French stimulus package aimed at investment

By Yann Le Guernigou

DOUAI, France (Reuters) - President Nicolas Sarkozy unveiled a 26 billion euro (22.5 billion pound) stimulus plan for the faltering French economy on Thursday, targeting investment projects rather than directly aiding consumers.

France is the latest European Union country to throw open state coffers to try to temper a sharp economic downturn and the government predicted that the measures would boost gross domestic product by 0.6 percentage points in 2009.

With the economy expected to tip into recession, the key car and housing sectors will get almost 3 billion euros of aid, infrastructure projects will be accelerated, small firms will be rewarded for new hiring and investment will be encouraged.

"We can't be happy with damage limitation. On the contrary, we have to be ambitious, we have to show imagination and courage," Sarkozy said in a keynote speech in northern France.

"Our answer to the crisis is investment."

The French package will cost the equivalent of 1.3 percent of GDP and push the deficit to 3.9 percent of GDP in 2009, well above the European Union's 3-percent limit.

However, EU states will be allowed to exceed budget limits in 2009 because of the crisis and Sarkozy said he hoped to get state finances in order within a couple of years. "Not doing anything now would have cost us much more," he said.

The French measures form part of an EU-wide stimulus drive, but hopes of a coordinated package have proved elusive, with countries adopting widely divergent approaches to the crisis.