Macron Throws 100 Billion Euros at French Economic Relaunch

(Bloomberg) -- Emmanuel Macron’s government unveiled the long-awaited 100 billion-euro ($118 billion) 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 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 is an unprecedented sum,” Macron said in a preface to the presentation of his plan. “But the real ambition of France Relaunch is not so much the significance of the amounts to support activity in the short term, but the philosophy of transformation that underscores the plan.”

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 this week 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 around 120% of output. It will rely on European financing for up to 40 billion euros of the stimulus plan.

Presenting the plan Thursday, French Prime Minister Jean Castex dismissed short-term concerns about public finances, saying that is preferable to “plunging into austerity and allowing an explosion of unemployment, poverty and human tragedy.”

A large sum of the plan wil go to employment, including 7.6 billion euros on a long-term furlough combined with training for idled workers, and bonuses for hiring young people. The govenrment will also spend 1.3 billion on programs to get 300,000 young people into work.

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 SA and Compagnie de Saint-Gobain, as well as electrical equipment makers like Legrand SA and Schneider Electric SA.

France’s benchmark CAC 40 stock index rose 1.4% as of 3:15 p.m. Paris time amid a broad European equity rally.

There’s also a cut to taxes on production, at a cost of 10 billion euros 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 impact that will raise potential growth by one percentage point 10 years from now.

©2020 Bloomberg L.P.