Corona: A European Safety Net for the Fiscal Response

In order to avoid permanent scars from the economic impact of the Coronavirus in Europe, a determined fiscal response will be necessary. We argue that there should be a clear division of labor between Europe and national governments: the latter will have to provide stimulus with targeted measures, while Europe needs to build a safety net so that member states will not lose access to bond markets due to speculative attacks. This safety net should have three components: A commitment by member states to use ESM instruments without conditionality; a commitment by the ECB to use all of its tools; and a number of flanking measures to underscore member states’ commitments.