Hollande reveals measures to kickstart investment

Francois Hollande has sought to mollify critics within his ruling Socialist party without reneging on his pro-business stance with measures aimed at boosting investment.

The move comes days after the French president's party suffered a big setback in local elections, which prompted socialist rebels to demand a change to the pro-business policies the government has introduced in the past year.

Mr Hollande on Friday promised tax incentives for companies buying capital equipment, while state-backed bank BPI would increase loans to small and medium-sized businesses from €5bn to €8bn. Private insurers also committed to a €500m fund that would buy equity stakes in companies looking to raise money, and further measures were expected to be announced next week by prime minister Manuel Valls.

"We're not carrying out reforms for companies; we are supporting companies so that they invest," Mr Hollande said, addressing workers in a forging plant in Trie-Chateau, north of Paris.

Although the measures do not amount to the reversal of recent market reforms demanded by some dissenting leftwingers in Mr Hollande's ranks, the hope is that they will appease internal critics even as the government faces a delicate balancing act of kickstarting a moribund economy and meeting European budget targets.

The latest package follows a batch of tax breaks and reductions in employers' social contributions on lower-skilled jobs, worth about €10bn a year to 2017, announced last year.

Mr Hollande's recent business-friendly turn has deepened divisions within the left, which is divided between those who back the government's reformist agenda and limiting state expenditure, and those who resist any form of deregulation and call for a boost in public spending.

The rift came to the fore when Mr Valls decided in February to override parliament and ram through a basket of reforms after several dozen socialist lawmakers threatened to block a piece of legislation.

The socialists' electoral defeat on Sunday, which saw centre-right parties led by former president Nicolas Sarkozy sweep up a majority of counties, has further energised leftwingers' opposition.

Sceptics within the socialist party have been emboldened by rising unemployment figures and a weak economic recovery, and are rallying support ahead of the party's policy-setting congress in June.

Mr Valls is betting on an improving economy to help his cause. France is expected to emerge from recession this year, with gross domestic product forecast to grow at least 1 per cent, helped by a falling euro, cheaper energy prices and record low interest rates. The prime minister even suggested growth could hit 1.5 per cent, a level economists say is necessary to lower the 10 per cent unemployment rate.

But Mr Valls' upbeat assessment was tempered by less optimistic forecasts released by the OECD on Thursday, which predicted a 1.1 per cent growth for 2015. The institution has called for more structural reforms to allow the eurozone's second-largest economy to fully take advantage of the benign macroeconomic conditions.

The French government, which will in May present a list of reforms to the EU commission, has said it would not change course. It is under pressure from Brussels to slim its budget deficit to 3 per cent of GDP.

"I am convinced that investment will pick up," Michel Sapin, the finance minister, said on Thursday. "We could improve or deepen [our policies], but we need to stay the course. Companies need stability to make investment plans."

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