European fiscal responses to the Covid-19 crisis: share the bonds or split the bill?

Jérôme Creel, Paul Hubert, Xavier Ragot and Francesco Saraceno

The lock-down of most EU countries, in response to the Covid-19 pandemic, has produced disruptions in the production process and has put consumption and investment to a halt. Against the backdrop of these supply and demand shocks, EU member states have implemented different public policies: they have deferred or waived tax payments and social security contributions; they have raised spending towards the health sector; and they have provided more generous welfare payments to short-term working schemes. Quite strikingly, EU fiscal cooperation has stalled and no common European initiative has emerged, with the exception of a temporary lift of the fiscal constraints of the Stability and Growth Pact (SGP) (the escape clause has been activated) and a softening of State Aid regulations. Yet, various policy proposals coping with the economic and budget consequences of the pandemic at the European level have flourished: Coronabonds, recourse to the European Stability Mechanism (ESM), the SURE initiative by the European Commission, and monetisation of public debt are all widely debated. This post lists the proposals and highlights their respective potential benefits and shortcomings.

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Some reflections on the ECB’s Comprehensive Assessment

Mauro Napoletano[1] and Stefano Battiston[2]

(Ce texte n’est pas publié en français)

The European Central Bank (ECB) officially released the results of its Comprehensive Assessments of euro area banks on October 26th, thus making a very important step towards the creation of the European Banking Union. The ECB exercise unveiled the global robustness of the euro area banking sector despite the bumpy week financial markets had after its release. On the one hand, most banks hit by important financial shocks and affected by privately and publicly funded re-capitalization efforts (as in Spain) passed the stress test hurdle. On the other hand, fragilities were identified only in few countries (notably Italy, Greece and Portugal) and were basically the result of balance-sheet problems in some big institutes therein (e.g. Monte dei Paschi di Siena in Italy). One may nonetheless wonder whether the above picture of global stability, emerging from the results of the ECB assessment, is well-founded, and whether the methods used by the ECB, and the consequent re-capitalization efforts required, will be sufficient to insulate the Euro Area financial systems from financial meltdowns like the one of 2008/2009. Lire la suite de « Some reflections on the ECB’s Comprehensive Assessment »

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