The major difference for euro-zone economic policy between the post-coronavirus and post-subprime situations

There is widespread concern at the fiscal policy changes that will be needed in the euro zone after the coronavirus crisis: should the increase in public debt be corrected by a restrictive fiscal policy or by hiking taxes? We recall that after the 2008-2009 subprime crisis, fiscal deficits were reduced rapidly in the euro zone thanks to an increase in the tax burden, and that this choice contributed to the euro zone slipping back into recession. But there is a major difference between the situation today and that in the wake of the subprime crisis. In 2020, the ECB has responded immediately to the increase in the euro-zone countries’ fiscal deficits by launching a massive government bond purchase programme. Moreover, we know that government bonds bought irreversibly by the central bank are de facto cancelled. After the subprime crisis, it was not until 2 0 15 that the ECB began quantitative easing and monetised government bonds . The increase in the public debt was therefore a real problem. Today, thanks to the ECB’s response, there is no need for either a restrictive fiscal policy or tax hikes.