Billions of euros are being deployed to nationalize payrolls, suppress bankruptcies and avoid mass unemployment as Europe battles the pandemic. Trillions more are being earmarked for stimulus to stoke a desperately needed recovery.
The European Union has upended its policies to finance the largess, breaking with decades of strict limits on deficits, and overcoming visceral German resistance to high debt.
Austerity mantras led by Germany dominated Europe during the 2010 debt crisis, when profligate spending in Greece, Italy and other southern eurozone countries pushed the currency bloc toward a breakup.
The pandemic, which has killed over 450,000 people in Europe, is seen as a different animal altogether — a threat ravaging all the world’s economies simultaneously.
In the United States, President Biden is pursuing an aggressive strategy to combat the pandemic’s toll with a $1.9 trillion economic aid plan. While the national debt is now almost as large as the economy, supporters say the benefits of spending big now outweigh the costs of higher debt.
In Europe, pandemic spending has so far largely focused on floating people and businesses through the crisis.
For Philippe Boreal, a janitor at a luxury hotel in Cannes, the support has been vital.
“Without the aid, things would be much worse,” said Mr. Boreal, who is collecting more than 80 percent of his paycheck, allowing him to pay essential bills and buy food for his wife and teenage daughter.
But, he said, “at some point you ask yourself, ‘How are we going to pay for all this?’”
For now, such spending is affordable. And government debt may never have to be fully paid back if central banks keep buying it.
But some economists worry that inflation and interest rates could rise if stimulus investment revives growth too rapidly, forcing central banks to put a brake on easy-money policies. And weaker countries could struggle with the higher borrowing costs that resulted.
To people in charge of steering their economies through the pandemic, those potential troubles seem far away.
“We need to reimburse the debt, of course, and to work out a strategy for paying down the debt,” the French economy minister, Bruno Le Maire, said in an interview with a small group of journalists. “But we won’t do anything before growth returns — that would be crazy.”
For the strategy to work, Europe must act quickly to ensure a robust recovery, economists warn. While leaders approved a €750 billion ($857 billion) stimulus deal last year, countries haven’t been unleashing stimulus spending, to kick-start a revival and create jobs, nearly as rapidly as the United States has.
“Most of what’s been done in Europe is survival support,” said Holger Schmieding, chief economist at Berenberg Bank in London.