Europe’s Pandemic Aid Is Winding Down. Is Now the Best Time?
PARIS – After nearly 18 months of relying on expensive emergency aid programs to support their economies during the pandemic, governments across Europe are scaling back some of these measures, counting on booming economic growth and on the power of vaccines to carry the load from here.
But the insurgent spread of the Delta variant of the coronavirus has thrown a new variable into that calculation, raising concerns over whether the time is right to cut back on financial aid.
The tension is visible in France, where the number of virus cases has increased by more than 200% from the average of two weeks ago, prompting President Emmanuel Macron to try to get the French to get vaccinated by threatening them to make shopping, meals or work more difficult if they don’t.
At the same time, some pandemic aid in France – including generous public funding that has prevented mass layoffs by subsidizing wages, and relief for some companies struggling to pay their bills – is being cut.
A government panel recently called for “the utmost caution” about cutting emergency aid even further at the end of the summer.
The eurozone economy has finally emerged from a double-dip recession, according to data last week, reversing the region’s worst slowdown since World War II. European Union governments, which have spent nearly € 2 trillion on pandemic aid and stimulus, have freed nearly all businesses from lockdown restrictions, and the bloc is set to fully vaccinate 70% of adults by the fall to help cement the rebound.
But the obstacles to a full recovery in Europe remain significant, raising concerns over the end of aid which has been repeatedly extended to limit unemployment and bankruptcies.
“Governments have provided very generous support during the pandemic with positive results,” said Bert Colijn, senior euro area economist at ING. “Cutting aid too quickly could create a backlash that would have negative economic effects after doing so much. “
In Britain, the government has suspended subsidies for reopening businesses after the Covid-19 closures and will end a special top-up in unemployment benefits by October. At least half of the 19 countries that use the euro have already sharply cut aid in the event of a pandemic, and governments from Spain to Sweden plan to phase out billions of euros in subsidies more aggressively to fall and until the end of the year.
Germany recently allowed a rule to expire exempting companies from declaring bankruptcy if they cannot pay their bills. Debt repayment holidays for companies that have taken out cheap government-guaranteed loans will soon be phased out in most eurozone economies.
And after repeated extensions, state-backed job retention programs, which have cost European Union countries more than €540 billion, should end in September in Spain, the Netherlands, Sweden and Ireland, and become less generous in neighboring countries in all sectors except tourism and hospitality hard hit.
Aid programs that helped cushion the loss of income of 60 million people at the height of the crisis continue to pay for millions of workers waiting. Businesses and the self-employed have access to billions in low-interest loans, state-funded grants, and tax exemptions.
During this time, employees began to return to offices, stores and factories. Global automakers are struggling to adapt to supply chain issues. Small retailers offer click-and-collect sales and cafes offer take-out service.
Governments are betting that the growth momentum will be enough to wean their economies off life support devices.
“We cannot use public money to compensate for losses in the private sector indefinitely,” said Guntram Wolff, director of Bruegel, a Brussels-based economic research institution. “That’s why we have to find an exit strategy. “
Governments are seeking to reallocate more spending to sectors of the economy that promise future growth.
“It is crucial to redirect spending towards sectors that will survive the pandemic,” said Denis Ferrand, director of Rexecode, a French economic research organization. “We need to accelerate the transformation of digitization, energy and the environment. “
But swathes of workers risk losing their jobs when income support is cut, especially in the hospitality and travel sectors, which continue to operate up to 70% below pre-pandemic levels. . The transition is likely to be painful for many.
In Britain, a leave program that has saved 12 million jobs since the start of the pandemic now keeps fewer than two million workers on call. But after the program ends in September, around 250,000 people are at risk of losing their jobs, the Bank of England has forecast.
“A significant fraction of people who leave their leave and are not rehired will find themselves facing huge drops in income,” said Tom Waters, senior research economist at the Institute for Fiscal Studies in London.
Small businesses that would not have survived the crisis without government help are now figuring out how to stay on without it.
Understanding the state of vaccination mandates in the United States
Fabien Meaudre, who runs an artisanal soap shop in central Paris, is recovering €10,000 in subsidies and a loan guaranteed by the State which allowed it to stay afloat during and after the three national blockages imposed in France since the start of the pandemic.
Now that her store is reopened, business is starting to return to normal. “But there are no tourists, and it’s very quiet,” he said.
“We are very grateful for the help we have received,” added Mr. Meaudre. “But we know we will have to pay this money back.”
Mr Macron, who has pledged to lead Europe’s second-largest economy through Covid ‘whatever the cost’, is urging other countries to try and push forward a tipping point where blockages that required massive government support become less and less necessary.
Corn the Delta variant disrupts even the most carefully calibrated efforts to keep economies open.
In the Netherlands, where half the population is fully vaccinated, the government recently reinstated some Covid restrictions days after lifting them, after Delta cases increased.
Spain and Portugal have been rocked by hotel cancellations as the variant has spread to vacation hot spots that are in desperate need of an economic boost. The Greek party island of Mykonos has even temporarily banned music to stop large gatherings, scaring off tourists and creating new misery for businesses that rely on a recovery.
And in France, professional organizations representing cinemas and sports venues fear that Mr Macron’s new requirement that people wear a so-called health pass – proving a vaccination, a negative test or a recent recovery from Covid – to enter crowded spaces is already killing a nascent recovery.
Some large movie theaters lost up to 90% of their customers overnight when the health passport requirement went into effect this week, said Marc-Olivier Sebbag, representative of the National Federation of French cinemas. “It’s a disaster,” he said.
Such insecurity helps explain why some officials are reluctant to let support expire completely, and economists say governments will likely have to keep spending, albeit at lower levels, well beyond when they hoped to slow down.
The aid withdrawal is “fully justified if there is a rapid recovery,” Benoît Coeuré, former governor of the European Central Bank and head of the French government panel assessing spending related to the pandemic.
“But there is still uncertainty, and if the rebound does not occur or if it is weaker than expected,” he said, “we will have to accelerate the removal of support.”
Jack Ewing contribution to reports from Frankfurt, Eshe nelson from London, and Léontine Welsh from Paris.
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