Eurozone: Fiscal response lacks scale – ABN Amro

Few eurozone countries have announced significant extra fiscal spending to compensate for some of the economic impact of the coronavirus. Germany and Italy have laid out some measures but are going to fall short, in the opinion of economist at ABN Amro.

Key quotes

“The German government has announced that it will spend EUR 12.4bn (equal to 0.4% of GDP) extra on government investment during the years 2021-2024, which is limited considering the potential short-term economic damage from the spreading of the coronavirus. 

“In any case, the German government has ample room for fiscal stimulus. Reducing the structural balance to zero would free some EUR 18bn and reducing it to the maximum allowed deficit of -0.5% would double this amount.”

“Italy’s government has announced fiscal measures worth EUR 7.5bn (0.4% GDP) and plans to boost this amount to EUR10bn (0.6% GDP). The measures include extra spending on health and emergency services.”

“In addition, financial assistance is planned for the worst affected households, firms and sectors. It emerged today that the government was negotiating with banks to provide breaks from debt payments including mortgages across the country.”