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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