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How France will invest €57 billion to modernize economy

The French PM announced details on Monday of how the government will invest €57 billion on bringing to life France's struggling economy. Here's a look at how the money will be spent.

Published: 25 September 2017 14:38 CEST

How France will invest €57 billion to modernize economy

Prime Minister Edouard Philippe announced plans Monday to pour 57 billion euros ($67.8 billion) into modernising
France's sluggish economy, with a hefty chunk set aside for making it more environmentally-friendly.

Spread over five years, the fund will be slightly bigger than the 50 billion euros that centrist Emmanuel Macron had pledged when he was elected president in May.

Philippe said the fund would have an “amplifier effect” on the new government's reform programme, which includes labour law changes designed to bring down stubbornly high unemployment rate of 9.5 percent.

“It's about giving power and visibility to our major investment priorities,” Philippe told a press conference.

Twenty billion euros will be used to fund a transition towards a greener economy, Philippe said, including nine billion for making buildings more energy efficient and seven billion for renewable energy development.

In a bid to cut down on pollution, French drivers will be offered a 1,000-euro cash incentive to trade in cars made before 1997 — or 2001 for diesel models — for newer and more efficient vehicles.

The government will spend nine billion euros on digitising the public sector, 15 billion extra on training and education, including training one million people aged over 25 for new careers as Macron's government seeks to tackle long-term unemployment.

Around 13 billion will be spent on broader innovation, including five billion for modernising the agricultural sector in Europe's biggest food producer.

Another 3.5 billion of the innovation fund will be handed to scientists, including for developing the artificial intelligence industry.

Philippe said some of the funding would come from existing ministerial budgets and some from the European Investment Bank.

The launch comes as Macron's government prepares to announce the first budget of his five-year term on Wednesday.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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