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DAVOS 2021: Spain wants to make furlough 'permanent fixture'

Spain's Prime Minister Pedro Sanchez speaks as he arrives for an EU summit at the European Council building in Brussels, Thursday, Dec. 10, 2020. European Union leaders meet for a year-end summit that will address anything from climate, sanctions against Turkey to budget and virus recovery plans. Brexit will be discussed on the sidelines. (John Thys, Pool via AP)
Spain's Prime Minister Pedro Sanchez speaks as he arrives for an EU summit at the European Council building in Brussels, Thursday, Dec. 10, 2020. Photo: John Thys, Pool via AP

Spain will look to use furlough schemes and short-time work programmes as tools to manage the economy even after the COVID-19 crisis passes, the country’s prime minister has said.

Pedro Sanchez on Monday said wage subsidy schemes would be “a tool that we want to turn into a permanent fixture in our tool box.”

In line with many governments around the world, Spain launched a furlough scheme last April as the COVID-19 pandemic struck. Under the scheme, known as ERTE, furloughed workers have 70% of their wages paid by the state, dropping to 50% after six months. Sanchez last week extended the scheme until May.

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Sanchez, who has been prime minister of Spain since 2018, said 3.6 million workers were placed on ERTE at the height of the programme but numbers had reduced by 79% since then.

He said ERTE was part of a “social and economic shield” erected by the Spanish government, which also included a minimum living income policy, teleworking loans for companies, and state-backed support loans for businesses.

“COVID-19 has prompted a massive policy response,” he said during a digital panel for the Davos Agenda conference.

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Sanchez’s admission that ERTE and similar short-time work programmes could become a permanent fixture of policymaking is one of the first times global leaders have said that COVID-era programmes could outlast the crisis.

Furlough schemes are meant to limit economic “scarring” from COVID-19 by keeping employees in viable jobs attached to their employers during temporary shutdowns or downturns. The scheme allows employees to quickly go back to their old jobs once lockdowns or similar restrictions ease and avoid lengthy job searches, which drag on economic growth.

“These programmes have a positive impact on the labour market in the event of temporary shocks affecting firms that are viable in the medium term,” Javier Garcia Arenas, a senior economist at Spanish bank Caixa, wrote in a report on ERTE lat year.

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“However, when a shock is of a more permanent nature, the destruction of jobs is not so much avoided as delayed.”

Monetary policy tools first deployed during the 2008 financial crisis — notably quantitative easing —have lingered even after the initial effects of the crisis subsided, highlighting how seismic events can leave lasting impact of policymaking.

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