Europe Puts Jobs Before Restructuring With Furloughs Extended

(Bloomberg) -- In the dilemma over whether to support existing jobs during the pandemic or let the economy adapt to the post-virus world, European governments are increasingly siding with workers.

Germany became the latest nation to extend a program under which the government covers the bulk of paychecks for employees who can’t work. That decision late Tuesday follows France, Italy, Switzerland and Austria, and others are considering doing the same.

The counterexample is the U.K., where Chancellor of the Exchequer Rishi Sunak is resisting mounting pressure from companies and unions. He’s insisting his furlough program will be phased out in October.

There’s no simple answer for which administration is right. Some jobs will never return anyway, and keeping those people employed hinders the creation of new ones.

But the stakes are rising, with high-frequency indicators tracked by Bloomberg Economics showing activity in some major countries weakening again. With infections also rising and no vaccine yet, continental Europe is judging that the last thing it needs is mass unemployment.

Here’s a look at the current state of play.

Germany

Europe’s largest economy has long had the region’s definitive program, known as “Kurzarbeit” and paying as much as 87% of net wages after it was beefed up early in the pandemic. Originally providing support for 12 months, companies can now benefit from the enhanced subsidy for as long as twice that, until the end of 2021. The extension will cost the government an extra 10 billion euros ($11.8 billion). About 5.6 million people were on the program in July, down from 7 million in May.

France

France has introduced a new long-term furlough system designed to provide more targeted aid for up to two years on a case-by-case basis. The current emergency mechanism, which covered around 9 million workers at the height of the crisis, was pared back slightly in June and will become less generous for most employees from the beginning of October. Prime Minister Jean Castex has said France expects to spend 30 billion euros on the aid in 2020 and another 8 billion euros in 2021.

Italy

Italy has increased furlough provisions and extended a firing ban to Dec. 31. Companies can apply for the state to pay workers’ wages for up to 18 weeks. The program from Oct. 1 to Dec. 31 will require some businesses to pay a share of the salary, depending on how much income they lost in the first half of 2020.

Spain

Spain’s program, already prolonged twice, is set to expire Sept. 30. That’s a huge problem for the tourism industry, with companies demanding extensions. A meeting between government officials, unions and industry groups has been scheduled for Sept. 4 on the Balearic Islands. Some 700,000 workers are covered by the subsidies.

U.K.

The U.K. furlough plan has helped support almost 10 million jobs at a cost of more than 35 billion pounds ($46 billion). It’s also relatively generous -- paying 80% of wages with the employer covering the rest -- making it a rare success story for the government, which reacted late to the pandemic and consequently saw the biggest hit to the economy of any European nation.

Employers are now gradually taking on more of the burden until the plan ends completely in October. Economists warn the abrupt end could leave millions unemployed.

Other Nations

The Netherlands is on its second wage-support program, which runs until Oct. 1. In a third round, the Dutch government aims to focus only on the most-affected companies and will reimburse less salary, Dutch newspaper De Telegraaf reported on Wednesday, citing people it didn’t identify. Another newspaper, Algemeen Dagblad, said a new round will continue until the summer of 2021 and may be announced next week.

Austria’s government has agreed to extend its aid for another six months starting Oct. 1, though employers must show that their problems are caused by the coronavirus, and workers must be willing to undergo training while receiving the funds. Finance Minister Gernot Bluemel said this week that allowing solvent companies to fail is a bigger hazard than supporting unhealthy ones.

Portugal gave more time to its “simplified layoff” measure once, until the end of July, though it remains in place for businesses closed by health authorities, as well as for companies that still haven’t used the support for the maximum period of three months. The government is now providing incentives for companies to keep jobs.

Greece prolonged its furlough program in early August until the end of September. Businesses in sectors affected by the pandemic will be able to suspend employee contracts and the workers that don’t work for a whole month will get 534 euros.

Switzerland’s government announced in July that it was extending the period in which people can receive funds as part of its Kurzarbeit program to 18 months from 12 months within a two-year period. Government aid for the self-employed who can’t work due to the ban on large events was also extended.

Scandinavian governments have also given additional time for some measures. In Norway, the maximum duration for furloughs was doubled to 52 weeks until the middle of next year. Finland recently eased rules around layoffs to aid businesses, and Sweden will continue to provide extra subsidies for workers hit by the pandemic until Dec. 31. But in Denmark, demand for the government’s wage support fell short of expectations, and it’s due to expire at the end of August.

©2020 Bloomberg L.P.