Facing an economic maelstrom that could be more painful than the 2008 financial crisis, European leaders are being urged to deliver a robust and co-ordinated fiscal response to shield companies and households from the impact of the coronavirus outbreak.
So far, however, EU and national authorities’ proposals in response to the disease have lacked the scale and synchronisation of the €200bn spending programme co-ordinated by Brussels and EU member states after the 2008 crisis, which was equal to 1.5 per cent of the bloc’s gross domestic product.
Governments have instead focused on a mixture of tax moratoriums, payment extensions on social charges, loan guarantees and wage subsidies for workers who cannot work or move to part-time roles. The boldest move so far has come from Sweden, which is allowing businesses to defer tax payments for up to a year at a cost of more than SKr300bn (€27.5bn) to the treasury, or 6 per cent of gross domestic product.
The European Commission plans to mobilise €37bn under its regional funding programmes to combat the impact of the pandemic. It has also said EU countries will be granted “full flexibility” in its fiscal rules to allow them to boost expenditure. But some economists still worry about the consequences of big spending packages for the most indebted countries, such as Greece and Italy.
Other countries have sprayed their population with money, such as Hong Kong’s plan to pay HK$10,000 to every citizen. But few economists think this is the right moment for a big fiscal stimulus in Europe, given many EU states are in lockdown, with millions of people unable to go out and spend.
Eurozone finance ministers said they had agreed crisis-fighting fiscal measures worth 1 per cent of GDP, on average, for 2020 to support the economy, plus liquidity facilities of at least 10 per cent of GDP, consisting of public guarantee schemes and deferred tax payments.
Here are the main measures announced so far by the eurozone’s four biggest economies:
Germany
- The government is making up to €500bn in loans available to companies hit by the coronavirus pandemic. Most of these will be provided via KfW, the state development bank. The loans will be available to all companies, from SMEs to blue-chip. “This is the bazooka,” said Olaf Scholz, finance minister.
- Berlin is expanding its programme of export credits and other guarantees to help companies in crisis.
- It has also pledged that companies affected by coronavirus can defer “billions of euros” in tax payments.
- The German administration is also expanding a government-subsidised scheme to compensate workers who are sent home by their employers during an economic crisis. The Bundestag has rushed through a law expanding access to this compensation, known as Kurzarbeitergeld. The wages of about 1.5m Germans were subsidised by the Kurzarbeitergeld scheme during the 2008 financial crisis — shielding the country from a surge in unemployment — at a total cost to the taxpayer of €8bn, according to Deutsche Bank.
- Bavaria, a wealthy southern state that is home to big companies such as BMW and Siemens, has launched a €10bn fund to buy stakes in struggling companies.
France
- French president Emmanuel Macron has promised unlimited budgetary support for companies and employees affected by the coronavirus pandemic — a multipronged strategy that Bruno Le Maire, French finance minister, says will cost €45bn.
- Mr Macron launched the initiative, including an “exceptional and massive” mechanism to pay workers temporarily laid off by crisis-stricken businesses, in a speech to the nation. The support payments are expected to be the most costly item in France’s array of measures.
- Mr Le Maire said ammunition to prop up the economy also included €300bn of French state guarantees for bank loans to businesses and €1tn of such guarantees from European institutions.
- Other moves include the possible rescue of companies with state shareholdings, such as Air France, deferred company tax and social security payments, and “sick leave” payments to parents who are not ill but have to stay at home to look after their children because schools are closed.
- The finance ministry was on Monday establishing a solidarity fund to manage some of the new subsidies.
Italy
- Roberto Gualtieri, Italy’s economy minister, has promised that “nobody will be left alone” as Rome starts distributing funds from the fiscal rescue package of up to €25bn.
- The main measures are to provide €1.15bn for the Italian health system and €1.5bn for its civil protection agency, which is in charge of organising the country’s coronavirus response.
- Other measures are expected to include one-off payments of €500 per person for the self-employed, government support for companies paying redundancy payments to their staff, a freeze on any worker lay-offs, and a cash bonus for Italians still working during the lockdown.
- The package is also expected to include loan guarantees for businesses hit by the crisis and a moratorium on loan and mortgage payments. However, the exact details of how these will be structured have not yet been made public.
- There will also be financial support for Italian families that have children at home, and for taxi drivers and postal workers who are continuing to work providing urgent services during the outbreak.
- Rome is expected to inject more funds into Alitalia to keep its struggling national airline afloat.
Spain
- An inner circle of the government — made up of the ministers of health, defence, interior and transport — has assumed “command economy” powers and the central government says it will take responsibility for guaranteeing medical, food, and energy supplies.
- An initial package of measures, set out last week before the nationwide lockdown, included extra health spending of almost €4bn and €14bn in tax relief for small and medium-sized businesses and the self employed over six months.
- Madrid has introduced a €400m credit line to help meet the liquidity needs of the tourist sector and extended social security subsidies for seasonal workers.
- A further package on Tuesday is expected to be wider-ranging, following pressure from Spain’s businesses and unions. The government has hesitated on some of the most ambitious measures — like loan guarantees — because of worries about rising debt levels.
Reporting by Martin Arnold in Frankfurt, Guy Chazan in Berlin, Victor Mallet in Paris, Miles Johnson in Rome and Daniel Dombey in Madrid
