FRENCH PRESIDENT Nicolas Sarkozy yesterday announced a €26 billion economic stimulus package, comprised mainly of early tax refunds for the private sector and a public works programme.

The plan will cost 1.3 per cent of France's GDP and is expected to increase economic growth by up to 0.8 per cent next year. But it will raise the country's deficit spending to 4 per cent of GDP.

Mr Sarkozy's package was drawn up in co-ordination with the European Commission's plan to devote €200 billion to boosting the EU economy. By comparison, Britain is spending €23.5 billion on its stimulus package, Spain €27 billion and Germany €32 billion.

"The economic crisis will transform the economy, society and politics for a long time," Mr Sarkozy predicted. Speaking in the northern industrial town of Douai, he added: "The world that comes out of this crisis will be profoundly different. The desire for regulation, protection and justice will be stronger. A new balance will be established between the state and the market."

France is 30 years behind in investment and competitiveness, Mr Sarkozy said. "We have a historic responsibility to bring France up to speed in terms of equipment, infrastructure, universities and research."

The first €11.5 billion of the plan is intended to improve the cash-flow of private companies, mainly by reimbursing tax credits at the beginning of 2009.

For example, the credit for research investment is normally paid over three years, but Mr Sarkozy will advance €3.8 billion in research credits at the beginning of the new year. VAT reimbursement will also be speeded up.

It was important not to endure the crisis but to confront it, the French leader said. "Our response to the crisis is investment."

He promised to dust off €4 billion in projects that were "sleeping in cardboard boxes in the ministries".

For example, between 2010 and 2014, four high-speed train lines will be built.

Mr Sarkozy placed special emphasis on the housing and automobile sectors. "It would be catastrophic to allow the imbalance between supply and demand in housing to grow further," he said. The construction industry should receive a boost from €1.8 billion, which the government will devote to housing over the next two years.

The automobile industry employs 10 per cent of the French population, Mr Sarkozy noted. He promised a €1,000 "scrap bonus" for buyers who exchange a 10-year-old vehicle for a new, non-polluting model.

He "will not allow France to be put at a disadvantage" by US measures to protect its own industry. "The state is ready to do anything to save the automobile industry," Mr Sarkozy said.

Companies that outsource will not receive state assistance, Mr Sarkozy warned. And he cautioned companies against "taking advantage of the crisis to do restructuring that is not absolutely necessary in their situation".

Last January, Mr Sarkozy famously said "the coffers are empty". Responding to those who criticise him for further indebting France, he said: "We have no choice. To do nothing would cost us much more."

The French president won the loudest applause when he said: "We must get out of this administrative folly that seized France, be done with the bureaucratic state, paralysed by the heaviness of its administration, which wastes the taxes of the French."

French economic stimulus plan

Private sector:

The state will provide advance reimbursement of €11.5 billion in tax credits to companies in early 2009.

State investment:

The state will invest €8 billion in "dormant" projects in transport, defence, universities, psychiatric hospitals and renovation of public buildings, as well new investment in energy, postal networks and the Paris rapid transit authority.

A €2.5 billion investment by local governments, based on advance reimbursement by the state of VAT.

Automobile sector:

The government will pay a "scrap bonus" of €1,000 for 10-year-old vehicles when replaced by a new ecological model. Estimated cost: €200 million.

The state will provide €2 billion for loans for new car purchasers.

A €300 million fund to restructure the French automobile industry.

Housing sector:

Zero-interest property loans for new housing will be doubled. Estimated cost: €600 million.

70,000 new housing units to be built (cost: €600 million) and €200 million to be spent on improving unsafe housing.

Employment:

Companies with fewer than 10 employees will be exempted from social charges for new hires.

Bonus for the poor:

In March 2009, a €200 bonus will be paid to each of 3.8 million households on welfare.

Bureaucracy:

Rules on tendering for public contracts and planning permission to be eased.

TOTAL: €26 billion