France plans €35bn ‘national loan’

France on Thursday unveiled plans for a 35-billion-euro national loan to fund investments that will propel growth even as it faces European demands to rein in its ballooning deficit.

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At an Elysee ceremony, President Nicolas Sarkozy received a report on the “grand loan” from a special commission set up to outline priorities for the massive borrowing and determine its size.

France hopes to leave its year-long recession far behind with the loan that the report said should total 35 billion euros (AU$57 billion) despite calls from some lawmakers for up to 100 billion euros to be raised.

Led by former prime ministers Michel Rocard and Alain Juppe, the commission zeroed in on seven investment priorities, with the lion’s share – 16 billion euros – to be spent on universities and research.

Four billion euros would be injected in the digital economy and another 4.5 billion euros spent on encouraging “green” cities.

Internet, future growth areas targeted

It also called for expanding high-speed Internet, supporting innovative small businesses while giving France’s cutting-edge aerospace and nuclear industries their share of the investment funds.

Targeting growth sectors of the future, the programme seeks to address France’s declining competitiveness in key areas, in particular universities that now rank far behind American top schools in international ratings.

“The Chinese are building planes. If we want to stay in the game, we have to design a plane that consumes the least fuel,” said Juppe in an interview with Le Monde.

“In this changing world, Europe is being marginalised,” he said.

Public opinion less than enthusiastic

The French have shown little enthusiasm for the scheme, with a recent poll revealing that 56 percent consider the loan “useless” compared to 27 percent who said they approved of the measure.

The “grand loan” also faces resistance in Brussels, which has asked France to rein in spending and bring its deficit down to 3.0 percent of GDP by 2013.

France’s skyrocketing public deficit is on track to reach 8.5 percent of gross domestic product in 2010.

When Sarkozy announced the “grand loan” in June, he said funds could be raised through public subscription but the commission did not make any specific recommendation about the source of investments.

Financial markets could be tapped

Rocard and Juppe however have come out in favour of tapping the financial markets instead of households for the funds, arguing it would be cheaper and would not jeopardize France’s triple-A rating.

Sarkozy will consult union leaders and business chiefs next week before deciding on the final details of the loan programme in early December, said the Elysee.

But expectations are that the president will endorse the key elements of the Juppe-Rocard report and that the “grand loan” will be launched next year.

Of the 35 billion euros to be raised, 13 billion euros will come from the reimbursed bailout packages given to French banks with the remaining 20 billion to be raised elsewhere.

Combined with local government, European and private financing, the investment total should reach 60 billion dollars, the report said.

Loan follows €26bn stimulus plan

Sarkozy in December unveiled a 26-billion-euro stimulus plan that propped up the car industry and helped fund large-scale infrastructure projects such as new high-speed TGV rail lines.

That came on top of a 20-billion-euro strategic investment fund announced in November 2008 to protect French industry from foreign takeovers at a time when the economy was tanking.

Socialist opposition leader Martine Aubry has dismissed Sarkozy’s national loan as a publicity stunt, saying France will “be doing what it does every day and what all countries do, that is borrow from the financial markets.”

Earlier this week the rating agency Moody’s said the loan program would marginally weaken France’s top sovereign credit rating but would not threaten it.

“Moody’s believes that the scheme … will only marginally weaken France’s position in the Aaa rating category over the short term, with a possible but very uncertain upside over the long term,” it said in a statement.

Moody’s said “the size of the envisaged scheme is, on its own, too small to represent a genuine threat to France’s rating.”