France tries to limit unemployment to deal with coronavirus recession

PARIS – When France began to close its doors a few weeks ago as the coronavirus relentlessly penetrated the country, Dominique Paul feared a disaster. The family restaurant business of his family, Butard Group, ceased operations, putting 190 jobs at risk.

Edward Arkwright, Managing Director of Paris airports, the operator of the Paris airport, weighed how to preserve more than 140,000 jobs while a freeze of most of the world air traffic caused activity to fall by 90% in a few dizzying days.

The future of the two companies, and of hundreds of thousands of others in France, has become uncertain. Instead of sinking, however, they are being thrown like lifelines as the French government rolls out a targeted plan to protect businesses and keep every possible worker at work.

“We are using the entire government toolbox to get through this crisis,” said Mr Paul, looking at the empty Armenonville pavilion on the outskirts of Paris, where just a few weeks ago the chefs and waiters were serving. delicacies like scallop carpaccio for sparkling events. “Otherwise, we wouldn’t be able to keep up.

As the coronavirus hits global economies, France is quickly emerging as a test case for whether a country can accelerate recovery from a recession by protecting businesses from bankruptcy in the first place and avoiding mass unemployment.

In the United States, the coronavirus has already caused millions of layoffs. While the $ 2 trillion rescue package signed by President Trump sends tremendous relief to American workers and businesses, France and other countries in the European Union are rolling out a more comprehensive state-led approach in case the outbreak takes months, rather than weeks, to contain.

“There is a very different strategy in Europe than in the United States on how to handle this recession,” said Patrick Artus, chief economist at Paris-based Natixis bank. “The idea is to have no layoffs or business closures, so that when the coronavirus is finally under control, the economy can restart immediately. “

France hopes to learn a lesson from the 2008 financial crisis when it failed to take aggressive action to support workers and businesses. Unemployment soon jumped up at about 10 percent and has remained high for half a decade. In contrast, rising unemployment in Germany – which has kept companies from collapsing by subsidizing holidays in a so-called system Kurzarbeitergeld, or partial unemployment – lasted less than a year before dropping steadily.

“France has decided it will not make the same mistake with the coronavirus,” said Simon Tilford, director of Forum New Economy, a research institution in Berlin. “This approach is going to be a lot less devastating. “

Austria, Denmark and other northern countries have similar policies, and Britain announced last week that it would do the same. And on Wednesday, European Commission President Ursula von der Leyen said governments would join support partial unemployment so that “more people keep their jobs” during the current crisis.

In France, the government spends 45 billion euros ($ 50 billion) on pay companies not to dismiss workers. The deadlines for paying taxes and loans are delayed. An additional 300 billion euros in state-guaranteed loans are given to any troubled business that needs it.

More than 337,000 companies have already put 3.6 million employees on paid leave to be reimbursed by the state, the labor ministry said on Wednesday. Officials expect the numbers to more than double as it receives “several thousand requests per minute.”

The plan is not without risks. European leaders are reluctant to revive the economy before the epidemic proves to be under control. The budget support tsunami by France and its neighbors – more than 2,000 billion euros in spending and loan guarantees combined – can only be maintained for a few months, economists say.

The risk also extends to companies, which must continue to pay a fifth of the wages of employees who are not working. If the economy doesn’t rebound by fall, companies say, they could still be forced to revert to layoffs.

Mr. Paul of Groupe Butard is betting that things will not go so badly, even though he fears the worst when orders were canceled en masse at the beginning of March. Events hosted by giant companies like Schneider Electric and the French Rugby Federation have been canceled, reducing its expected monthly turnover from 4 million euros to 500,000 euros and leaving Dominique Julo, director of the company’s events , with little to predict.

Since then, Mr. Paul has used all the financial backstops made available by the French government, even the late payment of electricity bills and rents on the offices of the Butard Group and its huge food preparation facilities outside of Paris.

The state will pay him 80% of his employees’ salaries to keep them on the payroll. Although Mr Paul is still waiting for the money, due to a delay in the 10-day repayment period promised by the government, the combined financial relief means the business “will be ready to bounce back once the crisis is over. “, did he declare.

The use of the paid leave program in Germany is also booming. Nearly 500,000 businesses applied for support in March, the government said on Tuesday, up from less than 2,000 in February. Among them are Daimler, Volkswagen, Lufthansa and the company that runs Frankfurt Airport, where air traffic has plunged by 90%.

A similar collapse in activity forced Mr. Arkwright, the managing director of Aéroports de Paris, to put 80 percent of the 6,000 administrative employees and 135,000 baggage handlers, security guards and other workers on paid leave after the airport. Orly and all terminals except two at Charles De Gaulle Airport, the second busiest in Europe, has closed.

He faced extraordinary circumstances as losses swelled to around 1.3 billion euros. To add to the chaos, the general manager of Aéroports de Paris, Augustin de Romanet, tested positive for the virus, leaving Mr. Arkwright to urgently manage, two-thirds of the board of directors of the airport company also quarantining itself . All the executives came out in good health.

Aéroports de Paris, half-state-owned and slated for privatization this year, is saving € 25 million per month on government subsidies for paid vacation, Arkwright said. The state asked the company not to pay an annual dividend.

“The advantage of this approach is that you can restart literally overnight,” said Mr. Arkwright. “I can call you and say, ‘Come in tomorrow. But if you go unemployed, it is not sure that you will be called for a job. And we would lose people with valuable skills.

Allowing unemployment to soar would also cost European governments huge sums of money, due to the generous benefits offered to laid-off workers. In Germany, for example, someone who is made redundant after 12 months can still receive 60% of his salary for the next nine months; in France, unemployment benefits last up to two years.

“In fact, firing people costs more,” Mr. Arkwright said.

And people who can keep their jobs “are less miserable and shocked than people who have been made redundant,” said Holger Schmieding, chief economist at Berenberg Bank in London. “They are less likely to significantly reduce their consumption. This limits the overall economic damage.

In that sense, added Schmieding, governments that pay companies to keep people on leave “have a bigger impact for less money than supporting people who have lost their jobs.” The United States, which will now extend unemployment benefits and make one-time cash payments to support workers, “is effectively paying the price for its inadequate social safety net,” he said.

Mr. Paul of Groupe Butard said that the French government’s protectionist playbook can sometimes be overwhelming for businesses. But saving the economy and helping businesses avoid throwing workers out of work would leave French society better off than others once the coronavirus outbreak is contained, he said.

“The French system can be heavy,” he said. “But it’s incredibly effective at times like these.”

Constant Méheut contributed to the report from Paris and Jack Ewing from Frankfurt.