How to deal with Europe's mounting public debt?

Newsletter: How to deal with Europe's mounting public debt?

Monday, 22 february 2021

Funcas Europe

Good morning Future is blue readers,

This week we are covering Europe’s mounting public debt. There is widespread agreement that EU governments had to act quickly and massively in response to the crisis. The consequence, of course, is a major increase in public deficits and debt. In view of this, how long should governments continue to support the economy? I’ve had a video discussion with Daniel Gros, Member of the Board and Distinguished Fellow at the Centre for European Policy Studies (CEPS), hosted by EU analyst Carlos Carnicero Urabayen.

Further below you will also learn about the economic forecast for the Spanish economy (2021-2022). At Funcas, we presented our latest forecasts last Friday.

See at the end, as usual, what we are reading these days.

Too late better than too early

It is crucial to calibrate fiscal measures, targeting them o supporting jobs and enterprises in distresss. Public support will be needed  until the private-sector is able to grow through its own dynamics –something which depends on both the vaccination campaign and a reduction of uncertainty which weighs on household spending and people mobility.  In our video-talk we analyse how to do this at the right moment, when should EU policymakers reintroduce fiscal rules (and under what format), and we even had time to discuss a recent proposal by some economists calling for the ECB debt to be cancelled.

Spanish recovery is delayed

Last Friday I presented with Carlos Ocaña, Funcas Director General, an update of our economic forecasts for the Spanish economy (2021-2022). In a nutshell, we are seeing recovery this year being delayed until the summer.

With restrictive measures still in place and the vaccination campaign advancing at a slower pace than anticipated, private consumption is still low and tourism and the hospitality sector are still experiencing minimum activity.

However, the recovery which will start as from the third quarter could be quite strong and surprise many observers.

If you understand Spanish you can read more about this here and you can watch our presentation here

What we are reading

Continuing fiscal support and the risk of inflation 
Neither in the US nor in the euro area, fiscal support is not expected to provoke inflationary risks, according to Bruegel’s Maria Demertzis.

4 views on how to ensure social justice in a digital world 
Good overview on how social justice can be strengthened in the ultra-digital world we are moving into.

Economic costs of inequitable vaccine distribution across the world 
If advanced economies are vaccinated universally within four months in 2021 but only 50% of the population is vaccinated in emerging markets and developing economies by early 2022, the global economic costs might be as high as $3.8 trillion. Up to 49% of these costs are borne by advanced economies.

Escaping lockdown: when will life return to normal? 
The UK prime minister is unveiling today a plan for lifting restrictions – the world is watching. This article provides good insights into Johnson’s choices.

Have a nice week!
Raymond Torres, Funcas Europe Director


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