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Economic Bulletin Issue 4, 2021
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The implications of the 2021 stability programmes for fiscal policies in the euro area
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Prepared by Stephan Haroutunian, Sebastian Hauptmeier and Steffen Osterloh
On 18 November 2020 the European Commission released its opinions on the draft budgetary plans of euro area governments for 2021. In contrast to previous years and in the context of the coronavirus (COVID-19) pandemic, this year’s European Commission assessment was of a qualitative nature and did not focus on numerical compliance with the fiscal rules. This was due to the activation of the general escape clause
[1] which allows Member States to deviate from the adjustment requirements of the Stability and Growth Pact in certain specific, defined situations, such as a severe economic downturn for the euro area or the Union as a whole. Instead the Commission’s assessment was based on the fiscal country-specific recommendations adopted by the Council on 20 July 2020 as well as its guidance issued in September in the form of letters sent to all Member States indicating that the general escape clause would re
Economic Bulletin
Overview
At its monetary policy meeting on 10 December 2020, the Governing Council decided to recalibrate its monetary policy instruments. While the rebound in economic activity in the third quarter was stronger than expected and the prospects for the roll-out of vaccines are encouraging, the coronavirus (COVID-19) pandemic continues to pose serious risks to public health and to the euro area and global economies. The resurgence in COVID-19 cases and the associated containment measures are significantly restricting euro area economic activity, which is expected to have contracted in the fourth quarter of 2020. While activity in the manufacturing sector continues to hold up well, services activity is being severely curbed by the increase in infection rates and the new restrictions on social interaction and mobility. Inflation remains very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data and the Decemb