Euro Area fiscal policies and capacity in post-pandemic times

In-Depth Analysis 17-06-2021

The euro area response to the Covid crisis avoided a financial crisis. In the short term, the withdrawal of fiscal stimulus should be guided by unemployment, output gap and inflation data. Over the medium term, reducing public debt ratios will require maintaining the growth of primary spending below the (higher) GDP growth rate to be achieved through structural reforms. Over the longer term, creating a central fiscal capacity, strengthening the enforcement of fiscal rules in good times and completing the banking and capital market unions remain priorities.