represents small and midsize businesses, showed
that 45% of the companies that took one of the
loans might not be able to repay the funds.
“The moment of truth is approaching fast,
because loans granted nearly a year ago need to
be renewed, extended, or restructured,” says Jean
Pisani-Ferry, a French economist who’s a senior
fellow at Bruegel, a think tank in Brussels, and at
the Peterson Institute for International Economics
in Washington.
Participative loans were added to France’s
arsenal of financial instruments as part of a 1978
law that aimed to channel household savings into
companies but largely fell out of use in the 1990s.
They made a smaller-scale return in the aftermath
of the global financial crisis via a government pro-
gram to help small companies.
The new plan would have private lenders offer
the loans to businesses. The banks would keep a
small portion of each loan on their books while
transferring the rest to a dedicated fund financed
by institutional investors and backed by a state
guarantee of up to 35%.
Rolling out the program will test the capacity
of the traditional banking sector, which isn’t used
to distributing such products to small companies.
“It needs to be as efficient as the state- guaranteed
loans and will require banks to mobilize their
private equity specialists,” says CPME President
Francois Asselin, who has had a say in the design
of the program.
The plan needs approval from the European
Commission, which oversees rules on state aid.
The French official says Paris is “very confident” it
will get that backing.
“France is doing something a bit innovative;
they are doing it in an over-engineered French
way,” says Ludovic Subran, chief economist at
Allianz SE, one of the world’s largest insurance and
asset-management companies. “But the risk of not
doing it is a huge surge of defaults in Covid-19 debt.”
�William Horobin27THE BOTTOM LINE The French government is dusting off
participatory loans as it plots a shift from large-scale pandemic
support to more targeted assistance.▲ Macron tours a
French factoryconceived in France during the 1970s but never
used on such a large scale, would offer investors a
blend of equity and debt. They are similar to equity
in that they are subordinated to all other debts and
often come with a share of profits. But, like loans,
they have a fixed interest rate and afford the cred-
itor no voting rights.
Finance Minister Bruno Le Maire wants the
loans to have a duration of at least eight years
and as long as a decade for some projects, with
repayments starting after four years. Officials
expect to announce the final details in the first
week of March.
Several European Union countries have con-
tacted the French National Treasury to find
out more about the plan, and the European
Commission, which considered rolling out a
solvency- support instrument during last sum-
mer’s torturous negotiations on the bloc’s recov-
ery fund, is also interested, according to a French
official who was not authorized to speak publicly
about the deliberations. Spain is considering a sim-
ilar proposal.
France’s finance ministry is also looking at
easing conditions on €132 billion of existing state-
guaranteed loans and has said it might even con-
sider converting some of the loans into grants.
Such efforts are a response to worries about the
approaching cliff edge for businesses. As vac-
cinations increase and the pandemic ebbs, pres-
sure is mounting on governments to replace
indiscriminate support for companies and work-
ers with more targeted measures.
Yet institutions such as the European Central
Bank and International Monetary Fund have
repeatedly warned that ending aid too soon will
stymie the recovery. That’s a very real concern in
France, where corporate debt has surged faster
than in other European economies during the
crisis. A too-rapid withdrawal of government sup-
port could trigger a wave of defaults, swelling the
ranks of the unemployed and possibly engulfing
weak banks. Those businesses that managed to
survive might be too burdened by debt to invest
and grow.
The French efforts go some way toward over-
coming those risks. It’s a delicate balance, though:
Supporting companies that would otherwise be
doomed in the post-pandemic world risks divert-
ing resources away from more productive recip-
ients, stunting economic potential and wasting
public money.
The Bank of France estimates that up to 6% of
state-guaranteed loans could turn bad. A recent
survey by the CPME, an industry group that
◼ ECONOMICS
▼ Percentage-point
increase in nonfinancial
company debt as a
share of GDP, January-
September 20203 .15.59.421.511.411.4FranceSpainItalyGermanyNetherlandsNetherlands