What National Stimulus Packages Have Been Implemented In Europe To Help Economies During The Pandemic?

The pandemic has highlighted the differences between how nations and countries approach tough situations. Some countries went into lockdown quickly, while others took a more mediated response. Additionally, while some nations worked together for the larger global economy, countries also have had their own individual responses to how to stimulate their own economies with their own stimulus packages. ​Furlough schemes​ to help support workers have been a prime example of this, but many nations have implemented other strategies to ensure that their pandemic induced recession is not as bad as it could have been.

Here, we look at how the different stimulus packages in a number of countries within Europe. We, of course, examine France and Germany – the biggest economies within the bloc. We also look at Spain and Italy for two reasons. Firstly they have a heavily indebted economy that was struggling even before the pandemic and secondly, they were particularly hard hit when the Coronavirus infiltrated their borders.

France’s COVID Stimulus Package

In the second quarter of 2020, France’s economy contracted by a huge 13.8%. This is the most it has fallen since the days of the Second World War, which puts into perspective just how big a response the French government needs to tackle the economic crisis that has resulted from the COVID enforced lockdowns.

And, the French government has not taken its responsibility lightly. At the beginning of September, in addition to its already fairly generous furlough scheme, it announced that it was providing a €100bn stimulus package for the French people. To put that into perspective, €100bn equates to around 4% of France’s annual economic output.
Additionally, Jean Castex, France’s Prime Minister, confirmed that this €100bn package is actually 4 times that of the rescue deal the French government put together after the banking crisis in 2008.

Importantly, the government outlined where this money would come from and, even more importantly, where it would be going. A large portion of it, around €40bn, would be coming from the European Union’s recovery fund that was announced in August. Of the €100bn, €35bn of it alone would be channelled into plans that would help the French economy stay competitive with its peers. €30bn will be poured into green initiatives and eco-friendly infrastructure. For example, €6bn has been portioned off to help the French population better insulate their homes to make them more energy-efficient. Interestingly, the hydrogen industry was singled out for a €2bn cash injection.

The remaining funds will be used to help further aid employers to retain workers in addition to providing training schemes and other wider plans that will promote job creation. The government intends for their schemes to generate over 160,000 jobs in 2021.

Germany’s COVID Stimulus Package

The German government, with Angela Merkel, at the helm, has long been criticised for being too tight with its purse strings. Financial commentators as well as many of the German population, have lamented the faltering growth in the economy that was seen before the pandemic. However, the Coronavirus has seen a vague turnaround in the usually predictable thrifty ways of its government. Its furlough scheme alone, for example, was largely seen as one of the most generous in the world and is thought to have cost the government tens of billions of Euros.

Recently, it has announced some reforms to further help stimulate the economy. These include a short VAT cut on its goods for the second half of 2020. This amounts to a 3% drop – from 19% to 16%. Additionally, those with children will receive a one time €300 payment for each child that they have.

In wider, grander policies, the German government has also sought to use this time to invest in greener initiatives like the French. It has set up a €50bn fund that will be used to promote climate change initiatives alongside encouraging the advancement of digital technologies to further improve the country’s carbon footprint.

For small businesses, the government established a €25bn pot that acts as loan support. Only businesses that have had to deal with a 60% or above decline in their sales can apply. The intent of this fund is largely aimed at businesses in the hospitality sector that were so negatively affected by the lockdown. Finally, for local governments that have received a lot less in terms of tax revenue, will be supported by €10bn focussed on providing support for infrastructure and housing.

Italy’s COVID Stimulus Package

Italy’s response has undoubtedly been hindered by its lack of growth and overall weakness that has characterised its economy for years now. Additionally, Italy was one of the first and hardest hit of any country outside of China by the Coronavirus. It was largely understood that a big portion of the European Union’s huge €750bn deal at the end of July would have to go to Italy. As a result of that, the Italian government went on to approve its own €25bn stimulus package just a day later.

This seems to pale in comparison to the aforementioned stimulus deals that the French and German governments have outlined. However, this is actually the third package agreed by Italy bringing its economic response to COVID to €105bn. In all, Italy’s spending has equated to around 3.5% of its own GDP. Over the whole crisis surrounding the Coronavirus, the Italian government tried to support its economy and its people through supporting worker

incomes and other short time work initiatives. Additionally, it sought to guarantee business loans so that liquidity never became an issue. Finally, it also allowed tax payment deferrals as well as offering tax credits.

While the government’s stimulus package has overall been lower than its richer neighbours, France and Germany, it is anticipated that Italy will receive around €200bn from the EU Recovery Fund in the form of grants to help underpin its economic recovery.

Spain’s COVID Stimulus Package

Along with Italy and the UK, Spain was arguably amongst the hardest hit of the European nations. The prospect of a second peak of the pandemic before a vaccine comes into circulation remains a very near and present danger.

During the first few months of the pandemic however, Spain’s heavily indebted government did what it could to support the economy. It, like Italy, sought to provide support to workers and employment as well as ensure that liquidity was backed so that the entire economic system did not seize up. For example, it made almost €105bn available to small and medium-sized businesses in the form of guarantees on loans.

With regards to supporting employment, it notably increased sick pay for those who had to self isolate. In all, in just March alone, the Spanish Government announced a package that amounted to €200bn to help support its economy. Most recently, it announced a stimulus programme aimed primarily at the Auto Industry that has struggled significantly in the wake of the Coronavirus lockdown measures. It will amount to just over €4bn which will be disbursed in tranches to help the car part makers that reside in the country.

Like Italy, Spain will also be a big beneficiary of the European Union’s large stimulus package as well as being helped by the asset purchases made by the ECB.

Europe’s Stimulus Packages – Overall Takeaways

The differences in each individual European country’s response to the economic fallout of the draconian lockdown measures are wide. Economically speaking, the countries that were hardest hit, i.e Spain and Italy, were also amongst the poorest and ones with economies that have persistently struggled. The result is that they had much less wriggle room to react to the strains that the economy was put under. Germany, which was one of the countries within the European Union that managed to keep its COVID numbers comparatively low, has been able to pump money into its system on a large scale.

Arguably, the ECB’s asset purchase programme and, more importantly, the EU’s recovery fund, should help steady the fallout from the havoc the Coronavirus has wreaked on Europe. However, whether that will be the case in practice remains to be seen.