supervisors, acted in coordination to mitigate the effects on firms, banks and employees. Most of these measures, however, were designed as an emergency response and were intended to be temporary. Removing them too soon might quickly prove devastating as a second wave of infections hit most EU members in the fourth quarter. At the same time, the policy measures’ bluntness and expansive use of resources suggest that they may not be sustained in full for much longer.
The symmetry and intensity of the shock is pushing EU members to substantially strengthen common economic policy. The EU policy response to the pandemic is impressive both in its size and speed of delivery. Several indicators show that the policy response was well received by markets and strengthened confidence in the future of the European Union. Progressing swiftly and delivering on expectations remains key. The rapid economic rebound in the third quarter shows how successful the policy response to the first lockdown was. If anything, the second virus wave is a strong argument for maintaining the policy measures over a longer-term horizon, until a vaccine is widely distributed. When this happens, support may be recalibrated to reduce possible long-term side-effects, but the overriding concern should be to preserve the ecosystem as it was before the pandemic.
In addition to supporting the income of those unable to work and minimising negative effects on demand, the policy package could also be instrumental in shaping the future of Europe. The crisis provided an opportunity to address the major challenges facing the European economy, such as climate change and digitalisation. The crisis response is also historic as it led to the first joint European issuance of debt on a large scale. The joint debt issuance could turn out to be a cornerstone of the capital markets union. The crisis has affected European economies differently, and recovery needs to focus on stronger financial integration if cohesion is to be maintained within the European Union.
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