On Thursday the French government rolled out a new stimulus plan the fact France has again forced to stimulate its economy should be viewed as bad news. The move reflects the reality that all is not well and things are getting worse. France is facing one of Europe's worst recessions in its deepest since World War II. France is looking at posting an 11% drop in GDP 2020. This follows a 13.8% second quarter contraction that coincided with the COVID-19 lockdown. This is seen as an attempt to bolster French President Emmanuel Macron's reelection prospects. Macron is not loved by many of the French people in the yellow vest protestors that have marched against his policies or proof of this. If France moves back to the right support for a stronger Eurozone government body will take a big hit. The stimulus scheme designed to lift the country out of the recent slump aggravated by COVID-19 will cost 100 billion euros or about 120 billion dollars. As with most government stimulus plans, it is aimed at reducing unemployment which French officials can see dislated to top 10% next year. The amount of this particular package is equal to roughly 4.5% of the GDP and brings this year's total stimulus to around 10% of France's GDP. The French government is betting that by supporting jobs they will give consumers the confidence to start spending the 100 billion euros they stashed away during the lockdown. Stash learn shows France as being the second largest economy in Europe and the sixth largest in the world. As the world's most visited nation, France's tourism industry is a major component of the country's economy. This means that France's economy being in the muck is a big deal. As for Macron's stimulus plan, the French plan includes tax cuts and incentives for businesses 30 billion euros heavy investment in the green transition and areas such as transport, better insulating public buildings and homes, even the hydrogen industry which is seen as a way to store and transport energy created by wind turbines and solar panels 35 billion euros and, social cohesion, measures 35 billion euros, such as part-time work programs, training for young workers in healthcare. Welcome back to the Survival Economist. Don't forget to like, subscribe, hit the notification bell. And as you know friends, I rely totally on your donations to keep this channel functional. As you know, it takes a crazy amount of research and time to bring you this content on a daily basis, so I hope you consider helping with whatever donation you can afford. Thank you. Just as problematic as the fact this stimulus is badly needed as how it will be funded. About half of the money is slated to flow from a new, European Union Joint Recovery Fund, which is seen as paving the way for significant fiscal transfers in the future. This new plan is moving the wants to boost subject of debt neutralization to a new level. This opens wide the possibility for European governments to engage for the first time in massive joint borrowing and would sanction significant fiscal transfers between its member states. Whether this scheme goes through or is even legal has yet to be determined. It was only recently that German Chancellor Angela Merkel and Macron proposed in a joint press conference the creation of the EU Recovery Fund. It must be noted that just 10 days after Macron and Merkel let the cat out of the bag, the European Commission announced its own plan. It was even more generous. The Merkel-Macron plan would offer 500 billion euros or roughly $569 billion in grants as an economic lifeline to pandemic stricken members of the Union. Fencing the fund with joint EU bonds marks a big step towards mutualizing member states debt. This is a game changer that will shake up the EU bond market. With only around 54 billion euros in outstanding debt, the EU has yet to leap big time into the bond fray but that is about to change. The EU borrowed nothing in 2018 and only 5 billion euros in 2018 but the picture is about to change. But the entire 750 billion euros needed to fund this program are raised in the bond market they will be doing 262.5 billion euros in both 2021 and 2022, the remaining 225 would come in 2023. The ambitious French German proposal could and have come at a more crucial time for European unity, which is being challenged by two parallel crises, the pandemic, and the heated debate over how to respond to the economic tsunami caused by strict lockdowns. Also at the center of this is the ECB and Christian Lagarde which has been hellbent on preventing a doom loop of rising sovereign credit risk. To support the weakest members of the Eurozone the ECB has vastly expanded its balance sheet as it propped up the continent's financial system through quantitative easing and bond buying programs. In March, the ECB launched a new 750 billion euro, $853.6 billion pandemic emergency purchase program, PEP to support pandemic hit countries and companies. This is in addition to its public sector purchase program, PSPP, which continued serving as a backstop for sovereign debt. As for this new fund, from my understanding, this latest, grab it out of the hat, effort to clean up Europe's economy, is not a done deal. A big sticking point is repaying the debt issued to create this fund would place a heavy burden on the EU budget from 2028 onward. EU taxes proposed by the Commission to finance the fund are unlikely to find much support among member states. To move forward, the Commission will have to convince, all member states, this plan has merit. Persuading Austria, Denmark, the Netherlands, and Sweden will not be an easy task and may include a number of concessions. Also, not all Eurozone countries use the Euro as their chief currency which lessens its importance to them. All this comes at a crucial time for European unity which is under assault from the pandemic and the additional economic stress caused by strict lockdowns. Of course, this push for debt mutualization has been led by Spain and Italy which took the biggest hit during the early stages of the pandemic, they have been backed by Portugal, France, Ireland, and Greece. This again highlights the question of, if Europe is doing as well as many people claim, why more stimulus. As in the past, I continue to contend the Eurozone as simply incompeditive and will remain so. This was the The Survival Economist. Please Like, Share, Leave me a Comment, Subscribe. You will find a PayPal link in the description box if you want to make a donation. 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