How to protect Europe's jobs from coronavirus
The economic fallout from the COVID-19 outbreak demands a European response.
Anti-riot police officers stand guard at the Sant'Anna prison in Modena, Italy, after the prison established anti-coronavirus measures | Piero Cruciatti/AFP via Getty Images
By Luis Garicano
March 9, 2020 2:53 pm CET
Luis Garicano is vice president and economics spokesman of Renew Europe and head of Spain's Ciudadanos delegation in the European Parliament.
The coronavirus that is sweeping across Europe is here to stay. Beyond the health impact, the European Union has to make sure that it is ready for the economic consequences of this pandemic.
Recent stock market falls show the outbreak is already affecting the global economy. It has dealt a shock to the stability of the global supply chains on which our economies depend, leading to shortages in manufacturing inputs for our factories. Fear of infection and forced quarantine measures have also created a drop in demand, particularly in sectors closely associated to travel, such as tourism.
This one-two, supply-and-demand punch has already reduced the economy of the north of Italy, one of Europe's economic powerhouses, to a complete standstill.
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The EU urgently has to take action to ensure this shock does not turn into a deep recession.
Over the next few weeks, we're likely to see the EU institutions debate whether the current crisis is a national problem or whether it requires EU action.
Consider the hotel that is dealing with mass cancellations over the Easter holidays, but must pay wages to its staff, pay its taxes and repay its debts. Or the small textile manufacturer that is forced to close up shop due to lack of materials from China. Such companies, not just in Italy but across Europe, face imminent bankruptcy and severe job losses.
Over the next few weeks, we're likely to see the EU institutions debate whether the current crisis is a national problem — as countries like Germany are likely to say — or whether it requires EU action, as Italy has argued.
This is a waste of time. The economic fallout from coronavirus is clearly a European problem, for two reasons: Firstly, because Europe has a common fiscal framework that constrains what a country can and cannot do in response to the crisis. Secondly, because European banking supervision means that Italian banks, for example, cannot unilaterally extend forbearance to Italian SMEs.
EU member countries have already called for temporary flexibility in the application of European fiscal rules, given the "unusual events outside the control of governments," and the European Commission confirmed last week that Italy's spending plans to combat the economic fallout of the coronavirus would not be taken into account when assessing Rome's compliance with EU budget rules.
We urgently need to create a European Employment Protection Facility that will limit the extent to which layoffs take place as a result of the virus.
But this built-in flexibility of European rules is not enough. The EU has to address issues such as employment losses and access to finance and liquidity for SMEs affected by coronavirus. To be successful, any new measures must only finance temporary, real and specific needs related to the current crisis — rather than being yet one more excuse to ignore deficit rules.
As part of a successful response to the economic threat of coronavirus, we urgently need to create a European Employment Protection Facility that will limit the extent to which layoffs take place as a result of the virus.
Following the example of the European Financial Stabilisation Mechanism (EFSM), created in 2010 during the financial and debt crises, this would be a temporary body that implements employment protection programs similar to Germany's Kurzarbeit program, which is also operational in countries including the Netherlands and Sweden.
Under the Kurzarbeit program, companies facing economic distress make a commitment to the government that they will not fire workers and will instead reduce the working hours of all employees. The government then covers a majority of the wages that each worker has had to forgo. The guiding principle is straightforward: Spread the job losses across workers, and prevent any of them from losing their jobs so as to protect families from economic distress.
Similarly, a European Employment Protection Facility would enable firms to distribute working hours among their employees at the European level for the duration of the outbreak.
It would give workers the protection they need when facing the economic effects of a pandemic, while also providing the economic stimulus needed to foster growth in the face of a downturn. What's more, it would achieve this without putting extra pressure on national budgets that are already under strain.
We must accept that the economic impacts of the pandemic are here to stay. It will not just be a matter of a weeklong market drop. The coronavirus presents a significant threat to the stability of Europe's jobs and SMEs.
Europe must show it has learned the lessons from our past economic crisis and push for a coordinated response that protects workers and our economy.
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