For a few days, Bercy stopped sleeping. As during the worst hours of the Covid pandemic, “we got back into “crisis” mode”, assures Bruno Le Maire. This time, it is not the consequences of a virus that disturb his nights, but the war between Russia and Ukraine. In addition to the economic sanctions and the tracking of the assets of the oligarchs, the ministry has indeed had to tackle a huge project: the implementation of new measures to support the economy. A file coordinated by Matignon, at the request of Emmanuel Macron.
After the many versions of “whatever it takes”, here comes the time for the “economic and social resilience plan”! Barely out of one tunnel, the country is indeed preparing to cross another. Soaring gas, oil and wheat prices, risk of titanium or aluminum shortages, loss of export outlets… The war in Ukraine is dealing a very severe blow to the activity of hundreds companies in the aeronautics, agri-food or automobile industries. “We have already suffered an increase of almost 20% on eggs and we also risk a shortage of sunflower oil supply”, laments Didier Boudy, the manager of Mademoiselle Desserts, an ETI which manufactures frozen pastries and desserts. .
The household portfolio will also drink. For several months, the return of inflation had already been eating away at their purchasing power. The surge in energy and commodity prices will put even more pressure on the end of the month. According to calculations by the credit insurance company Euler Hermes, the annual energy bill of French households alone could rise by 400 euros… As a result, business investment, household consumption, but also the external demand of our trading partners – who are experiencing the same blow from Trafalgar – will falter and stifle the budding recovery. According to calculations by the consulting firm Asterès, growth should stand at 2.3% this year, instead of the 3.3% forecast before the war. And yet this is the most optimistic scenario. If the conflict continued for long weeks, we could even tip over into “stagflation”, this economic anomaly combining sluggish growth, even recession, and double-digit inflation, which had contaminated the rest of the world after the oil shock of 1973.
If government intervention is necessary to support the economy, there is no question of setting up a new “whatever it takes” and showering all businesses and all households with tens of billions of euros during several months, assures the executive. The slate of the pandemic still weighs on our public finances. According to government forecasts, the deficit should stand at 5% this year and the debt at 113.5% of GDP. Generalized treatment could also be counterproductive. In a period of high inflation, it would be better not to add fuel to the fire by stimulating demand too strongly in the face of a supply that may not be able to respond. “If the crisis lasts, we should not blur the price signal either by compensatory measures which would encourage the consumption of fossil fuels and which would therefore come into contradiction with the objective of decarbonization”, underlines Emmanuel Jessua, director of studies at Rexecode.
A gesture for prices at the pump
The treatment must therefore be surgical. But still visible. Less than a month before the presidential election, the executive cannot give the impression of standing idly by. If the precise measurements had not yet been revealed at the time of writing these lines, the main axes are already known. No compensation for turnover as during the health crisis, because “we are not facing a demand shock that should be compensated”, we explain at Bercy. But support measures and State aid, calibrated for companies directly affected by economic sanctions, but also for those who have supply difficulties, and who are faced with soaring prices of raw materials and energy. For households, support for purchasing power will be privileged, in particular for the poorest who do not have a savings cushion to cushion the shock. The “tariff shield” on gas prices, which was due to end in June, is expected to be extended until the end of the year. The government has also promised a discount of 15 centimes per liter from April 1st.
But the response to this new economic storm will not be able to be only hexagonal… In Brussels, the Commission is in the process of relaxing its regulatory framework for State aid, and studying solutions to counter the rise in prices energy and weaning off Russian hydrocarbons as quickly as possible. The European Union is expected on another point: according to a note by the economist Jean Pisani-Ferry, between budgetary support, investments in energy and defence, and the reception of refugees, the expenditure of the Member States will indeed increase by 175 billion euros this year. A salty note that could weigh heavily on the public finances of countries already heavily indebted. Hence the idea pushed by Paris at the Versailles Summit, which brought together the Heads of State and Governments of the EU last week: to put in place a European plan making it possible to finance investments in defence, to reduce our energy dependence and increase our economic sovereignty. It remains to be seen how this will be financed. A new common bond issue, the innovative mechanism used for the NextGenerationEU recovery plan, is one of the options on the table. Concretely, the European Union would raise money on the markets and would then redistribute it to the Member States, in the form of loans and subsidies.
The idea is far from being unanimous for the moment. “The resistance, which had been lifted during the health crisis in frugal countries, has not disappeared”, underlines Jérôme Creel, director of the studies department of the French Observatory of economic conditions. Above all, the development of a new recovery plan financed by a joint debt issue could take time: more than a year had passed between the announcement of NextGenerationEU and the first disbursements, and again long Discussions between the Europeans, who are only at the stage of defining objectives, and not instruments, are to be expected. Another track seems more realistic: draw on the community budget or the old recovery plan, the release of funds for which was initially to be spread over several years. The return of the stability pact, suspended during the health crisis until the end of 2022, could also be postponed to leave additional room for maneuver for the countries of the euro zone. “This is all the more justified since these rules had to be reformed and this file will certainly not be able to be put on the agenda by the end of the year”, explains Jérôme Creel.
A new pause in the budgetary adjustment… which could however be called into question by the European Central Bank (ECB). In Frankfurt last week, its president, Christine Lagarde, torn between deteriorating economic conditions and soaring inflation, gave no signs of inflecting its monetary policy. Faced with rising prices, it is still time, officially, for a programmed rate hike. A firmness that surprised the markets… but what will happen in the weeks to come? The ECB “will keep all options open”, replied its boss. Clearly, the floodgates are not wide open. But if the situation got out of hand, the cards could be reshuffled.