Europe’s expensive jobs rescue reaches moment of truth

PARIS: European governments that unflinchingly deployed tens of billions to prevent a catastrophic jobs crisis are now grappling with the challenge of turning off the tap on what’s become one of the biggest welfare experiments in history.

Unlike the US, which allowed workers to take the strain, European countries took unprecedented steps as they shuttered economies to contain the coronavirus, with many directly taking on the cost of paying employees to prevent mass layoffs. The next crucial step is managing the financial cost versus the economic and political threats of leaving people and companies in the lurch.

Many of the programmes were crafted on the fly with little clarity on how they’d be ended. UK Chancellor of the Exchequer Rishi Sunak is looking at options including reducing the subsidy and allowing people to work while receiving a smaller government payment. French officials are also discussing a gradual wind-down.

The massive efforts so far have saved about 40 million jobs across Europe at an eye-watering cost that governments can’t afford indefinitely. But removing aid before companies can afford to pay wages again could plunge millions into lasting unemployment, derailing any nascent economic recovery as well as raising the risk of social and political unrest.

“It’s quite amazing, the numbers are something we have never seen before,” said Stefano Scarpetta, director for employment, labour and social affairs at the Organisation for Economic Cooperation and Developmen in Paris. “My sense is that they will keep it for quite some time. The cost will be enormous but the alternative is to see a lot of firms going bust and therefore a lot of unemployment.”

In France, more than half the private sector workforce is effectively being paid by the state to stay at home, while Germany has seen a surge in the number of companies using its Kurzarbeit wage subsidy programme in this crisis. “State wage support is our strongest and most powerful bridge across a deep economic trough,” German Labour Minister Hubertus Heil said on Monday.

The question is how to target or taper these massive programmes as administrations begin to plot their way out of the lockdowns needed to control the spread of the pandemic.

While some businesses can reopen, social distancing and other restrictions mean many won’t be at full capacity and won’t need all employees back. Laying off workers permanently will be problematic in countries where the basic safety net for workers is weaker in normal times. —