France allocates a total of €100 billion in the fight against inflation as a sort of Quantitative Easing measure instead of affecting interest rates as is happening across the Atlantic.
France deploys €100 billion to fight inflation
In just over 20 days, some European states have decided to wage war on inflation but, by tossing aside the economics textbooks, they have deployed creative moves or as in the case of France, Germany and the United Kingdom they have changed their point of view.
Inflation i.e., the increase in the cost of a basket of goods (CPI) greatly affects the economic health of a particular region be it a state, a political community or union of states or a cost center. The European Union along the lines of the US Federal Reserve and acting belatedly compared to the latter has pursued an aggressive monetary policy made of rate hikes which is quintessentially the most pragmatic move to defeat the rising cost of living in the long run.
This policy, which achieves results months after its implementation, has started to bear fruit in a mild manner in the United States of America only in the last two months where the inflation curve has remained below expectations falling slightly while in Europe we are still at a standstill.
The slowness with which results are achieved as a result of ECB rate hikes has resulted in states intervening to support social resilience by lowering prices (which is one of the ends to which a country in general should strive) especially in the area of energy, be it electricity, gas or hydrocarbons.
The example of the UK with the scornful new Prime Minister Truss being reprimanded by the Bank of England for going back to Quantitative Easing and cutting taxes especially for the upper middle class, and that of Germany allocating €200 billion to calm bill prices by basically paying part of them mainly to apex companies and households, seem to be isolated cases but the trend appears to be spreading like wildfire.
French Finance Minister Bruno Le Maire said Monday that France:
“Overall in 2021, 2022, 2023, we will have spent 100 billion euros to protect our citizens from rising prices.”
A figure equal to nearly $97 billion at current exchange rates.
Interest rates and general price level in France
Rather than raise the interest rate, which incidentally is something the transalpine country cannot do having lost monetary sovereignty when it switched to the Euro, the country uses its funds to protect its citizens and avoid raising it.
In France, the harmonized annual inflation rate, according to INSEE (the National Statistics Agency) fell from 6.6% to 6.2% in September, while most analysts in a poll done by the Reuters news agency had set the inflation rate bar at 6.7%.
The French government, as it had already declared in July this year, as icing on the cake has invested its resources to grow its ownership of EDF the largest French energy extraction and distribution company (already partly controlled by the government) in order to be able to act on energy prices that are passed on to citizens and businesses and in one move gain from price increases.
Unable to act on rates except for the African Franc (but that is another story related to the country’s colonial vocation), Paris has focused on a massive injection of liquidity into the pockets of citizens and businesses in the form of caps on energy prices, rebates, bonuses, etc. to protect businesses and citizens in the wake of what Chancellor Scholz did in Germany.