Economic Policies European Business Public Affairs

3 correct premises to base the policy and state support for companies

Coronavirus is much more than a pandemic it is also a major economic crisis. In response for this economic recession, governments all over Europe are implementing countermeasures. Here are 3 correct premises to base the support for companies from the business & legal consultants Bujorean & Co.:

1. We understand that the national economy as a whole is interconnected but SMEs are the most vulnerable. They must have priority.

2. The measures must be aimed at protecting jobs. State aid and support measures should be given only with this guarantee.

3. By concrete and firm measures, the Government must limit the release of individual labor contracts ‘motivated’ by force majeure. To counteract this, the state must make available credit lines without interest and with government guarantees so that there is no legal basis for termination of employment contracts. ”

The current crises although originated by exogenous factors it is still very similar to the 2008 economic crises in terms of policies to stimulate the economic growth. Back then, OECD recommended:

“Efforts to stimulate the economy need to both reflect the current drivers of economic growth and take advantage of the process of “creative destruction” to accelerate structural shifts towards a stronger and more sustainable economic future. Innovation policies need to be adapted to current conditions both in terms of how such policies are crafted to work, but also as elements of stimulus packages that may often be the foundation for these medium- and long-term initiatives.

Most economic stimulus packages aim to stimulate demand in the short term (injecting cash into the economy and protecting existing jobs). However, most governments also plan to foster medium- to long-term growth through investments which have repercussions on the supply side. Broadly speaking the nature of plans can be distinguished between:

i) measures aimed at saving banks and the financial system – excluded from the scope of this document, where possible,

ii) measures aimed at supporting businesses (tax cuts – including cuts in value-added tax rates, short term credit guarantees, reduction of non-wage labour costs, stimuli for retaining or hiring staff),

iii) measures aimed at particular industrial sectors (notably the automobile and the construction sectors),

iv) measures to support household consumption and reduce their exposure to the crisis (including tax cuts, cash payouts to households, unemployment benefits, support to low earners such as pensioners, cuts in healthcare costs, home owners’ grants), and finally,

v) “Measures relating to innovation and long-term growth”. In this particular case, the pandemic actually acts as a catalyst for digital transformation as governments and companies implemented in record time new platforms and integrated online processes aiming for business continuity.

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