As tourist drought idles workers, Spain weaves a makeshift safety net

Why We Wrote This

Spain’s economy depends in part on the well-being of its tourism industry, so the government has created a raft of options to help keep its workers afloat. And they are taking advantage of all of them. Part 3 of “One pandemic, many safety nets: A global series.

Courtesy of Daniel González
The owners of the Hotel La Corte de Lugás in Villaviciosa, Spain, shown here, are mulling the benefits of reopening after Spain's coronavirus lockdown with a bare-bones staff, complex and costly hygiene requirements, and only a modest trickle of bookings.

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From the beginning of the coronavirus pandemic, Spain’s economic response placed special emphasis on tourism, small and medium-size enterprises, and autonomous (self-employed) workers. Every thread in its patchwork of aid, stretched across six pieces of legislation, represents a lifeline for struggling businesses.

Tourism has been a key economic sector for Spain since the beginning of modern industry in the 1950s. In 2019, it attracted more than 83 million international visitors, making it the most popular tourism destination in the world after France. It accounts for about 2.5% of gross domestic product and generates nearly 15% of jobs.

Early on, the government put in place an extraordinary provision for self-employed workers whose businesses were forced to shut down or lost most of their revenue due to the state of emergency declared on March 13. That includes waivers of social security payments, a furlough scheme under which the government covers 70% of base salary, and government-backed loans.

“Every little thing can help save the small enterprises,” says Professor Enrique Navarro-Jurado of the University of Málaga. “The key is to reduce their costs as much as possible until activity resumes.”

Daniel González and his sister opened their hotel in 2003 in Asturias, northwest Spain, after taking out a loan to remodel an old townhouse. Seven years later, during the financial crisis, they sliced costs, doubled their working hours, and renegotiated their loan terms to stay open.

Now, emerging from Spain’s coronavirus lockdown, they are mulling the benefits of reopening with a bare-bones staff, complex and costly hygiene requirements, and only a modest trickle of bookings. But were it not for the support provided by the government’s response, things might be even grimmer.

“COVID forced us to shut down, but there is government help,” says Mr. González. “We can hold out for the moment. I imagine the problem will come later when we need to start spending more but have no customers, or fewer customers than usual.”

From the beginning of the crisis, Spain’s economic response placed special emphasis on tourism, small and medium-size enterprises, and autonomous (self-employed) workers like Mr. González. Every thread in this patchwork of aid, stretched across six pieces of legislation, represents a lifeline for struggling businesses.

Editor’s note: As a public service, all our coronavirus coverage is free. No paywall.

Mr. González has deferred tax payments, sought reimbursement of the social security contributions he makes as an autonomous worker, and signed up for a low-interest loan in order to keep the hotel afloat. He has even placed one of his hotel workers in a temporary furlough scheme.

“It’s a bit early to assess the government response,” says Mr. González, who is among Spain’s 3.2 million registered self-employed workers. “Many measures have been taken on the fly and the management has been quite chaotic.”

“Every little thing can help”

Tourism has been a key economic sector for Spain since the beginning of modern industry in the 1950s. In 2019, it attracted more than 83 million international visitors, making it the most popular tourism destination in the world after France. Tourism accounts for about 2.5% of gross domestic product and generates nearly 15% of jobs. In many regions, particularly the islands and coastal areas, tourism accounts for an even larger share of economic activity and employment opportunities.

That’s why Spain has focused a significant portion of its safety net efforts during the lockdown toward tourism workers; Prime Minister Pedro Sánchez recently announced a €4.25 billion ($4.75 billion) package to boost the industry.

Courtesy of Daniel González
Daniel González sits in his office at the Hotel La Corte de Lugás in Villaviciosa, Spain, on June 29, 2020. He and his sister survived the 2008 financial crisis and hope to overcome the economic fallout of the coronavirus pandemic with government help.

Early on, the government put in place an extraordinary provision for self-employed workers whose businesses were forced to shut down or lost most of their revenue due to the state of emergency declared on March 13. In principle, Mr. González’s social security contributions of €360 ($400) per month were waived for part of March and all of April, but he still had to pay both months; he only recently had that reimbursement completed. (He was off the hook for May and June payments.)

Meanwhile, the employee on furlough – under a temporary layoff known as ERTE, in which the government covers 70% of the base salary – as of the end of June has received only €1,200, a bit more than half of what he should be due between March 23 and June 15 under the scheme. He got through the lockdown thanks to the salary of his wife. Mr. González wants to bring him back on board in July, but doubts he will have the means to rehire the other two seasonal workers who usually help cover the peak summer months.

“The biggest saving for me is not having to pay an additional salary,” says the hotel owner. “But what gives me peace of mind is the loan. We don’t know yet to what extent this crisis will affect the economy.”

The bank has approved a government-backed loan of up to €50,000 to be paid over five years at 1.6% interest. By the end of 2020, depending on the strength of summer revenues, Mr. González must decide whether to ask for the full amount or part of it. He is leaning toward asking for the lion’s share so he can settle the initial, higher interest loan he took for the hotel.

Jacob Turcotte/Staff

“Every little thing can help save the small enterprises,” notes Professor Enrique Navarro-Jurado, director of the University Institute of Tourism Intelligence and Innovation Research of the University of Málaga. “The key is to reduce their costs as much as possible until activity resumes. And you can’t expect them to hire the entire staff back when activity does resume, because they will not be operating at the same scale.”

The Spanish government forecasts a 10% drop in GDP in 2020 followed by a staggered “square-root shaped” recovery in 2021. Unemployment is expected to skyrocket to 19% this year. Many are hoping that the vital minimum wage announced in May with a goal of reaching 2.3 million people (out of a population of nearly 47 million) will help the most vulnerable. Tourism experts say it is too early to tell how many people from the sector will need that kind of aid.

“Many tourism employees do not have legal contracts. They are working in the dark,” notes Tomas Mazón, an expert in the sociology of tourism at the University of Alicante.

“Tourism companies are not only facing a lower season than in other years but they are coming out of months of losses,” says Luis Miguel Rondón, a member of the board of directors of AECIT, the Spanish Association of Scientific Experts in Tourism. “They already lost Easter, long weekends, and the northern Europeans who come to Spain in the spring.”

The summer tourism season is now officially open for Europeans. The first to arrive were Germans in Mallorca, under a pilot program implementing a special screening process on landing. The target is to open up to the rest of the world – except countries experiencing a high rate of COVID-19 infections – in early July.

Hotel owners large and small are in for challenging times. As many as 45% of hotels and restaurants catering to tourists risk going belly up, according to industry assessments. Spain has considered extending the temporary furlough scheme until September or even the end of the year.

“The impact of the coronavirus pandemic has been brutal,” says Mr. Mazón. The 2008 financial crisis was child’s play compared to this. More people were left unemployed then but this time the whole country has stopped. Everything – hotels, restraints, bars – and everyone stopped.”

Editor’s note: As a public service, all our coronavirus coverage is free. No paywall.

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