Europe’s Pandemic Aid Is Winding Down. Is Now the Best Time?

on Aug5
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PARIS — After almost 18 months of relying on expensive emergency aid programs to support their economies through the pandemic, governments across Europe are scaling back some of these measures, counting on burgeoning economic growth and 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, prompting concerns about whether this is the time for scheduled rollbacks in financial assistance.

The tension can be seen in France, where the number of virus cases has increased more than 200 percent from the average two weeks ago, prompting President Emmanuel Macron to try to push the French into getting vaccinated by threatening to make it harder to shop, dine or work if they don’t.

At the same time, some pandemic aid in France — including generous state funding that prevented mass layoffs by subsidizing wages, and relief for some businesses struggling to pay their bills — is being reduced.

Germany recently allowed the expiration of a rule excusing firms from declaring bankruptcy if they can’t pay their bills. Debt repayment holidays for companies that took cheap government-backed loans will soon wind down in most eurozone economies.

And after repeated extensions, state-backed job retention schemes, which have cost European Union countries over 540 billion, are set to end in September in Spain, the Netherlands, Sweden and Ireland, and become less generous in neighboring countries in all but the hard-hit tourism and hospitality sectors.

Aid programs that helped cushion income losses for 60 million people at the height of the crisis continue to pay for millions of workers on standby. Businesses and the self-employed have access to billions in low-interest loans, state-funded grants and tax holidays.

Meanwhile, employees have begun returning to offices, shops and factory floors. Global automakers are working to adapt to supply-chain issues. Small retailers are offering click-and-collect sales, and cafes are providing takeout service.

Governments are betting that the growth momentum will be enough to wean their economies off life support.

“We can’t use public money to make up for losses in the private sector forever,” said Guntram Wolff, the director of Bruegel, an economic research institution based in Brussels. “That’s why we need to find a strategy for exiting.”

Governments are looking to reallocate more spending toward areas of the economy that promise future growth.

“It’s crucial to shift spending towards sectors that will outlast the pandemic,” said Denis Ferrand, the director of Rexecode, a French economic research organization. “We need to accelerate a transformation in digitalization, energy and the environment.”

But swaths of workers risk losing their jobs when the income support is withdrawn, especially in the hospitality and travel industries, which continue to operate at up to 70 percent below prepandemic levels. The transition is likely to be painful for many.

In Britain, a furlough program that has saved 12 million jobs since the start of the pandemic today keeps fewer than two million workers on standby support. But after the scheme ends in September, around a quarter of a million people are likely to lose their jobs, the Bank of England has forecast.

“A significant fraction of people coming off furlough and not being rehired will find themselves facing very large drops of 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 assistance are now calculating how to stay on their feet without it.

Fabien Meaudre, who runs an artisanal soap boutique in central Paris, got over 10,000 in grants and a state-backed loan that allowed him to stay afloat during and after the three national lockdowns imposed in France since the pandemic hit.

And in France, trade organizations representing cinemas and sports venues are worried that Mr. Macron’s new requirement that people carry a so-called health pass — proving vaccination, a negative test or a recent Covid recovery — to get into crowded spaces is already killing a budding recovery.

Some big movie halls lost up to 90 percent of customers from one day to the next when the health pass requirement went into effect this week, said Marc-Olivier Sebbag, a representative for the National Federation of French Cinemas. “It’s a catastrophe,” he said.

Such precariousness helps explain why some officials are wary of letting the support expire entirely, and economists say governments are likely to have to keep spending, albeit at lower levels, well beyond when they had hoped to wind down.

Withdrawing aid is “totally justified if there’s a rapid recovery,” Benoît Coeuré, a former European Central Bank governor and head of the French government panel assessing pandemic spending, told journalists last week.

“But there is still uncertainty, and if the rebound doesn’t come or if it’s weaker than expected,” he said, “we’ll need to pace the removal of support.”

Jack Ewing contributed reporting from Frankfurt, Eshe Nelson from London, and Léontine Gallois from Paris.

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