Opinion

A European approach to fund the coronavirus cost is in the interest of all

We had not seen a common challenge as clear as this pandemic. The sum of national actions and programs is likely to be insufficient.

By: , , , , , , , and Date: April 6, 2020 Topic: European Macroeconomics & Governance

This opinion piece was originally published in El País and Corriere della Sera.

El País logo

Corriere della Sera logo

 

To reduce the economic fallout from the coronavirus crisis, massive fiscal support will be needed. Without sufficient support, GDP will fall much further and the recovery will be slower, as many more companies and productive structures will have been destroyed. Lower than necessary GDP resulting from a lack of fiscal support would lead to long-term unemployment and even to higher debt ratios.

There has hardly been a clearer common challenge than the coronavirus pandemic. The sum of actions taken by individual countries is likely to be insufficient. Solidarity and a joint European response are needed.

The health of every country depends directly on public health in surrounding countries. No country can remain virus-free for long when its neighbours have infected people. And cross-border contact is vital for our highly-integrated economies. The greatest share of trade for European Union countries is with other EU countries, via the internal market. The economic vitality of our partner countries therefore matters hugely for all of us.

Most fiscal measures so far, however, have been national, and the extent to which northern EU countries are able to spend more money than their southern neighbours is striking. Germany announced an aid package in excess of 4% of its GDP and hundreds of billions of guarantees. France is taking major measures and the Dutch economy has quite rightly been propped up with a package that could reach €65 billion. But Italy produced a rather small package — much less than required to fend off lasting damage. Also the Spanish response is smaller than the size of the health crisis would suggest it should be. Market pressure and fear of a new euro-area crisis might be behind more muted fiscal responses.

Pan-European backing for a strong and joint crisis response is crucial now. The fight against COVID-19 must not force the euro area into crisis. Doubts about the creditworthiness of individual countries can, in financial markets, lead to self-fulfilling prophecies. Investors demand higher returns because of the perceived risks, raising interest on government debt. This increases financing problems for countries, leading in turn to even higher risk premiums, and the spiral starts again.

We need strong political commitment so that self-fulfilling prophecies don’t materialise. The European Central Bank is doing the right thing and should receive full and explicit political support. But politicians cannot leave the job of handling this crisis only to the ECB. Democratic legitimacy and direction are needed for the European Union. Government leaders and parliaments must now agree on a strong programme for all of Europe. In particular, they must provide support to the most vulnerable and boost investment across Europe, to ensure recovery from this crisis.

The first steps have already been taken. The European Commission has found tens of billions of euros within its current budget, and budgetary requirements have been relaxed. The ECB has announced it will stimulate the economy by, among other measures, buying up more than €1 trillion of debt. Recent ECB decisions have been particularly weighty and appropriate, notably the creation of the Pandemic Emergency Purchase Programme.

A solution is feasible for this specific, unique crisis. No permanent debt guarantee mechanism is needed, nor is the mutualisation of existing debt. But joint financing to tackle COVID-19 and manage the recovery phase is necessary. The precise vehicle is a secondary question, even though it is a politically charged one. Whatever the approach, the ECB should provide backing. But it is up to government leaders to take charge and provide the necessary legitimacy for a crisis response that will shape our common future.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article Download PDF
 

External Publication

Building the Road to Greener Pastures

How the G20 can support the recovery with sustainable local infrastructure investment.

By: Mia Hoffmann, Ben McWilliams and Niclas Poitiers Topic: Global Economics & Governance, Testimonies Date: July 15, 2021
Read about event
 

Past Event

Past Event

Financing for Pandemic Preparedness and Response

How can we better prepare for future pandemics? In this event, co-hosted by the Center for Global Development and Bruegel think tanks, speakers will present "A Global Deal for Our Pandemic Age", a report of the G20 High Level Independent Panel on Financing the Global Commons for Pandemic Preparedness and Response.

Speakers: Masood Ahmed, Victor J. Dzau, Amanda Glassman and Lawrence H. Summers Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

What should public spending look like?

What should we do about the increase in public spending due to COVID-19? Bruegel Director Guntram Wolff and Former Deputy Secretary-General of OECD Ludger Schuknecht discuss.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 14, 2021
Read article More on this topic
 

Blog Post

Fair vaccine access is a goal Europe cannot afford to miss – July update

European countries must do more to tackle the vaccine uptake gap. Vaccination data should be published at the maximum granularity level so researchers and local decision-makers can monitor progress.

By: Lionel Guetta-Jeanrenaud and Mario Mariniello Topic: European Macroeconomics & Governance Date: July 14, 2021
Read article More on this topic
 

External Publication

A Global Deal for Our Pandemic Age

Report of the G20 High Level Independent Panel on Financing the Global Commons for Pandemic Preparedness and Response.

By: Tharman Shanmugaratnam, Lawrence H. Summers, Ngozi Okonjo-Iweala, Ana Botin, Mohamed El-Erian, Jacob Frenkel, Rebeca Grynspan, Naoko Ishii, Michael Kremer, Kiran Mazumdar-Shaw, Luis Alberto Moreno, Lucrezia Reichlin, John-Arne Røttingen, Vera Songwe, Mark Suzman, Tidjane Thiam, Jean-Claude Trichet, Ngaire Woods, ZHU Min, Masood Ahmed, Guntram B. Wolff, Victor J. Dzau and Jeremy Farrar Topic: Global Economics & Governance Date: July 9, 2021
Read article More on this topic
 

Blog Post

How have the European Central Bank’s negative rates been passed on?

Negative rate cuts are not that different from ‘standard’ rate cuts. Like them, they reduce banks’ margins, but this effect does not appear to be amplified below 0%.

By: Grégory Claeys and Lionel Guetta-Jeanrenaud Topic: European Macroeconomics & Governance Date: July 7, 2021
Read article More on this topic More by this author
 

Opinion

What to expect from the ECB’s monetary policy strategy review?

Emphasis will be placed on greening monetary policy and clarifying the ECB's price stability objective, but is this enough?

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: June 23, 2021
Read article More on this topic
 

Blog Post

The socio-economic consequences of COVID-19 in the Middle East and North Africa

Confronted with COVID-19, high-income Gulf countries have done better than most of their middle- and low-income neighbours; Jordan and Morocco are also positive exceptions.

By: Marek Dabrowski and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: June 14, 2021
Read article More on this topic More by this author
 

Blog Post

Inflation!? Germany, the euro area and the European Central Bank

There is concern in Germany about rising prices, but expectations and wage data show no sign of excess pressures; German inflation should exceed 2% to support euro-area rebalancing but is unlikely to do so on sustained basis.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 9, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Blending the physical and virtual: a hybrid model for the future of work

The pandemic has shown that many workers can efficiently work remotely, with benefits for wellbeing and even productivity. The European Union should develop a framework to facilitate hybrid work.

By: Monika Grzegorczyk, Mario Mariniello, Laura Nurski and Tom Schraepen Topic: Innovation & Competition Policy Date: June 9, 2021
Read article More on this topic More by this author
 

Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: June 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Women, Covid-19 & The EU Recovery Plan

How can we ensure that the recovery plan doesn’t leave women behind when 84% of working women in the EU aged 15-64 are employed by services that were predominantly impacted by Covid-19 restrictions?

Speakers: Mary Collins, Maria Demertzis, Alexandra Geese, Jacob Funk Kirkegaard, Dan Mobley, Naomi O'Leary and Emma Rainey Topic: European Macroeconomics & Governance Date: June 2, 2021
Load more posts