European governments have announced economic rescue packages worth a combined €1.7tn (£1.6tn) to combat the effects of the coronavirus pandemic.
The sums promised by central banks in a succession of announcements over the last two weeks are likely to increase significantly, economists believe. They predict that the cash injections needed over the next three months will ultimately dwarf those made a decade ago during the banking crisis.
In the US, the White House is seeking approval from Congress for a $1tn spending package, which could include a mix of direct payments to individuals – “helicopter cash”, payroll tax cuts and state-backed loans for businesses.
Germany tops the European table, with a €550bn “bazooka” announced last Friday by finance minister Olaf Scholz, who boasted: “We’re putting all our weapons on the table.”
The UK has promised £350bn to support businesses and France €345bn, while the eurozone’s smallest economies are also piling in with their own measures. Latvia has set aside €1bn for measures such as loans to businesses. Greece announced €450m to protect jobs, with firms offered tax deferrals if they retain all their staff.
Despite the tough talk, forecasters said state spending was likely to ratchet dramatically over the coming weeks. This is because the money so far announced in Europe, the region of the world most afflicted by COVID-19 infections, is largely in the form of state-backed loans to banks and other businesses. The full sums needed to support those out of work or on sick leave are yet to be decided.
The UK package unveiled by the chancellor, Rishi Sunak, on Tuesday includes £20bn of financial handouts, which will go to support businesses. The other £330bn is not cash but comprises state guarantees for bank loans.
In the eurozone, the cash sums promised average about 2% of GDP.
Forecaster Capital Economics predicted that the figures needed could be at least five times higher, dwarfing the 2.5% of GDP spent by eurozone countries at the peak of the banking crisis in 2008.
“Loans will be OK for some companies that have deep enough pockets and can bridge themselves over until after the crisis,” said Andrew Kenningham, chief Europe economist at Capital Economics. “But for numerous small companies and self-employed people, governments are going to have to provide a lot more straightforward cash, and they are going to have to start doing it within a fortnight. It’s become urgent.”
The €1.7tn of European aid promised so far includes the UK and non EU and non-eurozone countries from the region, such as Switzerland and Sweden. It will be bolstered by a €750bn coronavirus response unveiled on Wednesday night by the European Central Bank. The pandemic emergency purchase programme will allow money to be ploughed into the purchase of public and private sector securities until 2020.
“As cumbersome as it sounds, the €750bn fund looks more like a bazooka than anything they’ve done thus far,” said Neil Wilson, chief markets analyst at markets.com.
Elsewhere, Canada has earmarked C$25bn (£15bn), and Turkey’s president has announced a $15bn package of tax reliefs and loan repayment holidays.
Japan’s governing party is calling for a package of up to 30tn yen ($280bn), which is being considered by the country’s prime minister and a specially convened panel of experts.
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