France Unveils $32.9 Billion Stimulus Package

President Nicolas Sarkozy unveiled a 26 billion euro ($32.9 billion) stimulus plan for the faltering French economy on Thursday, targeting investment projects rather than directly aiding consumers.

France is the latest European Union country to throw open state coffers to try to temper a sharp economic downturn and the government predicted that the measures would boost gross domestic product by 0.6 percentage points in 2009.

The automobile and housing sectors will receive almost 3 billion euros of aid, infrastructure projects will be accelerated, small firms will be rewarded for hiring new staff and companies will be encouraged to invest.

"This crisis is an ordeal, a painful ordeal and a terrible ordeal, but we have to keep faith in the future," Sarkozy said in a keynote speech in northern France.

The package will cost the equivalent of 1.3 percent of GDP and push the deficit to 3.9 percent of GDP in 2009, well above the 3 percent limit normally demanded by the European Union.

However, EU states will be allowed to exceed budget limits in 2009 because of the financial crisis and Sarkozy said he hoped to get state finances in order within a couple of years.

"We will not give up our goal of sorting out our finances as soon as possible," he said, adding: "Not doing anything now would have cost us much more."

Analysts gave the plan a cautious welcome but said the deficit would probably be much higher than the government was predicting, and warned that even more measures might be needed to prop up the economy.

"Let's be clear about this. A 15 or 26 billion euro plan is not going to get growth going immediately, but shock therapy was vital," said Alexander Law, an analyst with research consultancy XERFI.

"It will be necessary to think about going further."

Infrastructure, Cars and Housing

The stimulus plan earmarks 10.5 billion euros for infrastructure, research and support for local authorities.

This includes 4 billion euros for investment for state-owned rail, energy and postal companies, including a pledge to speed up projects such as a fast speed train link in western France.

AP French President Nicolas Sarkozy

Sarkozy, speaking in a town famous for its Renault car factory at a time when auto sales are slumping, said the state would give 1,000 euros to people who scrapped old vehicles and bought new, more environmentally-friendly models.

He also promised loan guarantees of 1 billion euros to help unblock the frozen car credit market.

The other major sector under pressure is the construction industry, with new housing starts in France plunging 21 percent in the three months to the end of the October.

Sarkozy said the state would offer 1.8 billion euros to the sector, with some going directly on building projects and some going to help low earners buy homes thanks to zero rate loans.

The plan also envisages speeding up payment of 11.5 billion euros of credits and tax breaks on investment, handing out the cash in one year and not three as originally expected.

France narrowly escaped recession in the third quarter of 2008, but analysts expect a sharp contraction in the last three months of the year and the OECD has forecast that the French economy will shrink 0.4 percent in 2009.

The government said on Thursday its package would lift the economy, but did not provide any growth forecasts.

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