"France, Germany, Italy: Good fiscal stimulus, bad trade deficits?
The unprecedented fiscal stimulus plans launched by European governments this summer (phase II to relaunch growth engines after phase I emergency relief programs) should help to boost economic growth by +2.4pp in France, +2pp in Germany and +0.7pp in Italy (see Figure 1) over 2021-22.In France, the EUR100bn (4.3% of GDP) stimulus package is geared towards achieving the green transition (EUR30bn), fostering industrial competitiveness (EUR35bn) and preserving social cohesion (EUR35bn) via transfers and labor market measures. Compared to the German stimulus package (3.8% of GDP), which is essentially demand-oriented, the French stimulus aims at reviving the supply side of the economy. The French government clearly aspires to relaunch the domestic production engine –even to reshore traditional industries such as automobiles – by addressing the long-lasting structural rigidities of the economy.
That is, the French are not only fixated in stimulating their economy, they want also to reform it.
