December 16, 2020

HOW THREATENING IS COVID-19 FOR EA PUBLIC FINANCES?

Share on facebook
Share on twitter
Share on linkedin
Share on email

In Short

The 2008 economic collapse and the ensuing euro fiscal crisis triggered a surge in public debt around the world. However, this is set to be dwarfed by the fallout of the cur-rent crisis, as governments have been forced to an unprecedented fiscal stimulus to cushion the economic impact of the Covid-19 pandemic.
HOW THREATENING IS COVID-19 FOR EA PUBLIC FINANCES?
Share on facebook
Share on twitter
Share on linkedin
Share on email

Highlights:

  • After the Great Financial Crisis and the euro crisis, Covid-19 has been an additional blow to public finances. In the euro area the debt-to-GDP-ratio is set to rise from 84% in 2019 to 100% by the end of this year. 
  • Debt sustainability concerns are particularly relevant for the euro area economies given the lack of a unique fiscal entity. Our analysis suggests that leaving aside Greece, debt dynamics are more concerning in Southern Europe than the rest of the monetary union: low debt costs ensure sustainability in high-debt countries but is not a full replacement for fiscal discipline. The EU Recovery Fund is helpful but generally no game changer. 
  • Rating agencies need more clarity on the growth and fiscal outlook before reassessing sovereign risk. Our model to simulate agencies’ decisions flags, for the time being, a limited risk of a downgrade to HY for any of the major EA countries. 
  • Debt sustainability concerns will not stop the fiscal stimulus needed to digest the Covid-19 shock. However, the deterioration of public finances makes the economies more fragile and will have to be tackled in the longer term.

Download the full publication below

No data was found

Also interesting

Economic-recession-due-to-coronavirus
January 26, 2021
Market Commentary

EM sovereign rating: more differentiation

Macro-view-trading-terminal-chart-digits
January 25, 2021
Market Commentary

US Q4 earnings season starts better than Q3 one. Expect good earnings momentum to linger, supporting positive total returns this year.

size 3
January 22, 2021
Market Commentary

COVID-19 FACTS & FIGURES