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Epidemics

Macron's Economic Dilemma: Weaning the French Economy Off Life Support

Strategic Insights

— 2 min read

As French bars and restaurants reopened, President Emmanuel Macron faced a critical moment: how to wean the coronavirus-battered economy off life support. Macron's government had promised to do "whatever it takes" to support businesses and workers with an array of programs, but now, as emergency aid begins to be scaled back, the president must show voters that he can put the French economy back on track.

Key Takeaways:

  • Macron's government has floated the idea of more state spending, with a proposed "second phase" of the [euro]100bn recovery plan, on top of the [euro]100bn already allocated.
  • Ministers have hinted at the possibility of more money, but emphasized that the country must wait and see how the economy performs under the current plan.
  • France is lobbying for EU initiatives to bolster investment, citing the need to keep up with the faster-growing US and Chinese economies.
  • The country's [euro]100bn recovery plan includes [euro]40bn from the EU, which has yet to start flowing.
  • Macron's government has allocated [euro]30bn to projects based around three priorities: green investment, competitiveness-increasing measures, and "social cohesion".
  • Economists, such as Jean Pisani-Ferry and Olivier Blanchard, are calling for direct transfers to low-income families, debt cancellation for hard-hit companies, and a bigger stimulus, with some suggesting an additional [euro]60bn in spending beyond current plans.
  • One priority is to coax French people to spend [euro]165bn in savings amassed in the past year, with the potential to generate 1.7% extra GDP growth.
  • Some businesses struggle with debts taken on last year, including from the state-backed PGE loan scheme, while others have chosen not to reopen, fearing unprofitability.
  • Trade groups are calling for businesses to be allowed to stretch out loans beyond their six-year term, while banks are reluctant to agree.

Statistics:

  • [euro]100bn: The total amount of France's recovery plan.
  • [euro]40bn: The amount of funding from the EU for the recovery plan.
  • [euro]30bn: The amount allocated by Macron's government for projects based on three priorities.
  • [euro]165bn: The amount of savings amassed in France in the past year.
  • 20%: The proposed percentage of savings spent on going out, with the potential to generate 1.7% extra GDP growth.
  • 6 months: The length of time restaurants were closed before reopening last Wednesday.
  • [euro]1.5m: The amount of state-guaranteed loan sought by Yannick Alleno, a Michelinstarred chef.
  • [euro]50,000: The estimated upfront cost for Alleno to extend his loan by a year.
  • 1.7%: The potential extra GDP growth from spending 20% of [euro]165bn on going out.

Sources:

  • France Info
  • Les Echos newspaper
  • Insee (the national statistics institute)
  • The French Council of Economic Analysis
  • Oxford Economics

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