France is tearing up its budget program — including the flagship overhaul of its pension system — and plans huge spending as the coronavirus outbreak sends the economy into a deep slump.
Finance Minister Bruno Le Maire will present an emergency budget Wednesday that will include €45 billion ($50 billion) in spending plus €300 billion in loan guarantees. France's debt will rise above 100% of economic output.
The action is based on the economy shrinking 1% this year. But even that is only a provisional figure that could be much worse depending on how the epidemic evolves in the coming weeks and how the hard the U.S. economy is hit, according to Mr. Le Maire.
"We are facing an economic and financial war," Mr. Le Maire said in a telephone briefing with journalists. "This economic and financial war will be long, it will be violent and will require all the strength or our nation, Europe and" the G-7 group of advanced economies, he said.
The crisis has also upended the the economic philosophy of President Emmanuel Macron, who came to power in 2017 promising to pare back the omnipresence of the state in economic life. Now, with most workers confined and businesses shutting activity, the state is taking over the economy in an unprecedented way. Macron's reforms, which include pensions, are suspended.
The French president announced Monday night the new loan guarantees so that no bank refuses lending to businesses.
Mr. Le Maire said the injection of €45 billion of public money to support the economy is only a first estimate. Paying workers on temporary unemployment will cost about €8.5 billion for two months, and delaying tax collection will cost about €32 billion for March, Mr. Le Maire said. The delayed taxes could ultimately be canceled.
The government will also set up a "solidarity fund" for companies that have been forced to shut down and small firms whose revenue has sunk more than 70% in March. The fund will cost the state around 1 billion euros for every month it exists and is currently planned for two months in the emergency €45 billion package.
Beyond the emergency measures to support workers and businesses, Mr. Le Maire said France would at a later date craft a stimulus program.
"The stimulus plan will be a second step that depends on how the epidemic evolves and France's economic situation in the coming weeks," Mr. Le Maire said. "We will need to restart our economy."
