What economic support have governments given to businesses and individuals to tackle the impact of the coronavirus? This paper looks at the policies put in place by the EU, governments in Europe, the US and other developed countries.
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The Covid-19 outbreak has caused a world-wide economic shock, on a scale not seen since the 2008 global financial crisis.
Governments have undertaken unprecedented actions to shut-down large parts of their economies, while also providing massive amounts of financial aid to businesses and individuals.
This paper provides information about the policies the EU, European and some other governments have put in place to support their economies. The primary focus is on major European economies, the United States of America, and other OECD countries.
Information on how the UK Government is supporting businesses affected by the pandemic can be found in the Library Briefing Paper: Support for businesses during the Coronavirus (covid-19) outbreak.(CBP 8847).
Other Library resources on the response to the pandemic include:
- Briefing on the Coronavirus Bill
- Coronavirus: Employment rights and sick pay
- Budget 2020: Measures to limit the economic impact of coronavirus
- Coronavirus: Effect on the economy and public finances
- Coronavirus: Cases, responses and support in sub-Saharan Africa.
European countries have used a variety of measures to support businesses and their economies. Common approaches have included:
- Increasing credit/loans to companies, often with the government guaranteeing some proportion of the lending by banks;
- Reducing business taxes, and/or putting back the deadlines for paying taxes or creating tax ‘holidays’;
- Paying a percentage of workers’ wages for companies who have been forced to shut down, with companies keeping them on their payroll, rather than ending their employment.
There have been fewer schemes to support the self-employed. This might be in part because governments have less information about these workers than those who are employed by companies, and that their earnings are more variable. Schemes to support these workers are, therefore, likely to be more complex and take more time to devise.
Italy has provided an allowance of €600 for self-employed and seasonal workers for the month of March (this might be extended further).
The European Union (EU)
The EU’s response to the Coronavirus has focused on co-ordinating Member States activities, for example ensuring the availability of health supplies and equipment, as well as providing funding and financial measures to help address the crisis and relaxing state aid and fiscal rules to facilitate greater Member State intervention. Among the specific measures adopted are:
- Activation by EU Finance Ministers of the “general escape clause” of the Stability and Growth Pact (SGP) on 23 March 2020. This allows Member States to undertake measures to deal with the crisis, while departing from the usual budgetary requirements under the European fiscal framework;
- Relaxation of EU state aid rules through adoption of a temporary framework allowing, for example, for direct grants or tax advantages to companies of up to €800,000 and state guarantees of loans. Existing state aid rules already allow for measures to remedy a serious disturbance to the economy and the Commission has approved several schemes in the Member States (and in the UK) to address the crisis;
- Launching the Coronavirus Response Investment Initiative which makes €37 billion available to Member States under the European Structural Investment Fund (ESIF). This is supplemented by other funds;
- Agreeing an additional €1 billion through the European Fund for Strategic Investments (EFSI) to provide guarantees for financing for SMEs, mobilising €8 billion in working capital financing.
- The European Central Bank has launched a €750 billion Pandemic Emergency Purchase Programme (PEPP) of bond purchases from Eurozone governments and corporations.
- The European Commission has launched joint procurement procedures for medical and protective equipment.
President Trump’s administration has used executive actions to implement measures to support businesses and the economy including:
- providing more loans to small businesses through the Small Business Administration (SBA);
- deferring tax payments for individuals and businesses impacted by the virus;
- declaring a national emergency, unlocking funding for state and local governments; and
- waiving interest on federally held student loans.
Congress passed two major pieces of legislation that support the economy by:
- increasing funding for the SBA and loans for affected small businesses;
- expanding food assistance and unemployment benefits;
- establishing a federal emergency paid leave benefits program to provide payments to employees taking unpaid leave due to the coronavirus outbreak;
- expanding unemployment benefits and providing grants to states for processing and paying claims; and
- requiring employers to provide paid sick leave to employees.
In addition, Congress has just passed a $2 trillion economic stimulus package that provides:
- $250 billion for direct payments to individuals and families;
- $350 billion in small business loans;
- $250 billion in unemployment insurance benefits; and
- $500 billion in loans for distressed companies.
Other OECD countries
All OECD countries are taking dramatic action to confront the crisis. Examples include:
Australia is helping companies with their cash flow in an effort to help keep employees on the payroll. Trainees’ and apprentices’ wages are also being subsidised by 50 percent, and there are various measures to reduce the tax burden on companies.
Canada is backing lines of credit for affected companies, up to C$10 billion. It is reducing the stability buffer that banks are required to hold, allowing them to loan more money. Ottawa is making it easier for people affected by coronavirus to claim sickness benefits.
Japan is making about 1.5 trillion yen of financing available for small and medium sized enterprises and the Bank of Japan is making interest-free credit available against corporate debts.
New Zealand has a support package worth a total of some NZ$16.1 billion.