Peter Harasztosi, Laurent Maurin, Rozália Pál, Debora Revoltella, Wouter van der Wielen, 18 November 2021

Massive policy support sheltered many European firms from the unprecedented Covid shock. However, a debate has emerged regarding the potential side effects of continued support for long-term growth hampering the creative destruction process. This column uses data from the EIB Investment Survey to analyse the impact of policy support in detail. It shows that support went primarily to the most affected firms and does not find evidence of misallocation to zombie firms. In addition, policy support enhanced firms’ capacity to rebound from the crisis, enabling recapitalisation and promoting investment in digitalisation. 

Maarten Verwey, Oliver Dieckmann, Przemyslaw Wozniak, 16 November 2021

The Covid-19 pandemic is not over, but due to increasing vaccination rates and an improving health situation, since spring many restrictions in the EU have been gradually eased and this ‘reopening’ has fuelled economic growth more than expected. Supported by monetary and fiscal policy, the foundations are in place for sustaining growth. However, headwinds come from supply-demand imbalances and higher energy prices. In its Autumn 2021 Forecast, the European Commission expects GDP in the EU and the euro area to grow in 2021 by 5%, in 2022 by 4¼%, and in 2023 by 2½%. The inflation forecast for all three years has been revised up with rates above 2% in 2021 and 2022, but with declines from early 2022 onwards.

Claudio Borio, Piti Disyatat, 10 November 2021

Monetary and fiscal policies, as deeply entwined functions of the state, face a looming dual long-term challenge. This column argues that they need to regain policy headroom to be able to effectively fulfil their macro-stabilisation role. And once these safety margins are restored, the policies need to remain firmly within a ‘corridor of stability’, in which neither can endanger the other or push it to the limit. In addition, navigating the path ahead will require a mix of ‘opportunistic normalisations’ and structural reforms to raise long-term growth. 

Fabio Canova, Evi Pappa, 09 November 2021

In light of last year’s launch of the Next Generation EU funds, understanding the effectiveness of the EU’s use of structural funding has become even more important. This column examines the role of the European Regional Development Fund and the European Social Fund over time. While both have contributed to job creation and economic recovery, the former had a more short-term direct effect and the latter a more medium- to long-term indirect impact. There is significant regional heterogeneity in these impacts, driven by location, level of development, EU tenure, and euro area membership.

Alejandro Fernández-Cerezo, Beatriz González, Mario Izquierdo, Enrique Moral-Benito, 26 August 2021

The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock. The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

Damien Puy, Lukasz Rawdanowicz, 22 June 2021

The Covid-19 crisis has had a largely negative effect on firms, harming corporate profitability and leverage around the world. This column presents findings from the recent OECD Economic Outlook, highlighting how these negative effects have in fact varied across firms. In maintaining the buffer against corporate bankruptcies, the authors identify three clear policy challenges: debt overhang, financial instability, and the rise of ‘zombie’ firms.

Assaf Razin, 23 April 2021

Concerns associated with the Covid-19 pandemic have led to new rationales of protectionism, with renewed emphasis on domestic production and sourcing. This column compares the current economic crisis brought on by the pandemic to previous major economic crises and examines what this could mean for the future of various aspects of globalisation.

Alessio Terzi, 02 April 2021

Inspired by conspicuous historical parallels, some scholars and journalists have argued that GDP growth and productivity might boom in the aftermath of the Covid-19 pandemic. This column reviews the evidence for and against the ‘Roaring Twenties’ hypothesis, concluding that some countries might well experience a forceful economic expansion. But policymakers should avoid complacency and make the most of the Recovery and Resilience Facility funds, combining them with wide-reaching structural reforms to improve economic prospects for the decade to come.

Vincent Aussilloux, Adam Baïz, Matthieu Garrigue, Philippe Martin, Dimitris Mavridis, 19 February 2021

The Covid-19 crisis has presented policymakers across the euro area with an unprecedented challenge, not least of all because the shock has come to both the supply side and the demand side of the economy. This column presents a preliminary analysis of different nations’ responses so far, focusing on which measures have been deployed to address each side of the economic shock and where a ‘mixed approach’ has been taken to work in tandem. At a time where coordinated action may be needed, there is a concerning level of inconsistency in strategy. 

Maarten Verwey, Milan Vyskrabka, Philipp Pfeiffer, 15 February 2021

The breakthroughs in vaccine development in the autumn of 2020 and the start of mass vaccination campaigns in 2021 brightened the near-term outlook for the EU economy. However, hopes of a quick recovery have, to some extent, been overshadowed by the recent resurgence of the pandemic. In order to highlight the extent of prevailing uncertainty and the importance of vaccinations for EU’s economic trajectory, this column describes the optimistic and pessimistic model-based scenarios for the EU economy forecast by the European Commission. It finds that effective vaccines and their quick roll-out could add about three percentage points to annual growth of EU this year. 

Paul De Grauwe, Yuemei Ji, 24 September 2020

The coronavirus pandemic caused a catastrophic collapse in the world economy. This column analyses the path of this decline and compares it to two other major global crises: the Great Depression in the 1930s and the Great Recession following the banking crisis of 2007-2008. It argues that COVID-19 led to both negative demand and supply shocks, resulting in a contraction of industrial production at an unprecedented pace. However, a combination of strong government policies and a functioning banking sector have led to a swifter rebound in economic activity following the coronavirus shock in comparison with the previous two crises.

Maarten Verwey, Björn Döhring, 07 July 2020

Forecasters agree that the economic fallout from COVID-19 has caused the sharpest drop in economic activity in Europe and globally since WWII. Just how deep the drop of activity was in the second quarter, which sectors were most strongly affected by containment measures, and how swift the rebound will be as they are gradually lifted is still very uncertain. This column describes how the European Commission’s Summer 2020 interim European Economic Forecast now estimates a deeper drop of output in the second quarter of the current year than was anticipated earlier. The recovery is also now expected to be less swift than was projected in Spring, with differences across Member States set to be more pronounced. Minimising hysteresis and avoiding persistent economic divergences within the EU and euro area requires the rapid agreement and deployment of common support measures at the EU level. The risk otherwise is of significant distortions to the internal market and of even deeper divergences between countries that could ultimately threaten the smooth functioning of the monetary union. 

Ethan Ilzetzki, 06 July 2020

The UK economy is suffering its worst recession in centuries, with national income declining and unemployment rising at unprecedented rates. This column reports on the latest Centre for Macroeconomics survey, which reveals that despite this worrisome news, the panel is optimistic that the UK economy will recover to its pre-pandemic trend within five years or less, no worse than past UK recessions. Panellists emphasised that these predictions depend on the government effectively containing the spread of the virus and not reverting to austerity policies following the pandemic. The panel was split on the biggest risks to the pace of recovery, with firms’ productive capacity, scarring effects of unemployment, and a slow demand recovery cited as prominent concerns. 

David Popp, Francesco Vona, Joëlle Noailly, 04 July 2020

Many governments worldwide are currently considering fiscal recovery packages to address the Covid-19 crisis. This column analyses the impact of past green fiscal stimulus on employment. Focusing on the American Recovery and Reinvestment Act after the Global Crisis, it finds that that the green stimulus was particularly effective in creating jobs in the long run, but not in the short run. Hence, while green stimulus packages are useful to reorient the economy and direct it onto a green trajectory in the longer run, they are less effective in restarting the economy quickly.

Lucia Alessi, Peter Benczur, Francesca Campolongo, Jessica Cariboni, Anna Rita Manca, Balint Menyhert, Andrea Pagano, 26 September 2018

Over recent decades, scholars and policymakers have been exploring how to make economies more resilient to potential shocks. This column investigates which EU members showed resilience during the Global Crisis and attempts to identify characteristics associated with resilience. The results reveal a lot of heterogeneity amongst countries, and those that are more resilient in the short run are not necessarily those with superior recoveries down the line. Further analyses show that social expenditures, political stability, and competitive wages are important for impact, medium-run, and ‘bounce forward’ resilience, respectively. 

Mário Centeno, Miguel Castro Coelho, 06 June 2018

Portugal has turned a corner. Having gone through a mild boom, a slump, and a severe recession, all packed into less than two decades, the Portuguese economy has re-emerged with a newfound strength. This column examines this recovery in detail, focusing on important structural reforms that have taken place in the last couple of decades in key areas such as skills, investment, export orientation, labour market, financial intermediation, and public finances. The effects of these reforms were compounded by time as well as efforts to reignite demand.

Colin Mayer, 24 January 2018

Following the 2008 financial crisis, investments recovered quicker in the US than in Europe. Colin Mayer discusses how taxation and regulation have exacerbated companies' long-term debt problem. This video was recorded at the RELTIF book launch held in London in January 2018.

Marco Buti, Björn Döhring, 09 November 2017

The Eurozone economy is growing at its fastest rate in a decade, but the recovery remains incomplete. This column presents the European Commission’s autumn forecast, and derives some policy considerations. Accommodative macroeconomic policies are still appropriate for now. The column also highlights the need for structural policies to increase the potential for growth and help to share the benefits more fairly.

Refet Gürkaynak, Philippe Weil, 24 August 2017

This column presents the first bi-annual report from CEPR’s Euro Area Business Cycle Dating Committee on the state of the Eurozone business cycle. The main findings are that the Eurozone expansion is continuing slowly, but is creating employment at a rapid pace; the recovery is commensurate with the US recovery once the Eurozone’s double-dip sovereign debt recession is factored in; and the heterogeneity in the pace of recovery of individual member countries is driven by the heterogeneity in their recessions.

Ramon Xifré, 29 August 2016

Spain implemented a host of structural reforms following the Global Crisis. But questions remain about whether the current economic condition is due to the reforms or to ‘automatic’ adjustment in public and private sectors. This column sheds light on these questions by examining changes in a set of economic indicators following the introduction of the reforms. Five stylised facts are presented that suggest limitations of the reforms. Much of the current climate appears to reflect inherent limitations of the Spanish economy.

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