The idea of ​​fiscal stimulus revived by low interest rates

Paris (AFP)

Is a fiscal stimulus against historically low interest rates today in France? The question divides economists as Emmanuel Macron wants to take advantage of the G7 to push Germany to further support its growth.

The eurozone's first economy recorded negative growth in the second quarter and will fall into recession if the trend, as likely, continues into the third.

At the same time, the majority of economists predict a recession in the United States in 2020 or 2021, and growth falters in China, while the first two economies of the planet are engaged in a commercial tug of war whose end is not in sight.

But to support the economy, central banks, whose interest rates are already almost zero, or often negative, no longer have a lot of ammunition.

"The ECB will probably do something in September, maybe even lower rates, or probably a resumption of its asset purchases," said Sebastien Jean, director of the Center for Prospective Studies and International Information (CEPII) .

But "there is little room for maneuver and monetary policy is already so accommodating that we can not expect its relaxation a very important effect on activity," he said.

For Bercy, however, France is not in a position to let slip a public deficit that is close to 100% of Gross Domestic Product.

And despite the decline in interest rates - they have even gone into negative territory for certain maturities - which will reduce the burden of public debt of two billion euros this year, according to the Minister of Public Accounts Gérald Darmanin .

"We will not borrow more, because any loan must be repaid at a time," he tweeted Wednesday, saying "imperative to continue our budget seriousness."

- low rates set to last -

This did not prevent Emmanuel Macron to put the subject on the table of the G7 summit in Biarritz this weekend. "We must ask the question, for the countries that have the capacity, of the relevance of a fiscal stimulus, it is a subject that is posed to Europe, to France (...), to the Germany, and other countries, we have a deep question here, "the President of the Republic told the press.

"French decisions must be read in a European context because we are in a single currency area and coordination of economic policies", has decrypted for AFP Sébastien Jean.

According to him, "we are not in a recession or a crisis in France itself, so this is not the time to use room for maneuver we could have".

"The priority must be the relaunch of public investment, particularly in Germany, which has significant room for maneuver and an alarming trend in activity," says Jean.

But for Philippe Légé, a senior lecturer at the University of Picardy, France also has to implement a policy of fiscal stimulus.

"The justifications may be different in Germany and France: there is a need in Germany because of the sluggishness of domestic demand, there is a trade surplus, in France it is rather the fact that the economy is not full employment, "says the economist. "Even if the government welcomed the fall in the unemployment rate, in terms of job creation, it remains quite low."

For this academic, "European fiscal rules have been violated in the past and have no economic relevance as such".

Especially since many economists are of the opinion that the rates will remain permanently low, like the former chief economist of the IMF Olivier Blanchard.

"The working hypothesis must be that rates will stay low for a decade or more." In many countries, governments can borrow today at a rate close to zero over 30 years. will last, "Blanchard told Les Echos in early July.

In these circumstances, "you have to be prepared for additional expenses if they are justified, for example for certain forms of public investment," he added.

© 2019 AFP