How does Europe stimulate consumption as household expenditure dropped sharply due to COVID-19

It will take years for the European economy to recover from the coronavirus pandemic, and it will depend, among other things, on the return of the consumers to their pre-Covid pattern.

According to Eurostat, the household real consumption per capita declined by 3% in the first semester, a record since 1999. Italy, Slovenia, Spain, Belgium, France and Austria registered the worst consumption figures in the EU.

In Romania, too, the coronavirus pandemic had a negative impact on household goods spending, especially on “non-essential products’. Also, consumers have changed their habits from local shops to larger stores, letting the first one more affected by the situation.

So, how does Europe encourage people to consume? Actually, four levels of action can be noticed within the European Union: the regional, national, local and citizen level.

In the Coronavirus-hit tourism sector, the EU has set up an interactive online platform called Re-open EU providing travelers with the information they need to confidently plan holidays. By doing so, the EU expects a slight recovery in tourism.

On a national level, many EU countries have designed incentives via a financial support to certain categories of the population, consumption vouchers or travel refunds for tourists.

In Britain for instance, the national authorities have payed discounts for meals eaten in restaurants and pubs three days a week. In France, China and Belgium, the State has issued consumption vouchers to be used on sectors in crisis. In Germany and France, where the automobile industry is one of the biggest employers, the conversion premium rate has been increased, pushing people to buy new cars.

Other countries like Cyprus and Uzbekistan, which rely heavily on tourism, have tried to secure their visitors by pledging to give them money if they test positive during their stay.

In addition to national measures, local authorities design their own incentives. Facing a drop in its incomes generated by tourism, Sicily offered to pay for 50% of the flights and 30% of the hotel costs to tourists this year. In Bulgaria which has just registered a 80% decrease of the number of foreign tourists, some beaches give free entrance with sun loungers and sunbeds. Then, the city of Geneva, Switzerland, rather offers discounts up to 65% on hotels and tourist activities.

Yet, tourists are not the only ones to consume, therefore many cities have also set up incentives targeting local consumers, expecting the cost of these measures to be later covered by more consumption, and so more taxes.
In order to revitalize the local shops, the French cities of Narbonne and Mulhouse refund 10 to 30% of the shopping done in the city center.

In Narbonne, the mayor announced a total budget of 400,000 euros, stemming from the budget for cultural events which have been canceled this year. Similar initiatives can be found in Charleroi, Belgium, where “solidarity vouchers” have been designed by the local authorities of which 20% is paid by the town council.

In Vezoul, France, consumers can now enjoy a free carpark on Saturday to allure consumers to the city center where local shops are established. In Montpellier, transportation is free on week-ends, and in others towns, consumption vouchers are issued in the catering sector are issued.

But sometimes, the initiatives even come from the shops themselves. In the beer industry, some brewers have launched some kinds of beer routes allowing consumers to visit the factory and organizing small cultural events with the local shops around.

Lastly, citizens ‘initiatives also exist and have proved useful in helping the economic fabric to partially recover. While restaurants had to close during the lockdown, citizens with the collaboration of Tripadvisor launched in France the “Let’s help our restaurants” project in which people can pre-order a meal, injecting cash in the restaurants they want and enjoying the meal a few months later once the restaurant’s treasury goes better.

Another initiative is called “I love my pub” following a similar concept. Up to now, 8000 pubs have registered, 26.000 meals/drinks pre-orders and nearly 2 million euros collected.

In the Euro-zone, the economies are expected to decrease by 8,7% the European Commission said in July, even reaching more than a 10% contraction in the hardest hit countries. Among others, Spain (-18,5%), France (-13,8%) and the UK (-20,4%) register a severe economic downturn.

According to the National Statistics Institute (INS), Romania’s economy retracted by 10,5% in the second quarter of 2020 and is now expected to fall 4,7% for the whole year. In the first quarter, the INS found that the economic growth decelerated by nearly 50% compared with the same period of 2019.

Beyond the need to increase the household’s consumption, the EU economies also need to protect their companies running out of cash and stimulate investment. In this regard, the EU recovery plan set up measures in the banking, tourism and agriculture sectors and overall for all the SMEs providing them with loans. Romania announced the support to relocation, SMEs and investments among others.

Note: Antoine Dewaest is working as an intern for G4Media, enhancing the understanding of the Romanian society. He is studying at Sciences Po Rennes, France.

Sources:

News European Parliament, Covid-19: 10 things the EU is doing to ensure economic recovery, 24/07/2020

Le Parisien, Soutien aux commerçants : Keetiz, l’appli qui vous paie pour dépenser de l’argent, 06/08/2020

L’Est Républicain, Coronavirus : la Ville débourse 240.000 € pour aider le commerce local, 02/05/2020

New York Times, Britain’s New Record: A Recession Worse Than in Europe and North America, 12/08/2020

Atlantico, Europe, relance, dettes… L’Allemagne change de politique, plus pour renforcer son rôle de locomotive que pour plaire aux Européens, 06/08/2020

Les Echos, Comment les brasseurs tentent de relancer la consommation, 12/08/2020

CNN, From free flights to Covid-19 payouts: Can travel incentives lure visitors back?, 17/07/2020

Eurostat, Non-financial sector accounts for the firstquarter of 2020, 28/07/2020

Rfi, European economy hit worse by coronavirus crisis than thought, EU says, 07/07/2020