France unveils €26-billion recovery plan

French President Nicolas Sarkozy has unveiled a €26-billion ($33 billion) stimulus plan to help France fend off financial crisis. The measures include a €1 billion loan for carmakers and €5 billion of new public sector investments. About €20 billion will be added to the public debt.

Sarkozy announced measures worth €1.8 billion to help the housing sector, including €800 million to build or renovate public housing and €600 million for zero-interest loans for the purchase of new homes.

The plan also earmarks €220 million for households to buy new cars. Until the end of next year, drivers will get a €1,000 rebate if they scrap a vehicle older than 10 years and purchase a light truck or new car emitting less than 160 grams of carbon dioxide per kilometers. That loosened previous ''green'' incentives standards, making buyers of mid-sized models such as the Citroen C5 and Renault Laguna eligible.

Companies with fewer than 10 employees will get a break on payroll charges on 2009 hires, costing the state an estimated €700 million. That amounts to a monthly break of €180 for a company hiring an employee on the minimum wage. The government will also spend an extra €500 million retraining for newly unemployed in 25 distressed areas.

About 3.8 million impoverished people will get a one-off 200-euro check in April 2009, Sarkozy said. Because of inflation and already-announced measures, increases of pensions and other allowances and health care will boost welfare spending by €17 billion in 2009 to almost €37 billion.

The plan amounts to 1.3 per cent of France's gross domestic product and should boost its economic growth by 0.6 per cent in 2009. It will also increase the budget deficit to 3.9 per cent of GDP from the previously forecast 3.1 per cent. This is above the 3 per cent ceiling demanded by the European Commission, but the rules have been eased to help members of the European Union tackle the crisis.

"We will not give up our goal of sorting out our finances as soon as possible. Not doing anything now would have cost us much more," said President Sarkozy. "Our answer to this crisis is investment, because it is the best way to support growth and save the jobs of today, and the only way to prepare for the jobs of tomorrow.''

Under Sarkozy's plan, investment will increase by €10.5 billion. That includes €4 billion in new government funds in sectors including research, defense and infrastructure. The state will also provide € 2.5 billion of new funding to local governments.

State-owned companies including Electricite de France (EDF) SA will increase investment by €4 billion in 2009 from 2008. EDF alone will lift investment in France by €2.5 billion. GDF Suez SA will spend an extra €200 million, and the national railway, the Paris transport authority and post office will also boost spending.

France has become the latest of the biggest European economies to unveil a stimulus package. Apart from the €26 billion stimulus plan, the French government is also giving companies €11.5 billion worth of credits and tax breaks on investment next year. The sum was initially intended to be spread over three years.

UK Prime Minister Gordon Brown has pledged 20 billion pounds ($29 billion) of spending and tax cuts to boost the economy, including a 2.5 percentage point reduction in a sales tax to 15 per cent. German Chancellor Angela Merkel agreed on a program of measures costing €32 billion over two years, equivalent to 1.3 per cent of its gross domestic product.

Italy introduced €6.3 billion in a stimulus plan that includes cash payments to low-income families, mortgage relief and stepped up public works spending.

China has announced a 4 trillion-yuan ($586 billion) stimulus plan and Japan pledged 5 trillion yen ($53 billion) of measures after a 1.8 trillion-yen supplementary budget was passed last month. Australia has promised A$10.4 billion ($6.4 billion).

These measures will add 0.6 percentage points to 2009 growth, according to government estimates. The French economy is now set to shrink 0.4 per cent next year, slipping into its first recession since 1993 after growing just 0.9 per cent in 2008, the Organization for Economic Cooperation and Development predicts.