As French bars and restaurants reopened last week, President Emmanuel Macron’s government steeled for a big moment: how to wean the Covid-battered economy off life support and nurse it back to health.
When the pandemic began, Macron promised to do “whatever it takes” to support businesses and workers with an array of programmes, such as furloughs, loans and cash support.
But now, as emergency aid begins to be scaled back, the president, who is running for re-election in May, must show voters that he can put 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 has floated the idea of more state spending by saying he wants to consult broadly with citizens and business leaders this summer to “invent a second phase of the [economic] relaunch” — on top of the €100bn recovery plan France has already submitted for EU approval.
Ministers have also dangled the tantalising prospect of more money, while adding the country must wait and see how the economy performs under that plan.
Meanwhile, in an attempt to show voters Macron’s weight on the European stage, France has started to lobby for new EU initiatives to bolster investment to keep up with the faster growing US and Chinese economies.
“The question that could be asked, is whether we will need an investment plan for the long term because if we are planning by 2022 . . . to get back to the level of economic activity we had in 2019, can we not try to do better?” as finance minister Bruno Le Maire told France Info.
In Brussels, there is little appetite to reopen talks on the 27-member bloc’s €750bn recovery plan: “It is way too early,” Margrethe Vestager, European Commission executive vice-president, told Les Echos newspaper.
France is to get €40bn of its €100bn recovery plan from Europe. And while that EU money has yet to start flowing, France has already allocated €30bn to projects.
These are based around three priorities: green investment, such as research into clean fuels and renovating buildings; competitiveness-increasing measures, such as modernising factories, and; “social cohesion”, which includes health and jobs training.
But the difficulties of getting more money agreed in Europe, and the fact that Macron and his ministers have played down any near-term EU deal, has fuelled suggestions that politics is also driving the French president’s concerns about the US and China stealing a march on innovation.
Still, the question as to whether EU states such as France should spend more as emergency support is wound down, remains a pertinent one.
Pointing at US President Joe Biden’s multitrillion dollar spending plans, some economists are calling for direct transfers to low-income families, debt cancellation for the hardest hit companies that took state-backed loans, and a bigger stimulus.
In a recent paper, Jean Pisani-Ferry and fellow economist Olivier Blanchard, said France should increase spending by as much as €60bn beyond current plans.
“Even if there are scars from this crisis, there are ways to heal at least some of them,” said Pisani-Ferry, the former head of the French economic planning agency, who has advised Macron previously.
Macron “should not procrastinate” over measures like debt cancellation, he added, because failing to pump enough money into the economy could turn into “a self-fulfilling prophecy” of low growth for longer.
One priority is to coax French people to spend the €165bn in savings amassed in the past year. Spending 20 per cent of those savings on drinks, food and going out could generate 1.7 per cent extra GDP growth, according to Insee, the national statistics institute.
Many restaurants and bars eagerly welcomed back customers when they reopened for outdoor service last Wednesday, after six months of closure. Yet some decided not to reopen, fearing that restrictions such as a 9pm curfew would make that unprofitable.
Other businesses, meanwhile, struggle with debts taken on last year, including from the government’s state-backed PGE loan scheme. Trade groups argue such businesses should be allowed to stretch out loans past their six-year term. Yet such modifications can prove expensive and banks reluctant to agree.
One Paris restaurant owner, Michelin-starred chef Yannick Alleno, sought to extend his €1.5m state-guaranteed loan by a year, but decided against it when his bank said the renegotiation would cost about €50,000 in upfront costs. “Many restaurants are overly indebted now,” he said. “We need help to protect the jobs of our employees.”
Another sensitive issue is whether companies lay off staff in coming months as the government reduces its support by shrinking the furlough scheme that has so far prevented an unemployment spike.
Pisani-Ferry said if Macron wanted to protect jobs and make sure consumer confidence stayed high, he would need to open up the spigots.
The risks that an expanded stimulus would be spent on buying foreign goods and added to public debt, he argued, were outweighed by the benefits of faster economic growth, already forecast to be at least 5.5 per cent this year and 4 per cent next year by the French central bank.
“There is no hard budget constraint in the short term but a soft political one . . . the government does not want to give the impression that one can spend without limit,” said Philippe Martin, chair of the French Council of Economic Analysis.
Daniela Ordonez, chief French economist at Oxford Economics, goes further, arguing that Macron doesn’t need Europe to increase spending: “France can do whatever it wants.” However, politically, it is a different story, she said.
With France taking over the EU presidency in 2022 and looming elections, “Macron wants Europe to be a game-changer, he wants to show that Europe changed under his watch.”