France has torn up its budget plans for the second time in less than a month as the coronavirus epidemic and containment measures plunge the economy into a deep recession and the government is preparing to prolong the spending madness for save businesses and jobs.
Finance and Budget Ministers will present to the government on Wednesday a revised budget based on a 6% economic contraction in 2020 and 100 billion euros ($ 109 billion) in emergency spending. Less than four weeks ago, when France was putting in place closures to contain the virus, the government had established a budget based on a 1% contraction and 45 billion euros in additional spending.
“This is the worst recession in France since 1945,” said Finance Minister Bruno Le Maire in an interview with the French newspaper Les Echos. “The economic recovery will be long, difficult and costly.”
France’s rampant fiscal recalibration is an example of how the coronavirus is forcing governments around the world to transform their approaches to economic and fiscal policy. The intensity of the virus has mostly caught off guard, with an impact on the worsening of activity and the costs of supporting businesses and workers during the confinement outbreak.
Marking the sudden end of years of progressive and unpopular budgetary discipline, France’s emergency budget will swell the deficit to 7.6% of economic output and the debt to 112%. The French government hopes that by spending a lot now, it will ultimately cost the taxpayer less, as the economy will recover faster.
The new budget estimates the cost of paying the wages of workers on leave at around 20 billion euros, more than double what had been planned. It also increases the expected cost of tax deferrals and increases funding for small businesses and health care.
“These figures could change further because the economic situation and the need for support of our businesses are changing rapidly,” said Le Maire.
Emergency spending is also not the end of France’s budgetary efforts. The government is still planning stimulus measures after the health crisis to fuel investment and support the most affected sectors. But the plan will not be finalized until France has negotiated a joint stimulus plan with the European Union, Le Maire said.
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