By Leigh Thomas
PARIS (Reuters) – The French government on Thursday more than doubled the expected cost of its coronavirus crisis measures to cope with the worst recession since at least World War Two, pushing the budget deficit and national debt to record levels.
Finance Minister Bruno Le Maire told Les Echos newspaper that the government now expected its crisis package to cost 100 billion euros ($108.6 billion) – over 4% of GDP and up from expectations of 45 billion euros less than a month ago.
“These numbers could yet change as the economic situation and companies’ need of support is changing fast. We’re going all out to save our companies,” Le Maire said.
The overall bill is likely to rise even more as the government has yet to put a cost on bailouts for big companies like Air France KLM that Le Maire says is in the works.
The immediate cost of the economic fallout from the outbreak has spiralled since President Emmanuel Macron pledged to save lives, jobs and companies “no matter what its costs”.
The government will present its second update to the 2020 budget in as many months next Wednesday. Le Maire forecast that the economy would contract 6% in 2020 – the most since 1945.
The government has ramped up its crisis measures with the economy operating at two-thirds of normal levels since the country went into lockdown on March 17.
With economic activity in freefall and crisis spending spiralling, the government’s public sector budget deficit would hit 7.6% of economic output this year, budget minister Gerald Darmanin said in the joint interview with Le Maire.
That is nearly double the 3.9% budgeted just last month and tops the previous record of 7.2% France saw in 2009 during the global financial crisis.
As the fiscal gap yawns, the national debt burden will reach 112%, whereas the government had hoped in its original 2020 budget to keep it to less than 100%.
So far the bond market has not balked at the extra debt, and the premium France pays over German debt to borrow from the markets has remained steady in recent days around 45 basis points.
The cost of the crisis package has ballooned as companies have rushed to take advantage of deferred tax and payroll charges, making up the largest chunk of the measures at 35 billion euros.
Firms are also using a state-subsidised furlough programme far more than expected, with nearly seven million workers covered at a cost of more than 20 billion euros, compared with the 8.5 billion budgeted in mid-March.
At the same time, 342,000 small companies have tapped a special solidarity fund aimed at keeping them afloat at a cost now expected at 6 billion euros, up from 1 billion last month. Extra healthcare spending is also getting hiked to 7 billion euros from 2 billion.
While the cost of big corporate bailouts remains to be budgeted, so does that for jumpstarting the economy once the lockdown is eventually lifted, which the government has pushed back past April 15.
Le Maire has called for a large-scale investment programme that would target the healthcare sector in particular as well as industries particularly hard hit by the crisis such as the aerospace and automobile industries.
The huge costs that will entail helps explain why Le Maire has lobbied other EU finance ministers to back plans for a jointly financed economic recovery fund to finance such investments.
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