There was big relief for spanish business last week when it secured government support to ride out the ravages of the covid-19 pandemic for at least a few more months.

At stake was one of the thorniest issues facing europe: how far to extend employment assistance in the form of temporary leave programmes.

The dilemma is a profound one: is it better to keep jobs and, in many instances, businesses, on emergency life support, or does it make more sense to call time on subsidy-gobbling zombie jobs and companies? it is a policy test that could decide how many companies emerge from the coronavirus crisis intact and the shape of the broader economy for years to come.

At one end of the european spectrum is germanys kurzarbeit furlough scheme under which workers are sent home and receive about two-thirds of their pay from the government. it has been extended from 12 to 24 months. the uk, by contrast, is replacing its own scheme with a more targeted wage subsidy programme at the end of this month.

Spain, the eu country worst hit by the pandemic in health and economic terms, has opted for something midway between the two, prolonging the countrys emergency leave schemes, known as ertes, from the end of september until january 31.

The spanish schemes at present cover about 700,000 people compared with 3.5m at their height. their latest iteration focuses on stricken sectors such as tourism, which has suffered from a 73 per cent collapse in the number of international visitors so far this year, and associated businesses. so the dry cleaner that normally services a now-empty hotel can now benefit from generous exemptions from social security payments.

The agreement is a good one because from now on it can cover all the companies with problems, said iigo fernndez de mesa, vice-president of the ceoe employers federation. but he recognises drawbacks to the deal itself and a broader set of preoccupations for business as spain wrestles to free itself from the economic consequences of europes worst coronavirus infection rate.

Companies remain far from thrilled with the restrictions that come with the spanish scheme among them a ban on dismissals for a further six months and prohibitions on overtime and paying out dividends. we would like a bit more stability, which would have reduced uncertainty for companies, said mr fernndez de mesa, casting an envious look at germanys 24-month timetable.

The problem is that the crisis is changing all the time in spain and not for the better.

As a coronavirus second outbreak ripples through the country, new restrictions this week have limited movements in and out of madrid, the countrys economic powerhouse. meanwhile, the spanish services sector remains deeply depressed, with the retail sector struggling more than in any other leading eu economy. on tuesday the government forecast the economy would contract 11.2 per cent this year.

The government holds out hope that the economy will be transformed in the longer term by 140bn in grants and loans from the eus coronavirus recovery fund.

Companies ranging from iberdrola and acciona, the energy groups, to telefnica, the telecoms company, are hoping to benefit from eu priorities such as clean energy investment and digital transformation. but the plans are already the subject of controversy, with opposition parties calling for the government to set up a non-partisan agency to distribute the funds to prevent clientelism and inefficiencies.

Mr fernndez de mesa cites a cluster of other concerns, such as business fears of tax increases and worries that overzealous health curbs will devastate the economy further.

Behind such issues are bigger questions. what is the role of the state at a time when governments are more closely involved in keeping businesses going than ever before in peacetime history? and where should the balance between health and the economy be struck?

In the summer, spain relaxed coronavirus controls in the hope of retrieving some of the lucrative tourist season but ended up losing on both counts, as infections increased and tourists stayed away.

As mr fernndez de mesa acknowledged, the reason spains temporary leave deal was more favourable for businesses than it could have been was that the overall outlook was so bad. the agreement is a good one because the situation has got worse and companies are closing, he said.