Sarkozy Unveils ‘Big Loan’ Plan

French President Nicolas Sarkozy on Monday unveiled details of a euro35 billion ($52 billion) government-backed spending program aimed at boosting France’s investments in its universities as well as in fields such as electric cars and renewable energy.

Sarkozy said the plan, known as the “Big Loan,” was needed to get France ready for the future, although critics contend it will significantly worsen France’s already stretched public finances.

“Today we must prepare our country for the challenges of the future, so that France can fully profit from the recovery, so that it is stronger, more competitive and that it creates more jobs,” Sarkozy said at a news conference in the Elysee palace.

The president rejected claims the program amounted to a stimulus plan, saying the investments it will finance “would be necessary even without the crisis.”

Of the euro35 billion, Sarkozy said euro22 billion will be raised via government borrowing, with the remainder made up by the euro13 billion that French banks have paid back to the government since the state stepped in to shore up their capital last year at the peak of the global financial meltdown.

Including private investment that the government aims to attract, the plan will mobilize euro60 billion, Sarkozy said.

France’s universities are to see the biggest share of the euro35 billion, with euro11 billion earmarked for a plan to create between five and 10 world-class campuses “with the size (and) the links to business that will allow them to rival the best universities in the world,” Sarkozy said.

The plan also calls for euro8 billion in investment for France’s research institutes, with a large share going to research into biotechnologies and health care.

The plan also earmarks euro5 billion for renewable energy and euro4.5 billion to develop France’s “digital economy,” Sarkozy said.

Sarkozy said that to limit the effects of the additional spending on France’s already stretched finances, budget cuts would be made equivalent to the amount of interest on the new debt.

The authors of the ‘Big Loan’ plan say massive new investments in France’s universities, R&D labs and renewable energy sources will pay for themselves by lifting the country’s long-term growth. But in the short run, the spending will only serve to worsen France’s already dire public finances.

It also places France sharply at odds with the European Union and international economic watchdogs like the OECD that say countries need plans to withdraw the billions of euros in stimulus spending they injected into their economies last year, not add to it.

Last year, France spent euro55 billion servicing its total debt of euro1.3 trillion. France’s Cour des Comptes, the government’s audit body, warned in June that it is urgent for France to reduce spending.

With France’s debt and deficit already at record levels, this new spending has attracted criticism both from the country’s opposition Socialist party and from within Sarkozy’s governing conservative UMP party.

The former head of France’s opposition Socialist party criticized the plan, saying it will lead to higher taxes in the long run.

“Economists say, and they are correct, that today’s loans are tomorrow’s taxes, so the Big Loan is going to become the Big Tax,” Francois Hollande said on French radio station France-Inter.

Saying France was in “a debt spiral,” Hollande added “This is a very bad sign that has been sent not only to Europe, but to the rest of the world.”

Source: http://www.businessweek.com/ap/financialnews/D9CJ4SE00.htm