Economics: Europe’s fiscal response
Fiscal policy will determine how Europe copes with war in Ukraine
The nature of the support required by the private sector, and the infrastructure required to achieve Europe’s new strategic aims, dictates that it’ll be fiscal policy rather than monetary policy that determines how Europe copes with the war in Ukraine.
Response starting to become clear
The recent German five-year financial plan, which includes a €100bn special defence fund, gives us a sense of what that response could look like. This week, EU leaders will meet to discuss what might be done at the European level.
Not enough in the short-term, but could bring medium-term benefits
Ultimately, we don’t think that the fiscal response will be big enough to fully insulate the private sector in the near-term. But it could bring medium-term benefits – including closer fiscal intergations and further rebalancing between core and periphery.