France scraps budget, plans €345 billion coronavirus response

The crisis has also upended the the economic philosophy of President Emmanuel Macron. PHOTO: EPA-EFE

PARIS (BLOOMBERG) - France is tearing up its budget programme and plans huge spending as the coronavirus outbreak sends the economy into a deep slump.

Finance Minister Bruno Le Maire will present an emergency budget on Wednesday that will include €45 billion (S$71 billion) of spending plus €300 billion of loan guarantees. France's debt will rise above 100 per cent of economic output.

The action is based on the economy shrinking 1 per cent this year. But even that is only a provisional figure that could be much worse depending on how the epidemic evolves in the coming weeks and how the hard the US economy is hit, according to Mr Le Maire.

"We are facing an economic and financial war," he said in a telephone briefing with journalists. "This economic and financial war will be long, it will be violent and will require all the strength or our nation, Europe and the G-7 group of advanced economies," he said.

The crisis has also upended the the economic philosophy of President Emmanuel Macron, who came to power in 2017 promising to pare back the omnipresence of the state in economic life. Now, with most workers confined and businesses shutting activity, the state is taking over the economy in an unprecedented way. Mr Macron's reforms - including the flagship overhaul of pensions - are suspended.

The French President announced on Monday night the new loan guarantees so that no bank refuses lending to businesses.

Mr Le Maire said the injection of €45 billion of public money to support the economy is only a first estimate. Paying workers on temporary unemployment will cost around €8.5 billion for two months, and delaying tax collection will cost around €32 billion for March, he said. The delayed taxes could ultimately be cancelled.

The government will also set up a "solidarity fund" for companies that have been forced to shut down and small firms whose revenue has sunk more than 70 per cent in March. The fund will cost the state around €1 billion for every month it exists and is currently planned for two months in the emergency €45 billion package.

Beyond the emergency measures to support workers and businesses, Mr Le Maire said France would at a later date craft a stimulus programme.

"The stimulus plan will be a second step that depends on how the epidemic evolves and France's economic situation in the coming weeks," he said. "We will need to restart our economy."

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