Assessment of the fiscal stance appropriate for the euro area in 2021

On 1 July 2020, the European Fiscal Board has published its assessment of the general orientation of fiscal policy in the euro area. The economic consequences of the Covid-19 pandemic make the years 2020 and 2021 extraordinary and the assessment of the euro-area fiscal stance particularly relevant. All main forecasters anticipate a deep recession of around or more than 8% of GDP this year, followed by a partial recovery in 2021; downside risks are substantial. The fiscal measures adopted by individual Member States, flanked by the decisions of the European Central Bank and the proposals of the European Commission, in particular the Recovery Instrument are fully warranted. In light of the partial and fragile recovery expected for 2021, the Board cautions against a premature withdrawal of fiscal support measures at the Member State level and looks forward to a swift and effective implementation of recent EU proposals. It advocates a strong focus on growth-enhancing government expenditure including investment, to provide stabilisation in the short-term while bolstering prospects of stronger future growth.