Oct. 30 (Bloomberg) -- President Nicolas Sarkozy’s proposed “grand loan” to fund French industry and infrastructure may amount to 35 billion euros ($52 billion) over two years, said a former prime minister who is preparing a report on the plan.

“If we decide we need at least 30 billion or 35 billion euros to make it worthwhile, it will have to be done over two years,” Michel Rocard said in an interview in Paris yesterday. “Markets won’t be sensitive to 20 billion euros” of extra borrowing in a year because that amount is small relative to the budget deficit, he said. France anticipates a shortfall of 116 billion euros in 2010.

The comments were the first to hint at the timing of the loan and suggest it may be smaller than the some economists have speculated. At Sarkozy’s request, Rocard and fellow former prime minister Alain Juppe will present recommendations on how the fund will be raised and how spent in coming weeks.

The spending will come on top of anti-recession measures such as a car-scrappage program and add to a planned deficit equivalent to 8.5 percent of French economic output in 2010.

Sarkozy has left details of the borrowing open, leaving economists to guess on its size and aims. Last month, Jean- Christoph Caffet, an economist at Natixis in Paris, said the loan may amount to between 20 billion euros and 50 billion euros. Juppe said on Sept. 16 that 100 billion euros probably represents a ceiling.

Rocard, who was socialist prime minister between 1988 and 1991 under Francois Mitterrand, said Sarkozy needs to limit the growth in debt or risk undermining France’s AAA credit rating.

Creditworthiness at Stake

“If we did significantly more, there would be a serious deterioration of France’s creditworthiness,” he said. “People who say differently don’t grasp the gravity of it.” The AAA rating “must be kept, that’s clear.”

Possible uses for the money include developing new aircraft and electric cars and funding nanotechnology research and biofuels, Rocard said.

“There are many things” that would make sense, he said. “France is well placed to take a leadership role in nanotechnology.”

France’s debt amounted to 1.43 trillion euros at the end of the second quarter, equal to 73.9 percent of gross domestic product, according to the national statistics office Insee. It will climb to 77 percent by the end of 2009 and 84 percent a year later, according to the 2010 budget announced last month. Those forecasts exclude Sarkozy’s loan plan.

Jacques Delpla, an economist on the Rocard-Juppe committee, cautioned against increasing debt without a commitment to reduce borrowing in future.

Budget Commitment

France should consider a constitutional change similar to one in Germany that would commit the country to reducing its structural deficit -- the shortfall that’s left after the economy returns to its sustainable growth rate -- to less than 1 percent of GDP by 2016, or 2018 at the latest, Delpla said.

With budget deficits each year during the past three decades, “France is like a non-anonymous alcoholic who’s been drinking too much for the past 30 years,” Delpla said. “With the grand loan, we’re going to get an even bigger hangover and feel bad. That will force it to go into real detox cure.”

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Isabelle Mas in Paris at imas2@bloomberg.net

Last Updated: October 29, 2009 19:00 EDT