France may help economy with jobless, car aid: Le Monde

By Anna Willard

PARIS (Reuters) - President Nicolas Sarkozy is considering aid to help the French economy through the financial crisis including speeding up rail projects and helping car manufacturers, a newspaper reported on Monday.

He is also expected to unveil later this week measures to fight rising unemployment.

The report in Le Monde newspaper is consistent with warnings from economists that France and other European countries will take advantage of a clause in EU rules allowing countries to run up their deficits in emergency circumstances.

Germany said on Monday it was working on stimulus measures.

"We needed to stop the financial crisis. Now we have to get the economic machine going," Prime Minister Francois Fillon told the newspaper.

Fillon will hold a press conference at 10 a.m. EDT on Monday to discuss the economy and financing of local authorities, which have been hit hard by the financial crisis.

Le Monde said the government "envisages helping several industrial sectors, in particular the car industry."

The newspaper said if France was unable to convince Europe of the need for a concerted effort to help the car sector "it would take national measures to help the development of electric cars, to create a network of service stations capable of replacing batteries, or supporting research into fuel cells."

The government also plans to speed up big rail infrastructure projects.

The idea of supporting environmental projects with the aim of boosting the economy is also "totally on the table," according to a source in Sarkozy's office, the paper said.

Sarkozy is facing pressure from politicians in his party to announce steps to help ordinary French people after he announced 360 billion euros in aid last week for the banking sector.

The government, which has been under pressure from the EU to keep its deficit under control, had insisted that the coffers were empty and there was no money for new tax breaks or spend.

But economists say the agreement struck between France, Germany, Italy and EU officials on October 4 to invoke the emergency clause will lead to more spending.

"We expect some countries, especially France and Italy, to adopt stimulative fiscal policies to mitigate the impact of the credit crunch on the real economy," Bank of America economist Gilles Moec wrote.

"This will add to the mechanical deterioration in public finances triggered by the downturn."

He said it could bring France's deficit to 4 percent of gross domestic product in 2009, far higher than the EU's 3 percent limit and the government's official forecast of 2.7 percent for next year.

(Reporting by Anna Willard; Editing by Victoria Main)