Spain signals furlough schemes will stretch to year-end

Spain is likely to extend its emergency employee furlough schemes until the end of the year and possibly into 2021 for sectors worst hit by the coronavirus crisis, the labour minister has signalled.

In an interview with the Financial Times, Yolanda Díaz acknowledged the difficulties facing the country’s tourism, aviation, maritime, leisure and culture sectors, all of which have forecast they are unlikely to resume business as normal this year. 

“The government is going to be there for the sectors that most need it — without any room for doubt,” she said. “It would not make sense to undertake this gigantic, unprecedented effort in the Spanish economy [to preserve jobs] and then just let things fall away.”

Ms Díaz, a member of the radical leftist Podemos bloc in Spain’s Socialist-Podemos coalition, and one of the first communists in the country’s government since the Spanish civil war, reiterated the point when asked if such aid could continue into next year.

She only recently negotiated a three month extension of the emergency schemes, which had been due to expire on June 30.

Spain’s government would make a final decision about the next steps in September, in conjunction with business and unions, after analysing economic data over the summer, Ms Díaz added.

Under the schemes, known as ERTEs, the state pays about 70 per cent of the salaries of furloughed staff. Some 2m workers are currently covered. The emergency ERTEs put in place when the pandemic struck are a more generous version of existing company-specific schemes.

Spain has been among the richer countries most badly affected by the pandemic in human and economic terms, with the Bank of Spain predicting the economy could shrink by as much as 15 per cent this year and the government acknowledging the crisis could leave one in five people out of work. 

Ms Díaz said that during May the ERTE programmes had cost the state €3.3bn in transfers and around €1.4bn in foregone social security payments.

Spain is more cash-strapped than countries such as Germany and France and has been criticised by unions and businesses for providing less generous crisis support programmes than its European peers. Under the most recent prolongation of the emergency ERTEs, agreed late last month, employers will be exempt from fewer social security payments than before.

Some critics say the European furlough schemes risk creating “zombie jobs” that keep people on the payroll even if they have no prospect of resuming work. 

But Ms Díaz said 1.5m people had left the schemes and returned to their jobs in recent weeks, bringing the total covered by ERTEs down from about 3.4m at its peak.

“The percentage [of people covered by ERTEs] is now almost half what it was,” she said. “That indicates that little by little the economy is resuming activity.”

The labour minister also hailed the scheme as a sign that Spain was joining the European mainstream, where such programmes are more established. She noted that after the last financial crisis a decade ago, only 60,000 people in Spain had been covered by temporary leave schemes — a fraction of this year’s figure.

Almost 1m people in Spain’s 19m workforce lost their jobs in the early weeks of the country’s lockdown in March and April, but the government has since imposed a temporary ban on companies dismissing staff because of the crisis. 

Any business applying to take part in the ERTEs must also agree not to dismiss the relevant employees for six months or to hire anyone in that time who could replace them.

This meant any spike in unemployment might not occur until the end of the year, Ms Díaz said.

The OECD has forecast that unemployment at the year end will be 21.8 per cent — or 25.5 per cent if there is another coronavirus wave — and will remain between 17 and 20 per cent as late as the final quarter of 2021.