France to unveil 'big loan' spending plan
November 19, 2009
PARIS November 19 Sapa-AP
by Greg Keller
France risks attracting the ire of its European neighbours when it unveils plans to raise tens of billions of euros in new borrowing just as its EU partners are being urged to begin reining in the stimulus packages that caused deficits and debts to skyrocket.
Electric cars, wind power and broadband internet are among the industries already lining up for their share of France's so-called "Big Loan" program, a €35 billion ($52 billion) public spending plan dreamt up by President Nicolas Sarkozy as a way to fuel France's long-term economic growth.
Even a club that lobbies for more cycle lanes in cities is asking for €500 million.
A commission charged last summer with coming up with a list of "strategic priorities" for the new spending is scheduled to present its report to Sarkozy Thursday.
The French president launched the loan idea last summer in a speech to both houses of parliament gathered at the Chateau de Versailles. After spending €26 billion ($39 billion) in stimulus to offset the global financial crisis, Sarkozy said France needed to raise billions more to invest in the country's long-term growth, "because without investment there is no future."
Initial estimates of the size of the loan program ranged up to €100 billion, but last week one of the commission's co-presidents, former Prime Minister Alain Juppe, said the commission had settled on a total "investment" of €35 billion.
Part of this could come through recycling the €13 billion that France's banks have repaid the government after it propped them up with billions of euros during the worst of the financial crisis.
The government could still have to borrow around €20 billion to finance the investments suggested by the commission. Sarkozy will have the final say in both the size of the loan and how it will be spent, which he is expected to lay out in early December.
France's universities could be among the biggest beneficiaries of the "Big Loan," with up to €10 billion potentially earmarked to set up endowments on the model of some U.S. universities, according to French press reports.
Other sectors expected to be favored for investment are innovative small and medium-sized companies, renewable energy, electric vehicles and broadband and other digital technologies.
All this new spending, when France's debt and deficit are already at record high levels, has attracted criticism both from the country's opposition Socialist party and from within Sarkozy's governing conservative UMP party.
The French people apparently remain unconvinced of the plan's benefits. A poll this month showed that 54 percent of respondents opposed the plan, and only 39 percent supported it.
The plan risks angering European officials, who have urged countries to rein in their stimulus spending now that the continent has begun to pull out of its worst recession in the postwar era.
Last year, France spent €55 billion servicing its total debt of €1.3 trillion. France's Cour des Comptes, the government's audit body, warned in its June report that it is "urgent" for France to reduce spending.
Last month, the head of the European Central Bank said the 16 countries that use the euro should withdraw stimulus programs and start repaying mounting public debt by 2011 at the latest.
ECB President Jean-Claude Trichet, the chief central banker for the eurozone, said exit strategies were "essential for the recovery" and for economic confidence "because business and fellow citizens have to be reassured" that governments will not continue to run up debt.
Debt rating agency Moody's also frowned on the plan.
"France has a relatively large debt burden, high deficits, a well-developed infrastructure and a history of unsuccessful attempts to 'grow' out of its debt," Moody's analyst Arnaud Mares said in a report. "The odds are stacked against the proposed borrowing plan" successfully contributing to France's long-term creditworthiness, Mares said.
Economists say that, while France can afford to raise €20 billion or more in new debt, the important question is how it will be spent.
"Twenty billion euros is not a huge sum of money - 1.2 or 1.3 percent of GDP," said Simon Tilford, chief economist at the Center for European Reform in London.
"The question is whether it will be wisely spent, and what impact it has on France's ability to bring its deficit down," Tilford said.
France's budget deficit will hit a record 8.2 percent this year, up from 3.4 percent last year, because the recession caused tax receipts to shrivel and the government stimulus package increased spending.
The budget gap will grow even further, to a never-before-recorded 8.5 percent of GDP next year, Budget Minister Eric Woerth forecasts.
This means France's debt will keep growing from 77.1 percent of economic output this year to 91 percent in 2013, according to government forecasts.
Germany, on the other hand, is keen to limit debt even as it also breaks the EU limit designed to support the euro with a budget deficit over 3 percent. But its estimated budget gap of 3.7 percent of GDP is far less than France's expected 8.2 percent.
France's finances "are in a pretty poor state," Tilford said. By launching its "Big Loan" now, France "could raise some eyebrows. It's a somewhat curious policy for them to adopt."
Sapa-AP
/tk
|
|
