PARIS — The French government on Tuesday unblocked its emergency loan facility for companies shut down by the coronavirus, eight days after the measure was announced by President Emmanuel Macron as part of a 45-billion-euro economic aid plan.
“These loans will provide cash flow relief for companies and business people who are feeling the shock from the health emergency,” Finance Minister Bruno Le Maire said in a joint statement with Bpifrance, the state-owned investment bank, and the French Banking Federation.
The news comes after figures on Tuesday showed the coronavirus outbreak drove a record contraction in private sector activity in France in March.
Data compiler IHS Markit said its Purchasing Managers’ Index fell to 30.2 from 52.0 in February, the sharpest drop in almost 22 years of data collection, as scores of businesses closed due to the COVID-19 outbreak.
As new orders plummeted, private sector firms cut staffing levels for the first time in nearly three-and-a-half years.
“The latest PMI data revealed dismal results for the French private sector, with coronavirus-driven shutdowns leading to widespread economic disruption,” Eliot Kerr, economist at IHS Markit, said in a statement.
“March saw a record rate of declines for services activity, while the manufacturing sector suffered to the greatest extent since the global financial crisis. Taken together, these declines suggest GDP is collapsing at an annualized rate approaching double digits,” he added.
Le Maire went even further, comparing the situation to the Great Depression of 1929. He predicted the French economy will contract by far more than the 1 percent currently forecast by the government, and has drawn up a list of companies that will require state intervention, including nationalization, to stay afloat.
While Le Maire declined to identity the companies, he said airlines and car makers would likely need massive aid on a European-wide level.
In the meantime, the state will guarantee loans worth 300 billion euros, equivalent to almost 15 percent of France’s gross domestic product, to help companies maintain cash flow, pay suppliers and keep staff employed.
Starting on Wednesday and until Dec. 31, companies of all sizes — excluding property developers, credit companies and financing firms — can apply to their bank for a loan guaranteed by the state worth up to three times their monthly revenues in 2019. Start-ups or younger companies can ask for the equivalent of two years of salaries.
No repayments will be due the first year, and after that, companies will have up to five years to pay back the loans at interest rates expected to average 0.25 percent. Banks have pledged to approve requests rapidly to release funds, but Le Maire warned that companies that fail to pay their suppliers will be disqualified.
“Any company that fails to respect payment deadlines will immediately be refused the state guarantee for its liquidity loans,” the minister said during a press conference broadcast on Twitter.
“We want companies, in particular the largest ones, to be irreproachable in terms of respecting deadlines for paying their suppliers, because what’s at stake is the survival of a number of small and medium-sized companies and subcontractors,” he added.
Le Maire last week called out Printemps after it sent a letter to suppliers suspending all outstanding payments. The retailer subsequently clarified it was a temporary measure as it works out action plans to compensate for the closure of its stores.
As reported, companies with annual turnover of less than 1 million euros will have access to a separate solidarity fund.
Separately, the government has allocated 32 billion euros toward deferring business taxes and social charges. A further 8.5 million has been earmarked for workers facing partial unemployment, though Le Maire said he expected that budget to spiral, as 730,000 people were already benefiting from the scheme.
“We are investing in know-how,” he said of the government’s commitment to limiting layoffs. “Nothing would be more disastrous than losing that know-how.”
France on Tuesday tightened its lockdown measures at it battles to stem new cases of COVID-19. It has banned most open-air markets and announced new restrictions on outside physical exercise for people confined to their homes.
So far, the government has not officially extended the lockdown, which began on March 17 and was initially set to last for two weeks, although it is widely believed the measure will be prolonged in the next few days.