Investment Latest Policy

France’s COVID Stimulus, Setting a Trend?

Following on from huge drops and uncertainty in their economy French Prime Minister Jean Castex recently unveiled a plan to inject €100 billion into the country in an effort to raise it out of its pandemic slump. Such economic decline hasn’t been seen in France since the end of WWII and has been poignantly labelled as a “France Reboot”. Economists around the world are hoping that this record-setting cash injection will get the country back on its feet after lockdown. But how will this new funding impact the country as a whole?

How has France Handled the Pandemic?

France has been one of the hardest economically hit countries in Europe during the pandemic. According to The National Institute of Statistics and Economic Studies (Insee), France was hit with a sharp decline in GDP, which fell 13.8% in Q2 of 2020 following a smaller fall in Q1. Some sources agree however, that the country may be able to hold shrinkage to under 9% in the second half of the year with the help of a post-lockdown rebound.

France’s GDP Growth from Trading Economics September 2020

Thanks to various relief packages centered around unemployment and support for small businesses national household income in France declined only 2% during Q2, but economic activity fell over 14% due to strict lockdown protocols. It was also revealed earlier this year by French Finance Minister Bruno Le Maire that the French government was introducing a €45 billion aid package to help small businesses and other hard-hit areas keep their doors open.

France has also been impacted heavily by reduced tourism and international travel. For example, Eurotunnel travel fell nearly 30% year on year over August. Air France also recently received a bailout of nearly  €10 billion euros from the government to save it from collapse, under the strict proviso that it would implement emission cuts.

What Does The Stimulus Package Contain?

The French government has broken down the injection into three tranches in order to reinvigorate the economy as much as possible. The tranches are structured to provide:

  • €35 billion for employment, social programmes and healthcare. This includes furlough payments and work programmes.
  • €35 billion to support existing businesses and to encourage business investment, mostly being structured around tax breaks.
  • €30 billion to invest in green technologies and to provide a ‘green transition’. The focus here will be on national travel infrastructure and lowering carbon footprints.

The package totals almost 4% of France’s GDP and promises to provide over 160,000 new jobs throughout 2021, to raise capital for the injection there will be new treasury bonds issued in lieu of raising taxes. But is €100 billion enough to not only get France’s economy back on track but also provide the precursor to a green revolution?

“Now is the time for recovery” tweeted French President Emmanuel Macron late last month, sending a hopeful message of commitment, but the politician has always had a firm stance of putting business before the environment.

Looking at green renovations across the country, the plan hopes to tackle the nation’s carbon emissions. There have already been critics when it comes to the environmental side of the injection however. Head of Greenpeace France Jean-Francois Juilliard stated that when it came to the stimulus that the “The government is presenting a recovery plan from a bygone era” and that it was “much less green than it would seem”. The stimulus package certainly has a good chance of aiding in the rebuilding of the national economy if implemented correctly, however multiple international companies including Renault and Air France have already started introducing job cuts even after receiving bailout funding.

What Are The Financial Implications Of The Stimulus?

As the announcement for the cash injection was released, the UK markets saw gains overall but what are the long term implications of such a massive stimulus project? With most of the stimuli aimed at businesses coming in the form of tax relief (to the value of €20 billion across two years) on paper companies of all sizes should be able to benefit with a focus on at-risk small/medium-sized organisations. Tax cuts may also draw more international business into the country as they seek lower costs. As the cuts continue, the government relief funding aims to increase growth long after the COVID era.

With this stimulus plan and the announcement earlier this year that the EU will be allocating €750 billion to Coronavirus recovery, it seems that Europe is on its way to recovery following COVID-19. It does remain to be seen however how successful the initiative will be, especially due to the fact that the French government seems hell-bent on a hasty rollout. Based on the results that the stimulus yields we may soon see other European countries follow suit in what could potentially incur real environmental and economical change across the continent.