monday, Le Maire said.
The unexpected strain on the public finances means the government will have to tear up its 2020 budget plans and Le Maire said he will produce a new budget bill shortly to reflect fallout from the virus.
He said the updated budget bill will be based on a forecast that the economy will contract 1% this year, though he warned that could very well change in light of the current uncertainty over the outlook. The original 2020 budget was based on expectations for growth of 1.3%.
As a result of the extra spending, lost tax revenue and lack of growth, the public-sector budget deficit was expected to balloon out to 3.9% of GDP, budget minister Gérald Darmanin said in an interview with Les Échos newspaper.
Before the crisis destroyed the government’s original budget plans, the financial shortfall had been expected to be 2.2% this year, which would have been the smallest deficit since 2001.
Counting the cost
The lion’s share of the overall crisis package — €32bn — will come in the form of deferred taxes and payroll charges for companies, and outright cancellation for firms at risk of bankruptcy.
Another €8.2bn has been earmarked to reimburse companies putting workers on reduced working schedules for two months. A €2bn fund is also being set up to make direct cash payments to small firms such as restaurants or in the tourism sector that have had to close.
Though he did not include the cost in the overall crisis package, Le Maire later told journalists on a conference call that he is prepared to support big companies suffering from stock market turmoil, going as far as nationalisation if needed.
As the cost of the crisis to the government grows, French government bonds have come under pressure, with the spread over their German equivalents — considered ultra-safe by investors — blowing out to a near three-year high.
“All this is obviously going to cause the French public finances to deteriorate, that goes without saying. We’ll be over 100% of public debt, that’s the inevitable consequence of the measures we’re taking,” Le Maire said on the conference call.
He added that the government is not giving up having sound public finances in the future, but that the priority now is keeping the economy going.