France Scraps Budget Again After Economy Sinks, Spending Soars

(Bloomberg) --

France tore up its budget plans for the second time in less than a month as the coronavirus outbreak and confinement measures send the economy into a deep recession and the government prepares to extend a spending splurge to save companies and jobs.

The finance and budget ministers will present a revised budget to cabinet on Wednesday based on the economy shrinking 6% in 2020 and 100 billion euros ($109 billion) of emergency spending. Less than four weeks ago, just as France implemented shutdowns to contain the virus, the government had set out a budget based on a 1% contraction and 45 billion euros of extra expenditures.

“This is the worst recession in France since 1945,” Finance Minister Bruno Le Maire said in an interview with French newspaper Les Echos. “The economic recovery will be long, difficult and costly.”

France’s frantic 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 caught most off-guard, with the impact on activity worsening and the costs of supporting businesses and workers during confinement surging.

Marking a sudden end to years of gradual and unpopular fiscal discipline, France’s emergency budget will inflate the deficit to 7.6% of economic output, and debt to 112%. The French government is hoping that by spending big now, it will ultimately cost less to the taxpayer as the economy will recover quicker.

The new budget estimates the cost of paying the wages of furloughed workers will be about 20 billion euros, more than twice as much as previously predicted. It’s also increasing the expected cost of delaying taxes and is increasing funding for small businesses and health care.

“These figures could still change because the economic situation and our businesses’ need for support is changing fast,” Le Maire said.

The emergency spending is also not the end of France’s fiscal efforts. The government still plans stimulus after the health crisis to fuel investment and support the hardest-hit sectors. But that plan will not be finalized until France has negotiated a joint stimulus plan with the European Union, Le Maire said.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.