Macron weighs economy versus politics in the French reopening

When French bars and restaurants reopened last week, the government of President Emmanuel Macron prepared a big moment: how to wean Covid’s battered economy from vital support and feed it back.

When the pandemic began, Macron promised to do “whatever is necessary”To support companies and workers with a wide range of programs, such as advances, loans and cash grants.

But now, when emergency aid begins to shrink, the president, who is running for re-election in May, must show voters that he can get the French economy back on track. Already prominent economists and political opponents like Marine Le Pen are urging the government to think more in terms of stimulus.

Macron has raised the idea of ​​more state spending saying he wants to consult widely with citizens and business leaders this summer to “invent a second phase of [economic] relaunch ”: in addition to the recovery plan of 100 billion euros that France already has sent for EU approval.

Ministers have also hung the tempting prospect of more money, adding that the country must wait and see how the economy works according to this plan.

Meanwhile, in an attempt to show the weight of Macron voters on the European stage, France did it began to push for new EU initiatives to bolster investment to keep up with the fastest-growing Chinese and US economies.

“The question that could be asked is whether we will need a long-term investment plan, because if we are planning for 2022 … to get back to the level of economic activity we had in 2019, we can’t try to do it better. ? ”According to Finance Minister Bruno Le Maire.

In Brussels, there is little desire to reopen talks on the € 750 million recovery plan for the 27-member bloc: “It’s too early,” said Margrethe Vestager, executive vice president of the European Commission. he said Newspaper Les Echos.

France will get 40 billion euros out of its 100 billion euros European recovery plan. And while EU money has not yet begun to flow, France has already earmarked € 30 billion for projects.

They are based on three priorities: green investment, such as clean fuel research and building renovation; measures to increase competitiveness, such as modernizing factories, and; “Social Cohesion,” which includes training in health and employment.

But difficulties in getting more money agreed in Europe and the fact that Macron and his ministers have downplayed any short-term EU deal have fueled suggestions that politics is also driving the French president’s concerns about the US and the US. China stealing an innovation march.

Still, the question of whether EU states, such as France, should spend more as emergency support is reduced remains relevant.

Pointing to U.S. President Joe Biden’s multimillion-dollar spending plans, some economists are calling for direct transfers to low-income families, debt cancellation of the hardest-hit companies that obtained state-backed loans, and greater stimulus.

In a recent document, Jean Pisani-Ferry and his economist Olivier Blanchard, said France should increase spending by up to 60 billion euros beyond current plans.

“Even if there are scars from this crisis, there are ways to cure at least some of them,” said Pisani-Ferry, the former head of the French economic planning agency, which had already advised Macron .

Macron “should not be put off” by measures such as debt cancellation, he added, because not allocating enough money to the economy could become a “self-fulfilling prophecy” of low growth for longer.

One of the priorities is to convince the French to spend the 165 billion euros in savings accumulated last year. Spending 20% ​​of this savings on drinks, food and going to market could generate an additional 1.7% of GDP growth, according to Insee, the national institute of statistics.

Many restaurants and bars welcomed customers when they reopened the outdoor service last Wednesday, after six months of closure. However, some decided not to reopen, fearing that restrictions such as the 21:00 curfew would make it unprofitable.

Meanwhile, other companies are struggling with debts acquired last year, including those from the state government PGE loan scheme. Trade groups argue that these companies should be allowed to grant loans above their six-year period. However, these changes can be costly and banks are reluctant to accept it.

A Parisian restaurant owner, Michelin star chef Yannick Alleno, tried to extend his state-guaranteed loan by 1.5 million euros for a year, but decided against it when his bank said the renegotiation would cost about 50,000 euros in initial costs. “A lot of restaurants are over-indebted now,” he said. “We need help protecting the work of our employees.”

Another sensitive issue is whether companies will lay off staff in the coming months, as the government reduces its support by reducing the progress plan that has so far prevented an increase in unemployment.

Pisani-Ferry said that if Macron wanted to protect jobs and make sure consumer confidence remained high, he would have to open the tips.

The risks posed by an expanded stimulus to buy foreign goods and add to public debt, he argued, were offset by the benefits of faster economic growth, which is already projected to be at least 5.5% this year. 4% next year the French central bank.

“There are no harsh budget restrictions in the short term, but a soft policy. . . the government does not want to give the impression that it can be spent without limit, ”said Philippe Martin, chairman of the French Council for Economic Analysis.

Daniela Ordonez, chief French economist at Oxford Economics, goes further, arguing that Macron does not need Europe to increase spending: “France can do whatever it wants.” However, politically, it’s a different story, he said.

With France taking over the EU presidency in 2022 and the scheduled elections, “Macron wants Europe to change its game, he wants to show that Europe changed under his watch.”