Euro area policy mix: From horizontal to vertical coordination

CEPR Policy Insight No 113

Marco Buti, Marcello Messori

Marco Buti and Marcello Messori argue that the forceful policy response of the EU and its member states to the COVID Pandemic, and in particular the move to a more structured 'vertical' coordination between national and EU fiscal policies, has led to a more balanced euro area policy mix, which has allowed the rapid absorption of the euro area's dramatic recession and favoured a strong bouncing back of its economy in the current year. Moving forward, the authors argue that transitioning to a structured vertical coordination between national and EU budgets would help ensure an adequate fiscal stance for the future, and avoid the overburdening of the single monetary policy.