September 21, 2021

Europe’s Pandemic Aid Is Winding Down. Is Now the Best Time?

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.”

Governments are looking to reallocate more spending toward areas of the economy that promise future growth.

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