Page last updated at 14:21 GMT, Thursday, 4 December 2008

France unveils huge stimulus plan

rench President Nicolas Sarkozy
President Sarkozy unveiled the plan in the northern town of Douai

French President Nicolas Sarkozy has unveiled a 26bn-euro ($33bn; 23bn) stimulus plan to help France fend off financial crisis.

The measures include a 1bn-euro loan for carmakers and 5bn euros of new public sector investments.

The plan amounts to 1.3% of France's gross domestic product and should boost its economic growth by 0.6% in 2009.

It will also increase the budget deficit to 3.9% of GDP from the previously forecast 3.1%.

This is above the 3% ceiling demanded by the European Commission, but the rules have been eased to help members of the European Union tackle the crisis.

About 20bn euros will be added to the public debt.

"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.

Tax breaks

Our answer to this crisis is investment
Nicolas Sarkozy, French President

France has become the latest of the biggest European economies to unveil a stimulus package.

"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," the French president said.

Apart from the 26bn-euro stimulus plan, the French government is also giving companies 11.5bn euros' worth of credits and tax breaks on investment next year.

The sum was initially intended to be spread over three years.

Worrying forecasts

France is not technically in recession yet, but the outlook is bleak.

A 15bn or 26bn euros plan is not going to get growth going immediately, but shock therapy was vital
Alexander Law, research consultancy Xerfi

According to figures issued on Thursday, French unemployment rose to 7.7% in the three months to the end of September, from 7.6% in the previous quarter.

The jobless total is among Europe's highest, and experts say it is predicted to hit more than 8% in 2009.

The French car industry has been badly affected by the financial crisis. A sharp drop in sales has forced Renault and Peugeot to announce thousands of job cuts.

President Sarkozy, who unveiled the support package in the northern town of Douai, home to a major Renault plant, said the car industry employed 10% of the country's workforce directly or indirectly.

Analysts cautiously welcomed the plan unveiled by the president.

"Let's be clear about this. A 15bn or 26bn euros plan is not going to get growth going immediately, but shock therapy was vital," said Alexander Law at research consultancy Xerfi.

"It will be necessary to think about going further," he added.

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