The Covid-19 Monetary and Fiscal Response in the Euro-Area and the EU

Since 1999, the commencement year of the fixed exchange rate regime in what is known today as the euro-area of 19 countries, economic growth has been unimpressive in both the euro-area as a whole and in the rest of the EU. The growth trajectory has furthermore been challenged by two shocks, namely the 2008 global financial crisis (GFC) and the current health crisis. This chapter shows how the EU monetary and fiscal policy responses to the 2008 GFC served as a useful template for the subsequent fine-tuning of the project of economic and monetary union (EMU). It discusses how the EU institutions (the European Central Bank in particular) have been relatively responsive to the Covid-19 crisis by implementing monetary policy easing measures, in particular by injecting additional liquidity to support credit to households and firms. The medium- to long-term implications of this new monetary policy implemented by the ECB are discussed. The issues of indebtedness and sustainability are core to the discussion; the chapter highlights the need to stimulate economic growth through policies that would revive the real economy with a boost to the labor market, and in particular through the building of a sovereign health filière – or a network rendering the EU a sovereign entity in this area and minimizing the impact of other health shocks in the future.