France’s economy and finance minister Bruno Le Maire and the labour minister Muriel Penicaud © Yoan Valat/POOL/AFP/Getty

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France’s “temporary unemployment” scheme to avert mass bankruptcies and lay-offs as a result of the coronavirus crisis will be extended, and is now expected to last up to two years, the country’s labour minister said.

The biggest European economies, including Germany, the UK, France, Italy and Spain, rolled out or enhanced such schemes when the pandemic triggered lockdowns across the continent that sharply reduced economic activity and made it impossible for millions of workers to do their jobs. 

Muriel Pénicaud, the labour minister, said that at the end of April some 8.6m employees were benefiting from the French scheme, under which the state pays subsidies to companies to fund the salaries of those prevented from working.

“We are going to put in place a long-term partial-activity scheme,” Ms Pénicaud told Franceinfo radio, “through which employees could have fewer working hours and be partly supported by the state.” The scheme “is likely to last a year or two,” she added.

Germany pioneered the extended use of such ‘Kurzarbeit’, or short-time work, schemes following the global financial crisis of 2008. After the Covid-19 pandemic began sweeping across Europe earlier this year more than 40m workers in Europe’s five biggest economies, or their employers, applied to have a large part of their wages paid by the government. 

Ms Pénicaud did not say what share of wages the French government would continue to pay — currently 84-100 per cent of net salary for the lower paid — but that this was under discussion with employers and trade unions. She also said the government would make 50,000 inspections before the end of the summer to detect and punish fraudulent use of the scheme.

Although the immediate cost to governments runs into billions of euros — France’s public sector deficit is set to rise to 11.4 per cent of gross domestic product this year from 3 per cent in 2019 — ministers say the alternative of paying benefits to millions of unemployed workers would also be expensive. The temporary unemployment scheme limits long-term damage to economies by preserving skills. 

“I think it makes sense even if the fiscal cost is going to be huge,” said Gilles Moec, Axa chief economist.

“There would be less of a prominent loss in terms of skills and human capital if we could keep people attached. We may end up ultimately in a situation where some sectors and some companies may not survive, but we don’t know yet.” 

Other European governments have either announced or are considering extensions to their schemes. Germany’s government said last week when it unveiled a fiscal stimulus plan that it would come up with rules in September on how the Kurzarbeit scheme might work in 2021 “in the light of what is happening with the pandemic”.

The UK government recently extended its flagship job retention scheme until the end of October, while asking companies to share the cost of idled workers from the start of August.

Spain’s emergency temporary leave scheme is scheduled to expire at the end of this month, but ministers have recently indicated they are open to extending it — particularly for hard-hit sectors such as tourism.

Italy has approved measures for extending the unemployment schemes for five extra weeks until August 31. On top of this, additional weeks were approved until the end of October for companies operating in tourism, events, amusement parks and entertainment.

Additional reporting by Martin Arnold in Frankfurt, Guy Chazan in Berlin, Daniel Dombey in Madrid and Davide Ghiglione in Rome


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