P. Canofari, G. Di Bartolomeo, M. Messori: An effective policy mix for the EU’s post-pandemic challenges
The geopolitical and economic shocks, due to the Covid-19 pandemic and the war in Ukraine, represent a structural shift for the European Union (EU) economy. The euro area needs to deal with an ongoing inflation process and the EU needs to radically transform its production model to avoid a lasting decline. An expansionary centralised fiscal capacity, grounded on the production of public goods, and a related common industrial policy are required to allow for this structural change. In the meantime, it is necessary to bring the excessive inflation process under control. These two contrasting problems create a policy dilemma. A restrictive monetary policy backed by national fiscal actions and a temporary central fiscal initiative are inadequate to overcome this dilemma. Hence, we propose an innovative policy mix to address the problem.
This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 25 September 2023.