The Covid-19 pandemic calls for a contracyclical policy support of great magnitude. It would be a waste of not infinite means not using it in a way to simultaneously reallocate resources in a sense that was already clearly identified prior to the crisis, starting with environmental sustainability. In addition, both policy and theoretical lessons from the crisis have to be drawn. The paper addresses ten issues: (1) the sense of economic forecasts at times of an unanticipated major crisis; (2) the art of cost-benefit analysis applied to public health trade-offs; (3) rules of the market economy game lacking consistency to the advantage of shareholders; (4) the compatibility between urgency and structural reforms; (5) the conflict between cost compression and business resilience; (6) the additional challenges facing the assumed virtues of international trade; (7) the likelihood of an eventual inflation revival; (8) the limits of both monetary and budgetary policies being reconsidered, as their interaction; (9) the environmental transition when the more difficult “end of the month” does interplay with the need to prevent the “end of the world”; and (10) crises as tailwind or headwind for European integration.
We show that in the current macroeconomic environment, in which nominal interest rates are expected to remain below the sum of real GDP growth and inflation for some time, the rise in government debt due to the Covid-19 recession and fiscal policy responses is feasible without ever having to raise taxes. Specifically, a rise in public debt due to a temporal increase in the deficit automatically vanishes over time. Even when Covid-19 leads to a permanent rise in the government deficit, a permanent (moderate) decline in real GDP growth and persistent (moderate) deflation, the debt-to-GDP ratio will stabilize in the long run without a later increase in taxes, even though the level of stabilization will be at a higher level. Our purpose is not to argue for more public debt and an unlimited stimulus, since interest rates may not be lower forever, but to have a richer discussion of the fiscal policy response to the crisis than is currently the case.
This article highlights what the European Semester, the annual coordination cycle of economic, employment and social policies of Member States, stands for, with an emphasis on how it has evolved over time (part I). The diagnosis by the European Commission services of the economic dimension of this unprecedented crisis is also summarised (part II). We will then set out the contours of the economic response the Commission has proposed, i.e. an EU Recovery Plan, as amended and validated by all 27 EU Leaders on 21 July 2020 (part III). We focus on the backbone of this plan – the Recovery and Resilience Facility - which is to radically increase the European Semester’s relevance in driving the socio-economic repair and recovery of the European economy (part IV). We also describe the reform and investment opportunities for Belgium, as identified in the context of the European Semester, that could be part of a Belgian recovery and resilience plan that can help Belgium recover and emerge stronger from this crisis (part V). In a last section, we set out the next steps for the implementation of the EU Recovery Plan as well as our conclusions (part VI).
Dit boek heeft tot doel enige ideeën aan te brengen over de mogelijke aanpassing van de financiële instellingen – in België dus vooral de banken – aan de mogelijke en/of gewenste evolutie van de economie en de maatschappij in het algemeen.
While the ECB is not allowed to monetise debt formally in the wake of the Covid-19 crisis, there seems to be some scope to do so, without fear of galloping inflation. It might even be needed to hit the inflation target.
The pandemic may prove to have the same effect on the financial sector as on the EU as a whole – it will accelerate integration. As the EU is proposing to double its budget, so may the crisis help to create a truly European financial market. The EU’s reaction will create spill-overs in other fields and allow the EU to take centre stage in financial markets, ensuring that many well-known obstacles will finally be tackled. But the crisis has also revealed that further competition is coming to one very crucial function of banks: payments.
This article first reviews the situation of public finances in the euro area member States, specifying the impact that the coronavirus crisis may have on them and reviewing the divergences between the public finances of the various countries. On this basis, the article looks at the solutions that will have to be found to the problem of public finances and the inevitable tensions that will arise in the management of the problem. Finally, the article argues that the European Central Bank (ECB) will be the epicenter of these tensions, caught between its mandate, the need to support the sustainability of the euro and diverging views on what it can or cannot do. As an epilogue, the article discusses some extreme solutions to the issue of public debt.
Economic convergence has been one of the explicit goals of the EU from its very beginning. The prospect of higher living standards has undeniably been a major attraction of EU membership. Conversely, economic divergence may undermine support for the European project and complicate the common monetary policy in the euro area. In this policy note, we first summarise the key findings of an analysis of national and regional convergence across the EU. In particular, we show that initially poorer European countries and regions have, in general and over the longer term, made progress in catching-up with the income levels of their richer peers, even though convergence has not been a smooth process. The relative performance of countries and regions in the EU is also illustrated. We then shed some light on the extent to which the Covid-19 crisis and the ensuing recovery might impact the functioning of the EU “convergence machine”, before drawing some implications in terms of economic policy.
This research note describes the construction of news-based Economic Policy Uncertainty (EPU) indices for Flanders, Wallonia and Belgium. The indices are computed from January 2001 until May 2020. Important domestic and more global events coincide with spikes in the indices. The COVID-19 pandemic represents the highest point, reflecting very strong consecutive Belgian newspaper attention to economic policy uncertainty. The monthly values of the EPU indices for Flanders, Wallonia and Belgium are published on www.policyuncertainty.com.