France debates post-recession national loan

5th November 2009, Comments 0 comments

Debate heated up in France this week over the size of a new investment fund to spur economic recovery as Finance Minister Christine Lagarde warned against launching an over-ambitious national loan.

PARIS - President Nicolas Sarkozy announced the "grand loan" for strategic investment in June during a landmark speech to both houses of parliament but did not set a figure for the programme.

A special commission has floated the figure of 30 billion euros (44 billion dollars) but a group of lawmakers this week said it would be a "historic mistake" to aim for anything less than 100 billion euros.

Lagarde said France must keep an eye on its deteriorating public finances as it decides how much money will be raised for such investment projects as high-tech transport and third-generation biofuels.

"If we do something too big, just for the sake of making a big gesture, we risk deteriorating France's rating," said the minister on LCI television.

"We shouldn't let this be a source of controversy," she said. "It's petty bickering."

The commission headed by former prime ministers Alain Juppe and Michel Rocard is set to meet on Wednesday to agree on the size of the loan and investment priorities.

The panel is expected to present its final report next week, detailing the best options for the programme that Sarkozy hopes to launch next year.

Commission members have already said they are in favour of taking the loan from the financial markets instead of a public subscription.

Budget Minister Eric Woerth has also voiced concern that some politicians had "unrealistic" expectations of the loan programme, considered one of Sarkozy's flagship measures as he heads into the second half of his term.

The size of the loan "must obviously be compatible with the quality of our public finances and compatible, in the longer term, with an improvement in our public finances," said Woerth.

A group of 63 lawmakers from Sarkozy's right-wing party and its centrist ally called Tuesday for a loan programme of up to 100 billion euros to be spent in the coming five to 10 years.

"If we do not invest massively in a major stake for the future, we risk losing ground and it could take several decades to catch up. It would be a historic mistake," wrote the lawmakers in Le Monde.

France's public debt rose to 73.9 percent of GDP in the second quarter of 2009, far above the target laid down by European Union rules.

The state budget deficit hit 71.9 billion euros at the end of April, up from 45 billion euros at the same time last year, and the government has warned that the 2009 public deficit could reach 7.5 percent of output.


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