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After showering billions on the automobile industry and national carrier Air France, the French government on Tuesday announced a plan to support the country’s aerospace industry that it said would amount to €15 billion ($17 billion).
With the pan-European plane maker Airbus AIR, -5.16% as well as electronics defense companies such as Thales HO, -2.73%, Safran SAF, -3.11% or Dassault AM, -5.64%, France has a vivid aeronautics sector that is being hard hit by the devastating consequences of the coronavirus outbreak. Some 100,000 industry jobs would be threatened in the coming months (or a third of total) if the state didn’t step in, finance minister Bruno Le Maire said as he announced the plan.
The €15 billion total, as often, adds money the government will directly spend, in the form of investments, or subsidies, to various forms of credit guarantees and partial unemployment schemes that will help companies weather the worst of the recession. It also comes partially with strings attached, with the government enrolling the industry in a bid to build by 2035 a carbon-free civil airplane.
France isn’t the only government stepping in to support its most stricken industries. Germany is doing the same, on an even larger scale. And the suspension of European Union state aid rules for an indefinite period, due to the unprecedented nature of the current crisis, allows governments to intervene on a much larger scale than they could have done in normal times.
At some point, European economies will have to be weaned off the massive state intervention the crisis triggered. But for the moment, the urgency is for governments to design ways to more effectively focus their increasingly rare resources on the companies and sectors that are most likely to rebound from the slump — avoiding wasting them on industries that will be permanently hit, and may be irrevocably condemned, by the major consumer and business shifts that the outbreak has caused in advanced economies.
That means they should keep supporting jobs through various means to avoid a social and economic catastrophe. The French central bank, in its most recent forecast, sees French gross domestic product declining by 10% this year in its baseline scenario, but it could shrink by up to 16% in the worst-case one. Meanwhile, the public debt-to-GDP ratio would reach 120%, one of Europe’s highest behind Italy and Greece, which illustrates the need for the government to spend sensibly.
The risk is that plans such as France’s aerospace bailout, when designed for highly competitive industries with major international exposures, may be used in a few years’ time by other governments as an excuse for retaliation in the form of possible trade wars. This should be one more reason for governments to tread a fine line when they step in with billions of borrowed money to steer their domestic industries out of this historical recession.
