Europe’s pandemic aid is closing in. Is now the best time?
PARIS – After nearly 18 months of relying on costly emergency aid programs to support their economies through the pandemic, governments across Europe are rolling back some of these measures, which have been stymied by economic growth and weight gain. Relying on the power of vaccines to carry
But the rebellious spread of the delta version of the coronavirus has thrown a new variable into that calculation, raising concerns about whether it is time for a scheduled rollback in financial aid.
Tensions can be seen in France, where the number of virus cases has risen by more than 200 percent from an average of two weeks ago, prompting President Emmanuel Macron. To try to motivate French people to get vaccinated by threatening to make it harder if they don’t shop, eat, or work.
At the same time, some pandemic aid in France – including generous state funding, which prevented mass layoffs by subsidizing wages, and relief for some businesses struggling to pay their bills – is being curtailed. Used to be.
A government panel recently urged the “greatest caution” about reducing emergency aid even further at the end of the summer.
The eurozone economy has finally pulled out of a double-dip recession, data from last week showed, marking the region’s worst recession since World War II. EU governments, which have spent nearly 2 trillion euros in pandemic aid and stimulus, have freed almost all businesses from lockdown restrictions, and the bloc is on target to fully vaccinate 70 percent of adults by autumn So that can help cement the rebound.
But the barriers to a full recovery in Europe remain large, raising concerns about the end of repeated aid to limit unemployment and bankruptcies.
“Governments have provided very generous aid through the pandemic, with positive results,” said Bert Collijn, ING’s senior eurozone economist. “Reducing aid too early could create an aftershock that would have a negative economic impact after all that was done.”
In the UK, the government has halted grants for businesses reopening after the Covid-19 lockdown, and will end a special unemployment benefit top-up by October. At least half of the 19 countries that use the euro have already sharply cut pandemic aid, and governments from Spain to Sweden more aggressively cut subsidies worth billions of euros in the autumn and by the end of the year. planned to end.
Germany recently allowed the expiration of a rule exempting firms from declaring bankruptcy if they cannot pay their bills. Debt repayment holidays for companies taking out cheap government-backed loans will soon end in most eurozone economies.
and after repeated expansion, state-backed job retention schemes, which cost more EU countries €540 billion, set to expire in September in Spain, the Netherlands, Sweden and Ireland, and all become less generous in neighboring but hard-hit tourism and hospitality sectors.
Aid programs that helped ease the loss of income for the 60 million people at the peak of the crisis continue to pay for the millions of workers on standby. Businesses and the self-employed have access to billions in low-interest loans, state-funded grants and tax breaks.
Meanwhile, employees have started returning to offices, shops and factory floors. Global automakers are working to adapt to supply-chain issues. Smaller retailers are offering click-and-collect sales, and cafes are providing takeout service.
Governments are betting that the pace of growth will be enough to drive their economies off life support.
“We can’t use public money to make up for the loss in the private sector forever,” said Guntram Wolff, director of Bruegel, an economic research institute based in Brussels. “So we need to find a strategy to get out.”
Governments are trying to spend more towards those sectors of the economy that promise future growth.
“It is important to spend toward areas that will end the pandemic,” said Denis Ferrand, director of Rexcode, a French economic research organization. “We need to accelerate change in digitization, energy and the environment.”
But when income support is withdrawn, swathes of workers are at risk of losing their jobs, especially in the hospitality and travel industries, which continue to operate at 70 percent below pre-pandemic levels. The infection is likely to be painful for many people.
In Britain, a furlough program that has saved 12 million jobs since the start of the pandemic today puts less than two million workers on standby support. But after the plan ends in September, about 1.25 million people are likely to lose their jobs, the Bank of England estimates.
“A significant proportion of people coming out of furlough and never re-employed will find themselves facing a huge drop in income,” said Tom Waters, a senior research economist at the Institute for Fiscal Studies in London.
Small businesses that wouldn’t have made it through the crisis without government aid are now calculating how to stay on their feet without it.
Fabian Meudre, who runs an artisanal soap boutique in central Paris, has died €10,000 grants and a state-backed loan that allowed him to stay afloat during and after three national lockdowns imposed in France since the pandemic.
Now that his shop has reopened, business is back to normal. “But there are no tourists, and it’s very quiet,” he said.
“We are very grateful for the help we have received,” said Mr. Meudrey. “But we know we have to give this money back.”
Mr Macron, who promised to prop up Europe’s second-largest economy through Covid “no matter what”, is trying to push other countries to a critical point where massive government support is needed. Those lockdowns become less and less necessary.
but The Delta version is pushing 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 after a surge in delta cases, days after it was lifted.
Spain and Portugal are grappling with hotel cancellations as the variant spread to vacation hot spots that desperately need an economic boost. The Greek party island of Mykonos temporarily banned music to prevent large gatherings, sending tourists to flee and causing fresh misery for businesses relying on a recovery.
And in France, trade organizations representing cinemas and sporting venues are concerned that Mr Macron’s new requirement that people carry a so-called health pass – proving vaccination, a negative test or recent recovery from Covid – is overcrowded. Having to go places is already killing a budding recovery.
Marc-Olivier Sebagh, representative of the National Federation of French Cinemas, said some large movie halls lose up to 90 percent of customers from one day to the next when the health pass requirement goes into effect this week. “It’s a catastrophe,” he said.
Such uncertainty helps explain why some officials are wary of allowing support to lapse entirely, and economists say governments may have to spend, albeit at a lower level, when they are up in the air. Was expecting to land.
Benoit Coeur, a former governor of the European Central Bank and head of the French government’s panel assessing pandemic spending, told reporters last week that withdrawing aid is “completely justified”.
“But there is still uncertainty, and if the rebound does not come or if it is weaker than expected,” he said, “we will need to accelerate the removal of support.”
Jack Ewing Contributed reporting from Frankfurt, ashe nelson from London, and leontine galois from Paris.
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