Like many business owners in Spain’s beleaguered tourist sector, Francisco Muñoz is facing a difficult choice.

When lockdown began in March, Mr Muñoz put the 12 employees of his Bubó Tapas Bar in Barcelona’s El Born district on Spain’s furlough regime.

But even when confinement ended, he kept the bar closed — first because health regulations halved its capacity and the city authorities had rejected his request for outdoor tables, and then because local outbreaks brought international tourism to a halt again.

“The most we would make is €50 a day,” Mr Muñoz said.

Now rising costs are squeezing his business as the latest extension of the furlough scheme — which is set to expire at the end of September — increases his contribution to social security payments for his furloughed employees to €5,000 per month.

“We’re paying all our expenses, including our social security payments, out of loans that we took in March and April,” said Mr Muñoz.

Like similar schemes across Europe, Spain’s ERTE is widely credited with easing the social and economic pain wrought by one of the world’s strictest lockdowns.

The Spanish economy was the worst hit in the eurozone, shrinking by 18.5 per cent in the three months to June, figures published last week showed.

Spain lost more than 51,000 businesses between February and June, compared to an increase of some 24,000 during the same period of 2019. And more than 1m workers lost their jobs in the second quarter, the worst drop in the numbers of employed workers on record, driving unemployment to 15.3 per cent.

READ ALSO  Infectious Diseases and Government Growth

Those figures do not take into account the loss of new jobs that would normally have been created during that period, said Floren Felgueroso of Fedea, an economic think-tank.

“The pandemic struck in the months when Spain generates the most employment,” he said, noting that the main job-creation period runs from February to June, when Spain usually adds about 500,000 jobs as the tourist season starts to ramp up.

“There should have been 500,000 more jobs in June, but there were 600,000 less,” Mr Felgueroso said.

As a result furlough became a lifeline for many businesses and their staff who are now trying to get back to work. Some 1.2m workers are on furlough, down from a high of 3.4m.

Kate Preston, who owns eight restaurants in Barcelona, has recalled 25 of the 120 workers she furloughed.

“Without the ERTEs, this would be impossible. In the restaurant industry the takings have dropped 70, 80, 90 per cent,” she said.

The recovery has not gone exactly as planned, however. A series of fresh virus outbreaks led Barcelona and other areas to impose restrictions, and governments in France, Germany and the UK warned their citizens against travel to some parts of the country.

Line chart of Unemployment rate (%) showing Furlough helps cushion Spanish workers from mass job losses

Companies have again shut down, put their workers back on furlough and watched their income shrivel as their debts piled up. The tourism industry is particularly badly affected.

“A lot of these firms will face a crunch point,” said Jessica Hinds, Europe economist at Capital Economics in London. “The government is asking them to pay a larger share [of the furlough cost] but demand isn’t coming back as it was hoping when it set these parameters.”

READ ALSO  Europeans know and act on WHO recommendations during COVID-19

Yet budget limitations and political infighting could impede the government’s ability to continue the scheme as long and as generously as needed — and recast it to better prepare Spanish firms for a recovery.

Spain spent €8.1bn on ERTE between April and June and risks fuelling its already-high public debt, which has reached around 100 per cent of GDP. On Monday the economy ministry announced that Spain had requested more than €20bn from the European Commission’s SURE funds to finance the scheme as well as aid to businesses and the self-employed.

Spanish labour minister Yolanda Díaz has signalled that the furlough scheme will be extended to the end of the year, though the government has not yet announced details.

“Spain’s government is fiscally constrained and a lack of political cohesion makes it harder to agree decisive action on this, which makes it more likely to see a surge in unemployment and firm closings than other countries,” Ms Hinds said.

Economists argue the rules need remodelling to target support to sectors with long-term potential without propping up financially unviable concerns.

Line chart of General government net lending/borrowing (% of GDP) showing Virus worsens Spain's budget deficit

Marcel Jansen, an economics professor at Madrid’s Autónoma University, said that Spain should use the scheme to modernise the labour market, which is dependent on low-skilled, temporary jobs.

“It’s a very good idea to continue the ERTEs, but after that we need a plan,” he said. “It cannot just be keeping employment relationships alive without any further effort to improve skills of workers or to ensure that when we take back the financial help those jobs are viable.”

For heavy users of the furlough scheme, the situation is dire. A recent survey by Barcelona’s restaurant union, the Gremi de Restauració, found that 38 per cent of its members were considering closing, and of the rest, almost 60 per cent said they would need to lay off workers.

READ ALSO  Campaigns line up their lawyers for a contested US election result

Roger Pallarols, managing director of the Gremi de Restauració, said the rules meant to encourage firms to bring back and keep workers, along with the September end date, had made furlough too costly and unpredictable.

“With the outbreaks and the slowdown, these mechanisms that try to motivate the return of workers have stopped making sense,” he said. “Sadly we are not in a continual process of recuperation but one interrupted by health-related potholes. It’s better for a business with eight people to employ four than to go bankrupt and fire all of them.”

For now, those in Barcelona’s restaurant industry are just hoping the money keeps coming until the next tourist season begins in the spring.

“I just hope the ERTEs don’t stop in September. I really don’t know what will happen in this city if they do,” said Ms Preston. “I think there will be a financial tsunami.”

Via Financial Times