As French bars and restaurants reopened last week, President Emmanuel Macron’s government armed itself for a big time: how to wean the economy battered by Covid and cure it.
When the pandemic began, Macron vowed to do “whatever it takes” to support businesses and workers with an array of programs, such as time off, loans and cash support.
But now, as emergency aid begins to cut back, the president, who is running for re-election in May, must show voters he can get the French economy back on track. Already prominent economists and political opponents like Marine Le Pen are urging the government to think bigger in terms of stimulus.
Macron pitched the idea of ââincreased state spending, saying he wanted to consult widely with citizens and business leaders this summer to “invent a second phase of the [economic] relaunch â- in addition to the 100 billion euro stimulus package that France has already submitted for EU approval.
The ministers also tossed the tantalizing prospect of more money, adding that the country must wait and see how the economy performs under the plan.
Meanwhile, in a bid to show voters Macron’s weight on the European stage, France has started pushing for new EU initiatives to support investments to keep up with the faster growth of the US economies. and Chinese.
âThe question one might ask is whether we’re going to need a long-term investment plan because if we’re planning by 2022.. . to get back to the level of economic activity we had in 2019, can’t we try to do better? As the Minister of Finance Bruno Le Maire told France Info.
In Brussels, there is little appetite to reopen discussions on the 750 billion euro stimulus plan of the 27-member bloc: “It is far too early,” said Margrethe Vestager, executive vice-president of the European Commission, in the newspaper Les Echos.
France will obtain 40 billion euros from its recovery plan of 100 billion euros from Europe. And if this EU money has not yet started to flow, France has already allocated 30 billion euros to projects.
These revolve around three priorities: green investments, such as research into clean fuels and building renovation; measures to increase competitiveness, such as the modernization of factories, and; âSocial cohesionâ, which includes training in health and employment.
But the difficulties in getting more money agreed to in Europe, and the fact that Macron and his ministers have played down any short-term deals with the EU, have fueled suggestions that the policy is also fueling the French president’s concerns about United States and China innovation.
Nonetheless, the question of whether EU states such as France should spend more as emergency aid is reduced remains relevant.
Highlighting US President Joe Biden’s multibillion-dollar spending plans, some economists are calling for direct transfers to low-income families, debt cancellation of hardest-hit companies that have taken out loans guaranteed by the ‘State and to a more important revival.
In a recent article, Jean Pisani-Ferry and his fellow economist Olivier Blanchard, said France should increase spending to â¬ 60 billion beyond current plans.
âEven though there are scars from this crisis, there are ways to heal at least some of them,â said Pisani-Ferry, the former director of the French economic planning agency, who has already advised Macron.
Macron “shouldn’t procrastinate” on measures like debt cancellation, he added, because not putting enough money into the economy could turn into a “self-fulfilling prophecy” of low growth for longer.
One of the priorities is to get the French to spend the 165 billion euros in savings accumulated over the past year. Spending 20% ââof these savings on drinks, food and outings could generate 1.7% additional GDP growth, according to INSEE, the national statistics institute.
Many restaurants and bars enthusiastically greeted their customers when they reopened for field service last Wednesday, after six months of closure. Still, some have decided not to reopen, fearing that restrictions such as a 9 p.m. curfew would make it unprofitable.
Other companies, meanwhile, are grappling with debts incurred last year, including under the state-backed PGE loan program. Business groups argue that these companies should be allowed to extend their loans beyond their six-year term. However, such changes can prove costly and banks are reluctant to come to an agreement.
A Parisian restaurateur, Michelin-starred chef Yannick Alleno, sought to extend his state-guaranteed loan of 1.5 million euros by one year, but decided not to do so when his bank said the renegotiation would cost around 50,000 euros in initial costs. âMany restaurants are now over-indebted,â he said. “We need help to protect the jobs of our employees.”
Another sensitive question is whether companies will lay off staff in the coming months as the government cuts back its support by slashing the leave scheme that has so far prevented a spike in unemployment.
Pisani-Ferry said if Macron wanted to protect jobs and ensure consumer confidence remained high, he would have to turn on the taps.
The risks of a broader stimulus being spent on buying foreign goods and added to public debt, he argued, have been outweighed by the benefits of faster economic growth, already forecast at at least 5. , 5% this year and 4% next year by the French central bank.
âThere is no hard short-term budget constraint but a soft political constraint. . . the government does not want to give the impression that we can spend without limit â, declared Philippe Martin, president of the French Council of economic analysis.
Daniela Ordonez, chief French economist at Oxford Economics, goes further by asserting that Macron does not need Europe to increase its spending: “France can do what it wants”. However, politically, that is another story, she said.
As France takes over the presidency of the EU in 2022 and elections loom, “Macron wants Europe to be a game changer, he wants to show that Europe has changed under his leadership.”