Europe can’t escape crisis
Government attempt to stop layoffs by extending billions in aid to businesses falls flat
A tsunami of job cuts is about to hit Europe as firms downsize,
At BP, 10,000 jobs. At Lufthansa, 22,000. At Renault, 14,600.
When European countries ordered businesses to shutter and employees to stay home as the coronavirus spread, governments took radical steps to shield workers from the prospect of mass joblessness, extending billions to businesses to keep people employed. The layoffs are coming anyway. A tsunami of job cuts is about to hit Europe as companies prepare to carry out sweeping downsizing plans to offset acollapse in business from the outbreak. Government-backed furlough schemes that have helped keep around one-third of Europe’s workforce financially secure are set to unwind in the coming months.
As many as 59 million jobs are at risk of cuts in hours or pay, temporary furloughs, or permanent layoffs, especially in industries such as transportation and retail, according to a study by McKinsey & Co.
Governments are warning that millions will soon lose paycheques, and the European Central Bank last week said unemployment would probably surge and stay high even when a recovery from the pandemic unfolds.
“Europe has been successful at dampening the initial effects of the crisis,” said John Hurley, senior research manager at Eurofound, the research arm of the European Union. “But in all likelihood, unemployment is going to come home to roost, especially when the generous furlough programs start to ease off,” he said.
“There’s going to be a shakeout,” he added, “and it’s going to be fairly ugly.”
Compared with the United States, the furlough programs in the EU have prevented unemployment from going off the charts. Germany, France, Denmark and Britain are among countries that have employed so-called short-work schemes, effectively nationalizing the paycheques of about 60 million privatesector employees. But even before a recent resurgence of coronavirus cases, the pandemic’s economic damage was growing, and it now appears those expensive government programs only postponed the pain. Corporate giants and retail companies operating well below capacity since the start of the crisis will now pivot to slashing tens of thousands of positions in autumn and through next year. Some companies figure the disruption is the best time to move forward on long-contemplated downsizing.
Airbus, BP, Renault, Lufthansa, Air France, Debenhams department store chain, Bank of Ireland, retailer W.H. Smith and even McLaren Group, which includes the Formula One racing team, along with countless smaller businesses, are among those planning cuts that will sweep factory workers, retail employees and high-paid white-collar workers into the ranks of the unemployed.
The layoffs are mounting even as Europe has flashed signs of recovery amid a historic contraction in growth rates. In Germany, business and consumer confidence is growing, while manufacturing activity across the eurozone bounced back to growth in July. The euro is strengthening against the dollar as investment flows into Europe.
But the pandemic, and new outbreaks in Germany, France and other countries, have created greater uncertainty in industries being transformed by stay-athome policies and changing consumer habits.
“Executives are realizing that the damage is going to last for much longer than you can survive on government support programs, so they are restructuring now,” said Sebastian Stern, a senior partner at McKinsey in Germany and a coauthor of the report on the employment impact of the pandemic.
“If you’re Lufthansa, in March and April you probably thought this crisis was like SARS, where we need to survive now but then can get back to business,” Stern added. “Today, they are saying we’re not going back to pre-pandemic levels of activity before 2025.”
The expected cuts will add to hundreds of thousands of job losses tallied since the start of the coronavirus outbreak. In Britain alone, 730,000 jobs have been shed since March, as the economy shrank by one-fifth in the second quarter. The government recently warned that more workers risk falling into unemployment as a national furlough scheme supporting five million employees expires in October.
The scale and speed of the cutbacks underscores the challenge facing leaders as they recalibrate their approach to limiting the pandemic’s damage.
For one thing, the cost of Europe’s support programs has been mounting. European leaders recently agreed to a landmark 750 billion euro stimulus package on top of hundreds of billions spent since the start of the crisis, ballooning national debts and deficits.
And many of the jobs being subsidized are in industries facing potentially irreversible damage from the pandemic.
About nine million European workers, up to one-fifth of those currently enrolled in the short-work programs, are in what German bank Allianz has dubbed “zombie jobs” — positions in the auto and airline industries, restaurants, shops and hotels and other sectors illequipped to confront shifting consumer behaviour. Many of these jobs are still on the books almost solely because of government subsidies, the bank said.
“The programs in Europe are more generous than in the United States, but they won’t last forever,” said Simon Tilford, an author of a Center for European Reform report on the economic risks of the pandemic. “Lots of companies will lay off workers irrespective of whether they can continue to access wage subsidy schemes because they can’t see demand recovering anytime soon.”
In the meantime, governments “are going to face a difficult choice about continuing to subsidize workers in sectors where there is a question about the long-term future,” including autos and aerospace, he added.
Employers will soon face other financial pressures as emergency benefits adopted when the virus was raging in the spring come to a close. In Britain, a moratorium on forfeiture of commercial properties because of unpaid rent — effectively allowing firms to delay rent payments — ends in September. In Germany, a rule allowing companies in distress to avoid filing for bankruptcy will also begin phasing out in September.
The layoffs risk igniting social tensions as Europe endures its worst recession since the Second World War. The European Commission expects the economy to shrink by 8.3 per cent this year, with declines of more than 10 per cent projected for Italy, Spain and France before a revival toward the end of 2021.
In some countries, workers are taking to the streets. Thousands of employees at a Nissan plant in Barcelona blocked roads and burned tiresafter the Japanese automaker, Renault’s main partner in the world’s biggest auto alliance, announced plans to shutter the factory later this year amid a plunge in global demand for cars. The company plans to cut 22,000 jobs, mostly in Europe.
More than 1,600 employees at a Smart car factory in eastern France, stung by a surprise announcement that parent company Daimler will sell the operation because of the coronavirus, are planning strident protests next month. Local politicians are warning of an economic calamity in the region if Daimler doesn’t strike a deal with a buyer.
Eager to avoid unrest, governments are trying to cushion the blow of impending layoffs.
Italy and Spain are among countries temporarily extending furlough programs through December, albeit with less money for businesses and the termination of some benefits, like the exemption for employers to make health care and pension contributions. France has extended wage subsidies for another two years, but is asking employers to pay a greater share of the cost.
Britain, however, is sticking to an Oct. 31 deadline for its 30 billion-pound plan to “protect, support and create jobs,” after which time the country is expected to face significant job losses.
Among the U.K. businesses that have already announced cuts, British Airways, easyJet and Virgin Atlantic will shed a total of nearly 20,000 jobs. Boots, Pret a Manger and a phalanx of other high street retailers and food shops will lay off at least 15,000 in the coming weeks and months. At BP, 10,000 officebased positions will go, most by the end of the year. Millions of others on precarious temporary and “on-call” contracts are also at risk.
Governments are moving to ensure that rising joblessness doesn’t turn into a quagmire of long-term unemployment. Britain and other countries are expanding access to benefits and investing billions in programs to train workers in industries that are hiring, whether in chemical engineering, truck driving or home care.
Britain will invest 800 million pounds into job centres and double the number of work coaches to 27,000 to help benefit claimants back into work. France is recruiting thousands of new counsellors to give job seekers what the government says will be more personalized direction.
Adecco, Europe’s largest temporary employment agency, whose main business includes working with companies and labour unions to carry out restructuring plans, has been amping up its retraining.
“We see a huge wave of restructuring coming, especially in Germany, France and the United States,” said Christophe Catoir, Adecco’s president for France and Northern Europe. “In September, October and November we will probably register an additional one million unemployed in France alone — not just people in short-term work, but highskilled people.”
Tsunami of job cuts about to hit Europe as companies prepare to carry out sweeping downsizing plans to offset a collapse in business