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French €26bn stimulus plan to boost investment

Video by FRANCE 24

Latest update : 2008-12-05

"Our response to the crisis is investment," said French President Nicolas Sarkozy as he unveiled a €26bn stimulus package. The plan, which will add a further €15.5bn to the country's public deficit, focuses on the construction and car industries.

Reuters - President Nicolas Sarkozy unveiled a 26 billion euro ($32.9 billion) stimulus plan for the faltering French economy on Thursday, targeting investment projects rather than directly aiding consumers.
 
France is the latest European Union country to open state coffers to try to temper the sharp economic downturn and presidential officials said the measures would cost the equivalent of 1.3 percent of gross domestic product (GDP).
 
"Our answer to this crisis is investment because it is the best way to support growth and save the jobs of today, and the
only way to prepare for the jobs of tomorrow," Sarkozy said in a keynote speech in northern France.
 
The French plan earmarks 10.5 billion euros for infrastructure, research and support for local authorities.
 
This includes 4 billion euros to be spent on investment for state-owned rail, energy and postal companies, including a
pledge speed up major infrastructure projects such as fast speed train links in western France.
 
A further 4 billion euros will be channelled to sustainable development, higher education and defence industries.
 
The package also included help for the ailing auto industry, which Sarkozy said employed 10 percent of the workforce directly or indirectly, with incentives offered to scrap older vehicles and buy new, more environmentally-friendly models.

Lifting growth and the deficit
 
The package is expected to boost French growth by around 0.6 percent next year, but will also push the deficit to 3.9 percent of GDP against a previous target of 3.1 percent.
 
This is well above the usual 3 percent ceiling demanded by the European Union, however EU states have been given the green light to exceed budget limits given the crisis and France said it would bring the deficit close to 1.0 percent of GDP in 2012.
 
Besides the 26 billion euro package, the French government also promised to give companies 11.5 billion euros of credits and tax breaks on investment in 2009 rather than over an originally-planned three year period.
 
The European Commission last week called for an EU-wide fiscal stimulus package worth 200 billion euros ($260 billion)
in an attempt to stave off recession.
 
Many countries are already working on such plans, but are adopting differing approaches.
 
While France is focusing on investment, Britain has prepared a 20 billion pound package of tax cuts and spending to help
small businesses, low earners and households.
 
Germany has unveiled a plan worth 31 billion euros, or 1.25 percent of GDP, but is refusing to deliver tax cuts to help
stimulate economic growth despite having much more room for budgetary manoeuvre than many of its neighbours.
 
Unlike Germany, France narrowly escaped recession in the third quarter of 2008, but analysts expect a sharp contraction
in the last three months of the year as order books empty and consumer spending falls.
 
Unemployment is also on the rise, hitting 7.7 percent in the third quarter from 7.6 percent in the second quarter, according
to data released on Thursday.

Date created : 2008-12-04

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