France: An overview of the recovery plan

One hundred billion euros is a huge sum, and that is how much the French government will devote to its recovery plan over the next two years. The overall budget is divided roughly into thirds to cover the recovery plan’s three pillars: 30 billion euros for the environment, 34 billion euros to boost competitiveness, and 36 billion euros for social cohesion. The stakes are high: the goal is not only to stimulate short-term growth (with GDP targeted to return to pre-crisis levels by 2022), but also to strengthen medium to long-term growth and “build today the France of 2030.”

This is why the accent is on supply-side measures rather than on demand. Large corporate support also reflects the cost of the crisis, which has hit companies harder than households. It comes in various shapes and sizes: production tax cuts (10 billion euros); a strengthening of shareholders’ equity (3 billion euros); incentives to relocate production back home (1 billion euros); and funding for innovation and investment in the technologies of the future (11 billion euros).

The recovery plan also provides support for households, mainly in the form of job support measures, which in turn goes through support for businesses. The loop is closed: supply-side policies also help stimulate demand. As is often the case, employment is the pivotal variable and, in fact, it lies at the heart of the recovery plan.

Indeed, employment is not only bolstered via corporate support under the competitiveness pillar. Other more direct measures are also designed to support employment as part of the social cohesion pillar, including: subsidies for hiring youth (nearly 4 billion euros); a new long-term job retention scheme (nearly 7 billion euros); and greater investment in training (5 billion euros). Measures to advance the ecological transition are also expected to have a positive impact on jobs.

In brief, as we see it, the recovery plan plays two roles: it buffers the scars of the crisis and it strengthens the current recovery as well as tomorrow’s growth. It remains to be seen whether it will be fully effective, both in the short-term and in the long-term. We must hope so. It seems likely, but it’s hard to say for the moment.

Indeed, uncertainty is high as several questions remain unanswered (like how quickly will the 100 billion euros be injected into the economy). The decision to emphasize supply-side measures has its risks, too. More visible and immediate support for demand might be considered. The government hasn’t spelled out the financing of the plan, either. Further details are expected in late September, when the government presents the 2021 budget. Thanks for watching.