EU policies

Lorenzo Bini Smaghi, 28 March 2020

Since the outbreak of COVID-19 in Europe, calls have been made by academics, politicians and observers to adopt Eurobonds to finance the actions needed to support economic activity. This column argues that the proposal poses two important political challenges. The first is to promote a broad transfer of economic and social competences from the national to the European level. The second is to reform the European Stability Mechanism and ensure that a sufficient number of countries apply so as to avoid stigma.

Anniek de Ruijter, Roel Beetsma, Brian Burgoon, Francesco Nicoli, Frank Vandenbroucke, 26 March 2020

An initiative to create centralised control of medical countermeasures at the EU level would solve many coordination issues in times of crisis. However, a unified European response faces a number of legal and political obstacles. This column uses a survey conducted before the COVID-19 outbreak to understand EU citizens’ attitudes towards a joint solidarity programme. It suggests considerable support already exists for an effective policy framework centralising the procurement, stockpiling, and allocation of medicines. 

Lorenzo Codogno, Paul van den Noord, 25 March 2020

The COVID-19 outbreak that is hitting the euro area economy needs to be met by a powerful policy response beyond the emergency measures already in place. This column uses an empirically calibrated model to show that the creation of a safe asset and fiscal capacity at the centre – on which the debate has been ongoing for a long while – would be a powerful means to mitigate the economic impact of the crisis.

Aitor Erce, Antonio Garcia Pascual, Toni Roldán Monés, 25 March 2020

The amount of financial resources needed to fight the COVID-19 is so large that most euro area member states will need a backstop from Europe. This column discusses how to use the European Stability Mechanism toolbox to finance the fight, using Spain as an example. It shows that an ESM loan with low margins and a smoothed repayment schedule would stabilise debt stocks and gross financing needs, and that ESM financing could help Spain save around €150 billion in interest payments between 2020 and 2030. A combination of bold ESM and ECB support could reinforce Spain’s debt sustainability after the COVID-19 shock, and could do the same for other member states. 

Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti Subrahmanyam, 25 March 2020

The COVID-19 pandemic has massive detrimental economic effects and demands immediate policy actions to prevent a financial or debt crisis. This column argues that while the fiscal policy responses in Europe have some merit in the short term, they put financial stability in the longer run at risk. It calls for a coordinated long-term fiscal plan at the pan-European level to complement national measures. 

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