Emmanuel Macron’s economic plan for France is a high-stakes political move

Paris/ Emmanuel Macron’s government unveiled the long-awaited €100bn 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-19 crisis to addressing longer term problems of weak investment and job creation in the euro area’s second 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.

“This stimulus plan aims to stop our economy collapsing and stop unemployment shooting up,” Prime Minister Jean Castex said on RTL radio. “It has an immediate target, but also a structural and long-term target that is part of the logic of reform and transformation of the presidency.”

It’s a high-stakes political move for Macron amid signs the rebound from the virus slump is fading, and the risk of rising unemployment.

Looming over the grim outlook are presidential elections in April 2022, leaving the president 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 about 120% of output. It will rely on European financing for up to €40 billion euros of the stimulus plan.

About €15bn will be spent on employment, including €7.6bn 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 the SNCF rail network — and renovations to make buildings more energy efficient. That could benefit large French construction companies including Bouygues and Compagnie de Saint-Gobain, as well as electrical equipment makers such as Legrand and Schneider Electric.

France’s benchmark CAC 40 stock index rose 1.6% as of 10am. Paris time amid a broad European equity rally.

The industrial part of the plan is made up mainly of a cut to taxes on production, at a cost of €10bn a year, which the government expects to benefit mainly small and medium sized firms.

The government estimates that France Relaunch will return economic output to 2019 levels in 2022, while also having a lasting effect that will raise potential growth by one percentage point 10 years from now.

The government targets 160,000 jobs created in 2021 thanks to the stimulus plan, Castex said. Another 300,000 will be saved by a combination of emergency and long-term furlough mechanisms, the officials said.

Bloomberg