As Washington unveiled their plan to push $850bn into the US economy, emergency financial packages designed to cope with fallout from the Covid-19 pandemic were revealed by France, Spain and the UK.
“This economic and financial war will be long, it will be violent and will require all the strength of our national, European and G7 forces” stated finance minister, Bruno La Maire, who will present the French emergency budget today. The package will include: €45bn in direct tax breaks, including two months of deferred – and potentially written-off – corporate and social security taxes; state payments to workers who have been laid off temporarily and a ‘solidarity fund’ for companies that have been forced to close.
In addition, President Macron announced on Monday that the state will guarantee €300bn in government-backed bank loans to ensure liquidity for businesses. The French government is also prepared to step in and nationalise large companies such as Air France-KLM if necessary.
The rescue package effectively puts an Exocet through the French budget programme, pushing the deficit above EU limits yet again – this time to around 3.9% compared with 3.1% last year – and increasing borrowing to over 100% of GDP. Budget minister Gérald Darmanin stood up for the decision saying: “I’ve always defended budget propriety in peacetime, but that’s precisely so that France doesn’t have to stint on spending when there’s a war on.”
Meanwhile, Spanish Prime Minister, Pedro Sánchez, announced €100bn in loans and guarantees to provide companies with “all the liquidity they need” to stay afloat, particularly small and medium enterprises, as part of what he described as the “biggest mobilisation of resources in the country’s democratic history.” There will also be legal measures in place to prevent non-EU entities from taking advantage of collapsing share prices in order to take over Spanish companies in strategic sectors.
The total “unprecedented” package announced by the Spanish will amount to around €200bn and will include a moratorium on mortgage payments and utility bills, as well as measures to help those laid off temporarily, and the elderly and vulnerable. “Nobody will be left behind” promised Mr Sánchez, “We want to protect employment and we want companies to know the government will help them”. Representing 20% of GDP, the government will provide €117bn, with the balance paid by private companies.
“Whatever it takes,” said UK Chancellor Rishi Sunak as he announced £330bn in government-backed loans – equivalent to 15% of GDP – along with £20bn in direct measures to shore up the economy. “Never in peacetime have we faced an economic fight like this one.”
Promising there will be more support if this ‘bazooka’ is not enough, Mr Sunak recognised the acute challenges faced by many sectors. The airline industry, which is struggling as a result of increasing numbers of countries closing their borders and tourism crashing, is of particular concern, as are small firms with no insurance.
Business rates will be put on hold for all firms in the hospitality sector. Grants of up to £25k will be available for retail, hospitality and leisure sector firms, and of up to £10k for some smaller businesses. In addition, a 3-month mortgage holiday was announced for those property owners in financial difficulty due to the effects of Covid-19.
Further measures to help employees and those on benefits are to be announced in due course, with the government currently consulting unions and businesses on how best to meet their needs. Considering that increasing numbers of people rent rather than own property, many will be hoping there is some good news in the pipeline for them too.
Boris Johnson added: “This a time to be bold, to have courage. We will support jobs, we will support incomes, we will support businesses… We will do whatever it takes.”
Britain has recently enjoyed record employment figures; it remains to be seen whether the government has gone far enough to help firms keep staff on the payroll. Much will depend on just how long the crisis lasts. Mortgage and rates holidays, and government loans may be of help for a few short months, but eventually these must be repaid, which will not be an easy task if the world is left in deep recession.
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