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Coronavirus hits European economies but governments help shield workers
BRUSSELS — The coronavirus pandemic has dealt Europe an economic wallop on par with that in the United States, but Europe has more successfully managed to shield workers, according to data released Thursday.
The European economy shrank by 3.5 percent in the first quarter of the year, the sharpest decline on record. The U.S. economy contracted by an annualized 4.8 percent during the same period.
"The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime," European Central Bank President Christine Lagarde said Thursday, warning that the gross domestic product of the countries that share the euro currency could collapse by 12 percent this year.
France's economy contracted by 5.8 percent in the first quarter, the largest decline since record keeping began in 1949, the national statistics office said. Spain shrank by a historic 5.2 percent, far surpassing the previous record of 2.6 percent in 2009. And Italy — the European country hit hardest by the pandemic — shrank by 4.7 percent as it entered a recession.
BRUSSELS — The coronavirus pandemic has dealt Europe an economic wallop on par with that in the United States, but Europe has more successfully managed to shield workers, according to data released Thursday.
The European economy shrank by 3.5 percent in the first quarter of the year, the sharpest decline on record. The U.S. economy contracted by an annualized 4.8 percent during the same period.
"The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime," European Central Bank President Christine Lagarde said Thursday, warning that the gross domestic product of the countries that share the euro currency could collapse by 12 percent this year.
France's economy contracted by 5.8 percent in the first quarter, the largest decline since record keeping began in 1949, the national statistics office said. Spain shrank by a historic 5.2 percent, far surpassing the previous record of 2.6 percent in 2009. And Italy — the European country hit hardest by the pandemic — shrank by 4.7 percent as it entered a recession.
Compared with the U.S. jobs carnage for the same time period, when jobless claims spiked to record levels, the European situation appears far more contained. The U.S. unemployment rate increased from 3.5 percent in February, before the pandemic hit, to 4.4 percent in March. Analysts estimate that the current U.S. jobless rate, which will be released May 8, is 10 to 15 percent.
The philosophy in Europe is that the financial blow of the pandemic can be softened if workers are able to keep paying their bills and if businesses do not have to hire and train an entirely new set of employees as the crisis abates. Many European governments have implemented a subsidy program, pioneered by Germany in the last global recession, under which they pay up to 87 percent of salaries for workers sent home but kept on payroll.
In the United States, stimulus and relief programs have been comparable in scale, but not as directly linked to avoiding layoffs. The impact of the pandemic in terms of lost work hours is similar on both side of the Atlantic, said Holger Schmieding, chief economist for the Hamburg-based Berenberg Bank. But the European system saves “a lot of anguish in hiring and firing.”
“If you have 10 percent of the workforce getting laid off and going on unemployment benefits, then you would have 10 percent of the current high-spending consumers who wouldn’t be spending anything because of the insecurity of the future,” said Danish Employment Minister Peter Hummelgaard. His government’s program pays 75 percent of workers’ salaries, up to $3,355 a month, for businesses that have taken a significant hit from the lockdown. Employers cover the other quarter.
