Fiscal follies in the Covid recovery

Brussels

WHEN Covid-19 went global about a year ago, the memory of the 2008 global financial crisis was still fresh, and policymakers pulled every lever at their disposal to maintain financial stability. The reaction to the previous crisis had indeed been somewhat slow and confused, especially in Europe, because no one at the time had ever dealt with anything like it before. But 2020 was different.

In Europe, policymakers intervened on a massive scale, with the European Central Bank (ECB) expanding its balance sheet from an already high pre-crisis level of 4.7 trillion euros (S$7.5 trillion) to more than 7 trillion euros - 2/3 of euro zone gross domestic product (GDP). At the same time, governments stepped in to support incomes, mostly through expanded short-time work schemes, which preserved employment even as people's hours on the job plunged.