France unveils 26 billion euro stimulus plan

The measures — announced in Douai, Northern France, near a Renault factory — include around euro1.3 billion for French carmakers to avoid more layoffs as car sales tumble.

The construction industry will be helped by a 6.5 billion euro investment plan to upgrade railways, schools and hospitals. The government is also injecting euro11.5 billion into the economy by front loading tax credits and rebates.

"Our response to the crisis is investment," Sarkozy said to a crowd of around 2,000 supporters assembled on a gray, snowy day.

"In the current exceptional circumstances, we have a historic responsibility to improve France's facilities, infrastructure, universities and research."

Electricite de France and other state-owned companies will contribute euro4 billion to the plan by upgrading their own facilities.

The measures will push the deficit near 4 percent of gross domestic product in 2009, above the European Union's limit. But the rules have been relaxed to help countries cope with the crisis.

The French economy narrowly escaped recession in the third quarter, growing 0.1 percent after three months of negative growth. But economists expect the fourth quarter will be tougher.

The euro region economy shrank in the third quarter and finance ministers said this week it could contract further in the fourth quarter.

Combined with other measures already announced, including higher government spending on welfare and lower income taxes, the government estimates it will give a 1 point overall boost to economic growth.

France claims that some of the measures — for example the speeding up of tax rebates — will boost the economy without adding to the deficit. The increase in public spending from the plans is 15.5 billion euro, Sarkozy said.

The government plans to spend an extra 4 billion euro in 2009 building or upgrading railways, roads, museums and schools, including euro1.4 billion on defense. Local authorities will invest an extra 2.5 billion euro.

To help companies deal with tighter credit conditions, Sarkozy said the government will speed up or front load the payment of tax credits and rebates. It is also speeding up payments of its bills to defense companies. The government said small and medium sized companies will be the main beneficiaries.

For carmakers, the financing arms of both Renault and PSA Peugeot Citroen will each have access to a 500 million euro ($634.85 million) fund to guarantee loans. Sarkozy also promised help to auto parts suppliers. The credit crunch has made it difficult for both consumers and companies to finance large purchases.

Consumers will be encouraged with a 1000 euro ($1,2670) bonus for anyone trading in vehicles older than 10 years for new low emission cars, for an estimated cost to the government of 220 million euro ($279.33 million).

"The state is ready to do everything to save the automobile industry," Sarkozy said, warning that help will be conditional on companies keeping jobs and production in France. He earned a round of applause when he said he won't let American aid to its car makers disadvantage the French industry.

Sarkozy also said he has earmarked 1.8 billion euro for public housing projects and to encourage home buying.

And to ease jobless queues, he said small companies will be mostly exempt from social charges for new hires. Low paid workers will receive a 200 euro "solidarity" payment, he said.

The measures form part of a 200 billion euro package proposed by the European Commission to boost the economy through spending and tax cuts.

National governments are to provide 170 billion euro— 1.2 percent of the EU's GDP — according to EU commission plans announced Wednesday. France's 26 billion euro plan represents 1.3 percent of its GDP.