Europe: Fiscal policy in action
|The Covid-19 shock has triggered a significant fiscal policy response by European Union member states. Even though it is likely to be short-lived, the 2020 recession will be historic. The fiscal response has therefore been essential in avoiding much more serious and longer-lasting economic consequences. Member states have not all been affected in the same way by the current crisis, and the scale of their fiscal responses varies. The European response has been one of the few positive aspects of the crisis. However, the challenges are not yet over. Levels of risk and uncertainty on both the public health and economic fronts will remain particularly high over the next few months. An agreement on a European recovery programme is therefore needed and there is little likelihood of any letting up in national efforts.
The Covid-19 crisis is an unprecedented shock for the global economy and the eurozone economy. The latter avoided recession in 2019 and there were some signs of a stabilisation of economic activity towards the end of the year. The Covid-19 pandemic has put an end to the expansionary phase in the eurozone, which is likely to suffer the deepest recession in its brief history during 2020.
Since mid-March 2020, the European Central Bank (ECB) has adopted a particularly proactive and flexible monetary policy in order to avoid a tightening of lending conditions and mitigate the risk of financial fragmentation within the eurozone. This very substantial monetary response has provided the breathing room needed for calm consideration of the fiscal stimulus package needed. After a bit of turbulence, sovereign spreads between member states (that is to say the interest rate differentials on the government debt issued by individual countries) seem to have come back under control despite the sharp expected rise in government debt this year
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.