PARIS — After almost 18 months of relying on expensive emergency aid programs to support their economies through the pandemic, governments across Europe are scaling back some of these measures, counting on burgeoning economic growth and the power of vaccines to carry the load from here.
But the insurgent spread of the Delta variant of the coronavirus has thrown a new variable into that calculation, prompting concerns about whether this is the time for scheduled rollbacks in financial assistance.
The tension can be seen in France, where the number of virus cases has increased more than 200 percent from the average two weeks ago, prompting President Emmanuel Macron to try to push the French into getting vaccinated by threatening to make it harder to shop, dine or work if they don’t.
At the same time, some pandemic aid in France — including generous state funding that prevented mass layoffs by subsidizing wages, and relief for some businesses struggling to pay their bills — is being reduced.
A government panel recently urged “the greatest caution” about winding down emergency aid even further at the end of the summer.
The eurozone economy has finally exited a double-dip recession, data last week showed, reversing the region’s worst downturn since World War II. European Union governments, which have spent nearly 2 trillion euros in pandemic aid and stimulus, have released nearly all businesses from lockdown restrictions, and the bloc is on target to fully vaccinate 70 percent of adults by autumn to help cement the rebound.
But the obstacles to a full recovery in Europe remain large, prompting worries about terminating aid that has been extended repeatedly to limit unemployment and bankruptcies.
“Governments have provided very generous support through the pandemic with positive results,” said Bert Colijn, senior eurozone economist at ING. “Cutting the aid short too quickly could create an aftershock that would have negative economic effects after they’ve done so much.”
In Britain, the government has halted grants for businesses reopening after Covid-19 lockdowns, and will end a special unemployment benefit top-up by October. At least half of the 19 countries that use the euro have already sharply curtailed pandemic aid, and governments from Spain to Sweden plan to phase out billions of euros’ worth of subsidies more aggressively in autumn and through the end of the year.
Germany recently allowed the expiration of a rule excusing firms from declaring bankruptcy if they can’t pay their bills. Debt repayment holidays for companies that took cheap government-backed loans will soon wind down in most eurozone economies.
And after repeated extensions, state-backed job retention schemes, which have cost European Union countries over €540 billion, are set to end in September in Spain, the Netherlands, Sweden and Ireland, and become less generous in neighboring countries in all but the hard-hit tourism and hospitality sectors.
Aid programs that helped cushion income losses for 60 million people at the height of the crisis continue to pay for millions of workers on standby. Businesses and the self-employed have access to billions in low-interest loans, state-funded grants and tax holidays.
Meanwhile, employees have begun returning to offices, shops and factory floors. Global automakers are working to adapt to supply-chain issues. Small retailers are offering click-and-collect sales, and cafes are providing takeout service.
Governments are betting that the growth momentum will be enough to wean their economies off life support.
“We can’t use public money to make up for losses in the private sector forever,” said Guntram Wolff, the director of Bruegel, an economic research institution based in Brussels. “That’s why we need to find a strategy for exiting.”
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Aug. 5, 2021, 4:59 a.m. ET
Governments are looking to reallocate more spending toward areas of the economy that promise future growth.
“It’s crucial to shift spending towards sectors that will outlast the pandemic,” said Denis Ferrand, the director of Rexecode, a French economic research organization. “We need to accelerate a transformation in digitalization, energy and the environment.”
But swaths of workers risk losing their jobs when the income support is withdrawn, especially in the hospitality and travel industries, which continue to operate at up to 70 percent below prepandemic levels. The transition is likely to be painful for many.
In Britain, a furlough program that has saved 12 million jobs since the start of the pandemic today keeps fewer than two million workers on standby support. But after the scheme ends in September, around a quarter of a million people are likely to lose their jobs, the Bank of England has forecast.
“A significant fraction of people coming off furlough and not being rehired will find themselves facing very large drops of income,” said Tom Waters, a senior research economist at the Institute for Fiscal Studies in London.
Small businesses that wouldn’t have made it through the crisis without government assistance are now calculating how to stay on their feet without it.
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Fabien Meaudre, who runs an artisanal soap boutique in central Paris, got over €10,000 in grants and a state-backed loan that allowed him to stay afloat during and after the three national lockdowns imposed in France since the pandemic hit.
Now that his store is reopened, business is starting to get back to normal. “But there are no tourists, and it’s very calm,” he said.
“We are very grateful for the aid we received,” Mr. Meaudre added. “But we know we will have to pay this money back.”
Mr. Macron, who promised to steer Europe’s second-largest economy through Covid “no matter the cost,” is leading other countries in trying to push for a tipping point where the lockdowns that required massive government support become less and less necessary.
But the Delta variant is upending even the most carefully calibrated efforts to keep economies open.
In the Netherlands, where half the population is fully inoculated, the government recently reinstated some Covid restrictions days after lifting them, after Delta cases spiked.
Spain and Portugal have been reeling from hotel cancellations as the variant spread in vacation hot spots that desperately need an economic boost. The Greek party island of Mykonos even banned music temporarily to stop large gatherings, sending tourists fleeing and creating fresh misery for businesses counting on a recovery.
And in France, trade organizations representing cinemas and sports venues are worried that Mr. Macron’s new requirement that people carry a so-called health pass — proving vaccination, a negative test or a recent Covid recovery — to get into crowded spaces is already killing a budding recovery.
Some big movie halls lost up to 90 percent of customers from one day to the next when the health pass requirement went into effect this week, said Marc-Olivier Sebbag, a representative for the National Federation of French Cinemas. “It’s a catastrophe,” he said.
Such precariousness helps explain why some officials are wary of letting the support expire entirely, and economists say governments are likely to have to keep spending, albeit at lower levels, well beyond when they had hoped to wind down.
Withdrawing aid is “totally justified if there’s a rapid recovery,” Benoît Coeuré, a former European Central Bank governor and head of the French government panel assessing pandemic spending, told journalists last week.
“But there is still uncertainty, and if the rebound doesn’t come or if it’s weaker than expected,” he said, “we’ll need to pace the removal of support.”
Jack Ewing contributed reporting from Frankfurt, Eshe Nelson from London, and Léontine Gallois from Paris.
