It’s a crazy waltz of billions. The government has put on the table “45 billion euros released in a few days” and 300 more to guarantee business loans. For its part, the European Central Bank promises to inject more than 1 trillion into the European economy. Amazing sums which are however not at all of the same kind.
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► Proven expenses
In the emergency plan of 45 billion euros presented by the French government, certain expenses constitute only a small part of the envelope. The amending finance bill, voted urgently by Parliament, actually only includes 11.5 billion euros in new spending which will further deepen the deficit now expected at 3.9% of GDP .
The government has budgeted 8.5 billion euros for the extension of short-time working, part of which is paid for by unemployment insurance. Health insurance will finance the 2 billion euros to strengthen the means of medical services. Finally, the solidarity fund for self-employed workers is endowed with one billion euros, of which 250 million euros are covered by the regions.
These amounts are, however, expected to rise sharply, especially if the confinement is prolonged. “The costing, in particular on the cost of short-time working, was done on a less dark scenario than what is happening”, recognizes an expert from Bercy.
► Deferred direct debits
To ease the cash flow of businesses, the government has given them the option of no longer paying their taxes and social security contributions. This relates to 32 billion euros. A respite but which is not intended to turn into generalized erasure.
In the finance bill, in fact, these sums are not counted as expenses in the year 2020. The assumption is therefore that the tax and social bills are all paid by the end of the year . Given the impact of the crisis on a large number of companies, this is unlikely.
“Part of the money will necessarily be lost and the rest will have to be spread over several years. This will therefore impact the 2020 accounts much more than the government says “, said Eric Woerth, chairman LR of the finance committee of the National Assembly.
► Loans to be guaranteed
The government also announced an envelope of 300 billion euros intended to guarantee up to 90% of the loans which will be granted by banks to companies, for a very small commission. If these loans are repaid by the companies, he will lose nothing. He could even earn some money there as was the case in 2008 when a similar mechanism had been put in place to save the banks.
The situation is however very different, warns François Écalle, specialist in public finance.. “In 2008, the loans were granted to the banks, rather solid. There had only been one accident, Dexia. This time, it is to be expected that part of the companies will not be able to reimburse and that the State will be called upon to pay. “
As long as these guarantees are not required, they do not weigh on the budget deficit. They are also not included in the public debt. They only add to the line of “off-balance sheet commitments” grouping the sums that the State could hypothetically have to pay one day and which already reach 4,000 billion euros.
► ECB money
The state has the means to act thanks to the support of the European Central Bank (ECB) which plans to buy in 2020 for 1.1 trillion euros in assets. The ECB acquires debt securities (or bonds) from commercial banks that they have granted to governments or businesses. In return the banks receive money. “These purchases are made by means of monetary creation. It is even one of the main roles central banks », explains Matthieu Bussière, director of monetary and financial studies at the Banque de France.
This program injects money into the economy. Debt securities are simply carried on the ECB’s balance sheet. Borrowers still have to pay back, but they do so at the central bank and no longer at the commercial banks. “There is no theoretical limit to the increase in the central bank’s balance sheet, however in practice there is a balance to be struck between these liquidity injection programs and the preservation of a correct level of long-term inflation “, says the head of the Banque de France.
The ECB also intervenes by lending money to commercial banks, in the short or medium term, in order to ensure the liquidity of interbank operations. For this too, it creates money and these loans also go to the balance sheet of the ECB. ” All these loans have to be repaid one day but it is a dynamic process, specifies Matthieu Bussière. The central bank lends back the money it owes, so that the money supply in circulation increases in an order of magnitude overall comparable to economic growth. “
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