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Europe

Sarkozy Announces 26-Billion-Euro Stimulus Plan for France

President Nicolas Sarkozy unveiled a 26-billion-euro stimulus plan on Thursday, Dec.4 to help France fight a global slowdown with massive state investment and aid for the struggling car industry.

French President Nicolas Sarkozy

French President Nicolas Sarkozy will go to the state for the money to help France

France's contribution to a Europe-wide economic revival drive, the plan combines big state infrastructure projects such as four new high-speed TGV train lines with measures to shore up hard-hit businesses and boost housing.

"Our answer to the crisis is a massive investment drive because that is the best way to support businesses and to protect jobs," Sarkozy said during a trip to Douai in northern France, home to a major Renault car factory.

But economists questioned how much of the money announced was new and how much was simply existing budget allocations re-packaged as stimulus funds.

"This is relatively limited and fairly defensive. I don't have the impression that we're really trying to have a turnaround but that we're trying to stop the economy from collapsing," said Olivier Gasnier of BNP Paribas bank.

The economist Thomas Piketty said the problem was that the "government doesn't have any more money" and calculated that "new spending" among the measures announced by Sarkozy amounted to no more than three billion euros.

Opposition denounces government's efforts

Segolene Royal

Segolene Royal and the Socialists have slammed the plan

The measures were denounced by the opposition Socialists as merely recycling projects already planned. The party's Segolene Royal said they were "mini-measures that were not adequate for the scale of the problem."

Sarkozy announced a total of 10.5 billion euros ($13 billion) in state investments, bringing forward four billion euros of scheduled projects on top of four billion euros for the state energy, transport and postal companies.

To improve business cashflows, Sarkozy said the state would speed up the repayment of sales tax and of tax refunds for research and development investments in a package of measures worth 11 billion euros.

A mix of tax breaks and other incentives for businesses worth 700 million euros were rolled out to encourage job creation after recent data confirmed France had crossed the threshold of two million jobless in October.

Sarkozy targets auto and industrial bailouts

A woman walks past a screen showing Dexia bank stock market activities in Paris

The French economy will face recession later than others

Sarkozy unveiled targeted measures worth 1.5 billion euros for the car and construction industries, which together account for about four million French jobs and have been hardest hit by the downturn.

A 300-million-euro restructuring fund for the car industry, notably car parts suppliers, was unveiled along with a bonus of 1,000 euros for car owners who scrap their old vehicle to buy an energy-efficient new one.

The French state will also provide a one-billion-euro loan facility to support national champions Renault and Peugeot, which have announced thousands of job cuts amid a collapse in sales.

For struggling construction firms, Sarkozy announced plans to build 100,000 new social housing units, support energy-efficient property renovation work and to double the number of zero-percent property loans.

The lowest-income French families were also set to receive a one-off "bonus" of 200 euros to boost flagging consumer spending.

The plan, worth 26 billion euros in all, will put government finances further in the red by 15 billion euros, with the public deficit set to climb to four percent of Gross Domestic Product, well above the three percent European benchmark, officials said.

France heading for recession in 2009

Nicolas Sarkozy

Sarkozy wants money to help the French car industry

France has so far narrowly escaped the tide of recession stalking the industrialized world but the OECD forecasts it cannot avoid it next year, with the economy contracting 0.4 percent.

Sarkozy's plan comes on the heels of a 20-billion-euro strategic investment fund launched last month to shield French industry from foreign predators.

The European Commission last week called for an overall package for the EU worth 200 billion euros, drawn from national plans and EU funds, to snap Europe's economy out of recession through spending hikes and tax breaks.

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