Eurozone: Can fiscal policy fill the gap? - Rabobank

Analysts at Rabobank note that the ECB is still a long way from normalising their monetary policy stance; as such there is a reasonable risk that the central bank will have little space to act when a next economic downturn hits.

Key Quotes

“If that would indeed be the case, it would be up to fiscal policy to stabilize the economy at that time.”

“A large share of the Eurozone countries currently does not seem to have enough fiscal space to perform this task properly; this could make the impact of a next recession bigger.”

“Debt ratios and budget balances indicate that the fiscal position of Eurozone countries has not improved or is even worse relative to the pre-crisis year 2007.”

“Given the current good economic performance of the eurozone countries, the time has come to build buffers, unfortunately European fiscal rules are ineffective in forcing countries to meaningfully save during good times.”