How threatening is Covid-19 for EA public finances?

In Kürze

The 2008 economic collapse and the ensuing euro fiscal crisis triggered a surge in public debt around the world. However, this is set to be dwarfed by the fallout of the cur-rent crisis, as governments have been forced to an unprecedented fiscal stimulus to cushion the economic impact of the Covid-19 pandemic.
Market Outlook

Highlights:

  • After the Great Financial Crisis and the euro crisis, Covid-19 has been an additional blow to public finances. In the euro area the debt-to-GDP-ratio is set to rise from 84% in 2019 to 100% by the end of this year.
  • Debt sustainability concerns are particularly relevant for the euro area economies given the lack of a unique fiscal entity. Our analysis suggests that leaving aside Greece, debt dynamics are more concerning in Southern Europe than the rest of the monetary union: low debt costs ensure sustainability in high-debt countries but is not a full replacement for fiscal discipline. The EU Recovery Fund is helpful but generally no game changer.
  • Rating agencies need more clarity on the growth and fiscal outlook before reassessing sovereign risk. Our model to simulate agencies’ decisions flags, for the time being, a limited risk of a downgrade to HY for any of the major EA countries.
  • Debt sustainability concerns will not stop the fiscal stimulus needed to digest the Covid-19 shock. However, the deterioration of public finances makes the economies more fragile and will have to be tackled in the longer term.

Download the full publication below

CORE MATTERS: HOW THREATENING IS COVID- 19 FOR EA PUBLIC FINANCES?

Also interesting

Picture

© Generali Investments, alle Rechte vorbehalten. Diese Webseite wird von Generali Investments zur Verfügung gestellt und gilt als Marketingkommunikation und Finanzwerbung in Bezug auf die Produkte und Dienstleistungen der folgenden Unternehmen der Generali Gruppe: Generali Investments Partners S.p.A. Società di gestione del risparmio, Generali Insurance Asset Management S.p.A. Società di gestione del risparmio, Generali Investments Luxembourg S.A. und Generali Investments Holding S.p.A. (im Folgenden zusammengefasst Generali Investments). Darüber hinaus kann die Webseite Marketingkommunikation und Finanzwerbung für Produkte und Dienstleistungen von Unternehmen enthalten, die Teil der von Generali Investments Partners S.p.A. Società di gestione del risparmio koordinierten Multiboutique-Plattform sind, insbesondere von Generali Global Infrastructure, Sycomore Asset Management, Aperture Investors LLC, Plenisfer Investments SGR, Lumyna Investments und Generali Real Estate S.p.A. Società di Gestione del Risparmio.