\n<\/p>\n
Debt sustainability <\/strong><\/p>\n Even if economic divergence seems less of an issue now than at the time of the euro crisis, at face value, the public finance picture is less reassuring. The Covid-19 shock, while symmetric in nature, had a nonhomogeneous impact\u00a0on economic activity in member countries, hitting some\u00a0countries more heavily than others because of\u00a0their economic structure and\u00a0response to the crisis. Southern European countries recorded sharper increases in their deficits and debt compared\u00a0to most of their core peers. However, unlike a decade ago, structural public accounts remained solid throughout the crisis, with the extra expenditure incurred to limit the shock to\u00a0the economy\u00a0being mostly temporary in nature. The\u00a0political response in the most exposed countries such as Italy and Greece\u00a0was\u00a0for\u00a0a relatively quick return to primary surpluses, telling us that times are different.<\/p>\n Having said that, the prospect of an accelerated normalisation in the ECB\u2019s monetary policy has reawakened old ghosts, putting renewed pressure on spreads and bringing back to the fore doubts about debt sustainability.<\/p>\n For countries burdened by high public debt, sustainability remains an issue, but not one that is currently ringing alarm bells.<\/p>\n In the short run, the combination of long average maturities of debt, decent growth and high unanticipated inflation are all helping\u00a0to counteract the incremental impact on debt coming from the sharp increase in government interest rates and from residual primary deficits, even in the most indebted countries.<\/p>\n Longer-term, as higher interest rates apply to a growing share of debt and unanticipated inflation is re-absorbed, decelerating real GDP growth would cause debt to\u00a0snowball again, and\u00a0primary surpluses would be required to\u00a0secure a downward trajectory in\u00a0the debt\/GDP ratios. Interestingly, with non-extreme interest rate levels, and decent, but unspectacular growth, the required primary surpluses would be at levels which have already proven to be\u00a0politically bearable in the recent past. Needless to say, improving long-term real economic growth would be crucial for debt sustainability\u00a0in the years ahead. This is why\u00a0the European Recovery and Resilience facility was\u00a0created, with an allocation of funds more generous for Southern European countries. The battle for debt sustainability will be won more convincingly\u00a0if the combination of reform\u00a0and investment, upon which the disbursement of the EU Recovery Fund\u00a0is conditional, is\u00a0properly implemented. The six-year time span covered by the plan, for once, provides a comforting medium-term view.<\/p>\n Support for the monetary union has increased significantly in recent years<\/strong><\/p>\n Another factor which reduces the chances of another debt crisis\u00a0is that societal support for the euro has increased steadily over recent years. Concerns about the monetary union were widespread during the euro crisis and while scepticism remains widespread, a\u00a0quiet majority has become happier with it. In Belgium, 85% of respondents are now positive about the euro, while in Italy, more than 70% of those surveyed are positive.<\/p>\n This also translates to politics where the large eurosceptic wave in elections has failed to\u00a0materialise. While eurosceptic parties still hold a large number\u00a0of seats in parliaments across the continent and in Brussels, they have not risen to power. Importantly, a pure euro exit platform has mostly been shunned by parties trying to win elections, as this\u00a0seems to be an unpopular policy among\u00a0the electorate.<\/p>\n The significant\u00a0steps taken by politicians and the ECB to fight the coronavirus crisis are\u00a0a sign that policymakers are\u00a0more comfortable in\u00a0acting swiftly in times of crisis. However, if any anti-fragmentation tool comes with strict conditions attached, eurosceptic parties could quickly gain momentum again.<\/p>\n<\/p><\/div>\n\n Debt sustainability Even if economic divergence seems less of an issue now than at the time of the euro crisis, at face value, the public finance picture is less reassuring. The Covid-19 shock, while symmetric in nature, had a nonhomogeneous impact\u00a0on economic activity in member countries, hitting some\u00a0countries more heavily than others because of\u00a0their economic …<\/p>\n","protected":false},"author":1,"featured_media":36271,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36270"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=36270"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36270\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/36271"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=36270"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=36270"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=36270"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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