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ECONOMY

French economic recovery programme risks being overtaken by new lockdown

A plan announced with fanfare two months ago to support the French economy's recovery from the coronavirus pandemic has yet to be finalised but is already at risk of being overtaken by events as the government has imposed a second lockdown.

French economic recovery programme risks being overtaken by new lockdown
French President Emmanuel Macron chairs a video conference with foreign company executives on November 6, 2020, as part of a "mini choose France" forum, designed designed to attract more foreign busin

“This 'Relaunch France' strategy … is not a strategy to confront the difficulties of the moment, that we have already done and we'll continue to do…, no it is to prepare France for 2030,” President Emmanuel Macron said shortly before the government unveiled the programme at the start of September.

Yet the government said the programme's 100 billion euros in spending over two years, with one-third consecrated to supporting shifting the economy onto a sustainable environmental basis, aims to return the French economy to its pre-pandemic level by 2022.

But that goal is now under threat with a second wave of coronavirus cases having pushed the government to adopt a new lockdown.

While the restrictions are less severe than during the original March-May lockdown, it will still disrupt huge sections of the economy as businesses that welcome the public such as restaurants, gyms, theatres and cinemas, shut their doors.

READ MORE: What closes and what stays open during France's second Covid-19 lockdown?

'Time lag'

“There was a time lag between the announcement of the recovery plan, which was elaborated based on a scenario of only one wave of the epidemic, and today we need to go into a lockdown again with the resulting economic consequences,” said Anne-Laure Delatte, an economist at France's CNRS national scientific research centre.

According to an analysis published by the Institut Montaigne think tank on Friday, just over a fifth of the 100 billion euros will provide short-term support to the economy. Half of the money will only have an effect over the medium or long term. The rest will likely have a mixed effect.

The government's plan was also based on the expectation of a strong rebound in the economy. It has forecast 8 percent growth in 2021 following an 11 percent drop this year.

But that rebound is likely to be less pronounced as it will take longer, which even the government acknowledges.

“We'll have to re-evaluate these figures in light of the duration of the confinement,” Economy Minister Bruno Le Maire said Wednesday.

Demonstrators from various economic sectors gather to protest against the closing of 'non-essential' business in Toulouse, southern France on November 6, 2020, during the national lockdown aimed at containing the spread of Covid-19. Lionel BONAVENTURE / AFP

The European Commission and IMF have already lowered their forecasts for France next year, seeing respectively 5.8 percent and 6 percent growth.

“We're in a situation of extreme uncertainty: we're beginning to realise this isn't the final wave and then you have to add in the international context with Brexit and to a lesser extent the US election,” said Delatte.

Depending on the health situation at the end of the lockdown “either there'll be a dynamic rebound, probably similar to what we saw in the third quarter, or households and businesses will anticipate another lockdown and some will undoubtedly adopt a wait-and-see attitude,” said Xavier Ragot, head of the independent French Economic Observatory.

With consumer spending and business investment two critical elements of the economy, a wait-and-see attitude would hobble a rebound. A recovery programme, in addition to directly stimulating the economy, should also give consumers and businesses confidence to spend.

A customer pushes a trolley past the closed toy department of a supermarket in Bordeaux on November 4, 2020, on the sixth day of a lockdown aimed at containing the spread of Covid-19. Supermarkets banned on November 4, 2020 the sale of “non-essential products.” Philippe LOPEZ / AFP

'Late and poorly calibrated'

After weathering the first lockdown many companies find themselves in a weaker position, often with more debt.

The French Senate's finance committee has called on the government to adjust the recovery plan. Its spokesman, Senator Jean-François Husson called it “late and poorly calibrated”, saying he believed the government “should now favour temporary measures to support the economy”.

Several economists have called for support to help companies to avoid cash crunches and stave off a possible wave of bankruptcies. The plan only includes 3 billion euros of this type of support.

“This is essential as once you have one company which goes bankrupt, in reality you'll have a cascade because the suppliers and clients will themselves be put in difficulty,” said the CNRS's Delatte.

Companies will also likely need to make greater use of the temporary furlough programme under which the government picks up a majority of the salaries of employees which are idled due to confinement restrictions or a drop in activity, said the French Economic Observatory's Ragot.

Meanwhile, the Institut Montaigne said households with modest incomes would likely need more support as crises accentuate inequality.

The government does not exclude the idea of reinforcing short term measures such helping companies meet their rent.

The economy minister said other measures can be introduced into the draft of the 2021 budget, even if he defended the government's current strategy.

READ MORE: What are the rules of France's second coronavirus lockdown?

 

 

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ECONOMY

French bosses fear far right’s vague economic plans

French business leaders have been pitched into fresh uncertainty by snap elections called by President Emmanuel Macron that risk strengthening the far right.

French bosses fear far right's vague economic plans

Federations are treading lightly with their public comments, aware that they could be sitting across the table from National Rally (RN) ministers if the party scores a major breakthrough in the June 30 and July 7 ballots.

Local business group U2P would “respect the people’s choice, but the RN has to say more precisely what it proposes on questions with a tax, social and economic effect on small firms,” its chief Michel Picon told AFP.

At the last presidential election in 2022, the outfit had warned that RN chief Marine Le Pen’s manifesto promises “would have bad consequences for business,” he recalled.

At stake are issues such as returning to an official retirement age of 60 — raised to 64 in a wildly unpopular Macron reform last year — and a still harsher crackdown on immigration.

“What does this mean for people working for us today?” Picon asked.

“We’re business players who don’t get involved in politics,” said Thierry Cotillard, head of the Mousquetaires/Intermarche supermarket chain.

But “whoever the politicians are, we will fiercely defend our positions,” he warned.

‘Stick your neck out’

Centrist Macron’s time in office has been marked by reforms aimed at making life easier for businesses and high-profile courting of foreign investment.

By contrast, “we know nothing” about the RN’s plans, said the head of one major European industrial firm’s French subsidiary on condition of anonymity.

“We’ve just seen the beginnings of a reindustrialisation for 10 years, with supply-side policies bearing fruit. Will all that be kept up?” he asked.

Macron’s Finance Minister Bruno Le Maire on Tuesday urged business to “stick their neck out” against the far right.

Groups including the big companies’ federation MEDEF should “clearly say what they think of the different parties’ economic programmes” and warn about “the cost of Marine Le Pen’s Marxist plans”, he added.

Without naming any party, MEDEF told AFP in a statement that “a new campaign is starting in which we do not share certain political visions, which are incompatible with business competitiveness and prosperity for our country and fellow citizens”.

The CPME small-business group called for supply-side policy, greenhouse emissions reduction and welfare state reforms to continue.

It also warned about France’s staggering €3 trillion debt pile, which ratings agency Moody’s said Monday risked a downgrade due to the “potential political instability” from the upcoming election.

“Anyone taking on costly reforms without taking this element into account would be exposing France to a major risk,” the CPME said.

The head of a firm on France’s heavyweight CAC 40 stock market index, also speaking on condition of anonymity, said there was no reason to panic as the RN winning was “not a done deal”.

Even if they did, they said, “everyone wants to upend things, but once in power, being responsible for things will make you responsible.”

‘Low-carbon electricity essential’

One sector with particular fears for a far-right victory is renewable energy, which has already been waiting for months on a government roadmap stretching to 2035 and including items like sites for massive offshore wind parks.

“What’s going on is serious,” said Jules Nyssen, president of the Renewable Energies Union (SER).

“We’re in a state of total instability, just when we need legal guarantees and clarity,” he added, saying “it’s going to cost us heavily”.

“We have a clear roadmap that we need to eliminate carbon emissions,” said Nicolas de Warren, president of the UNIDEN association of big industrial energy users.

“What’s essential for us is access to low-carbon electricity at competitive prices, whether it’s nuclear or renewable”.

In 2022, Le Pen promised a fleet of around 20 new nuclear reactors — although her 2031 timetable for delivering half of those was seen as unrealistic.

But she is also a committed opponent of wind energy, vowing a moratorium on new construction and the gradual dismantling of existing parks — plans incompatible with France’s climate commitments.

“The laws of economics and energy will catch up” with the RN if it comes to power, one electricity provider said on condition of anonymity.

“We need more cheap energy. Building nuclear takes 10-15 years. What do we do while we wait? And how do we attract battery factories if we don’t want any more electric cars?” he added, citing another of Le Pen’s bugbears.

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