France Tries Limiting Joblessness to Confront Coronavirus Recession

PARIS — When France started shutting down a few weeks ago as the coronavirus marched relentlessly into the country, Dominic Paul feared disaster. His family’s white-glove catering company, Groupe Butard, halted operations, putting 190 jobs at risk.

Edward Arkwright, the director general of Aéroports de Paris, the Paris airport operator, weighed how to preserve over 140,000 jobs when a freeze on most global airline traffic caused activity to nose-dive 90 percent in a few head-spinning days.

The future of both businesses, and hundreds of thousands more around France, spiraled into uncertainty. Instead of sinking, though, they are being thrown lifelines as the French government deploys a targeted plan aimed at sheltering companies and keeping every worker possible employed.

“We’re using the government’s whole toolbox to get through this crisis,” said Mr. Paul, eyeing the company’s empty Armenonville Pavillon on the edge of Paris, where just weeks ago chefs and waiters served delicacies like scallop carpaccio for glittering events. “Otherwise we wouldn’t be able to keep up.”

As the coronavirus wallops the world’s economies, France is rapidly emerging as a test case of whether a country can hasten the recovery from a recession by protecting businesses from going under in the first place, and avoiding mass joblessness.

In the United States, the coronavirus has already provoked millions of layoffs. While the $2 trillion rescue package signed by President Trump sends massive relief to American workers and businesses, France and other European Union countries are deploying a more encompassing state-led approach to ward off mass joblessness in the event that the epidemic takes months, rather than weeks, to contain.

France is hoping to learn a lesson from the 2008 financial crisis, when it didn’t take aggressive steps to support workers and businesses. Unemployment soon jumped to around 10 percent and stayed high for half a decade. By contrast, the rise in joblessness in Germany — which kept companies from collapsing by subsidizing furloughs in a system known as “Kurzarbeitergeld,” or short-time work — lasted less than a year before falling steadily.

“France has decided it’s not going to make the same mistake with the coronavirus,” said Simon Tilford, director of the Forum New Economy, a research institution in Berlin. “That approach is going to be much less devastating.”

Austria, Denmark and other northern countries have similar policies, and Britain announced last week that it would do the same. And on Wednesday, European Commission President Ursula von der Leyen said governments would join to support short-time work so that “more people will keep their job” during the current crisis.

In France, the government is spending 45 billion euros ($50 billion) to pay businesses not to lay off workers. Deadlines for taxes and loan payments are delayed. Another €300 billion in state-guaranteed loans are being extended to any struggling company that needs them.

Over 337,000 businesses have already put 3.6 million employees on paid furlough to be reimbursed by the state, the Labor Ministry said Wednesday. Officials expect the numbers to more than double as it receives “several thousand requests per minute.”

The plan isn’t without risks. European leaders are wary of relaunching the economy before the epidemic is proved to be under control. The tsunami of fiscal support by France and its neighbors — over €2 trillion euros in spending and loan guarantees combined — can only be sustained a few months, economists say.

The risk extends to the businesses as well, which must continue to pay one-fifth of the salaries of employees who aren’t working. If the economy doesn’t rebound by autumn, companies say they may yet be forced to revert to layoffs.

Mr. Paul of Groupe Butard is betting things won’t get that bad, despite fearing the worst when orders were canceled en masse in early March. Events organized by corporate giants like Schneider Electric and the French Federation of Rugby were called off, shrinking his expected monthly revenue of €4 million to €500,000 and leaving Dominique Julo, the company’s events director, with little to plan for.

Since then, Mr. Paul has used all the financial backstops made available by the French government, even delays of payments for electricity bills and rent on Groupe Butard’s offices and its hulking food preparation facilities outside of Paris.

The state will pay him 80 percent of his employees’ salaries to keep them on payroll. Although Mr. Paul is still waiting for the money, because of a backlog in the 10-day reimbursement period promised by the government, the combined financial relief means the company “will be ready to rebound once the crisis is over,” he said.

In Germany, use of its paid furlough program is also soaring. Nearly 500,000 firms filed for support in March, the government said Tuesday, up from fewer than 2,000 in February. Among them are Daimler, Volkswagen, Lufthansa and the company that manages Frankfurt Airport, where air traffic has plunged 90 percent.

A similar collapse in activity forced Mr. Arkwright, the director general of Aéroports de Paris, to put 80 percent of the 6,000 administrative employees and 135,000 baggage handlers, security agents and other workers on paid furlough after Orly Airport and all but two terminals at Charles de Gaulle Airport, the
second-busiest in Europe, closed.

He faced extraordinary circumstances as losses ballooned to an estimated €1.3 billion. Adding to the chaos, Chief Executive Augustin de Romane tested positive for the virus, leaving Mr. Arkwright to manage on an emergency basis as two-thirds of the airport company’s board also self-quarantined. All the executives emerged in good health.

Aéroports de Paris, which is half owned by the state and is slated for privatization this year, is saving €25 million a month from government subsidies for paid furloughs, Mr. Arkwright said. The state has asked the company not to pay out an annual dividend.

“The advantage of this approach is that we can start up again literally from one day to the next,” Mr. Arkwright said. “I can call you and say, ‘come in tomorrow.’ But if you go into unemployment, it’s not sure you’d be called in for a job. And we would lose people with valuable skills.”

Allowing unemployment to balloon would also cost European governments huge sums, because of the generous benefits offered to fired workers. In Germany, for instance, someone who is let go after 12 months can still receive 60 percent of their salary for the next nine; in France, unemployment benefits last up to two years.

“Laying people off actually costs more,” said Mr. Arkwright.

And people who can keep their jobs “are less unhappy and shocked than people who have been fired,” said Holger Schmieding, chief economist at Berenberg Bank in London. “They are less likely to dramatically cut their consumption. That limits the overall economic damage,” he said.

In that sense, Mr. Schmieding added, governments paying companies to keep people furloughed “achieve a bigger impact for less money than supporting people who have lost their jobs.” The United States, which will now extend jobless benefits and make one-time cash payments to support workers, is effectively “paying the price for its inadequate welfare net,” he said.

Mr. Paul of Group Butard said the French government’s protectionist playbook could sometimes be stifling for business. 

But in the coronavirus crisis, safeguarding the economy and helping companies avoid throwing workers into unemployment would leave French society better off than others once the epidemic is contained, he said.

“The French system can be cumbersome,” he said. “But it is incredibly effective in times like these.”

Constant Méheut contributed reporting from Paris and Jack Ewing from Frankfurt