From the outset it was clear that we needed an all-out response from both governments and central banks to shield households and firms from income loss and avoid irreversible damage to the economy. Under these circumstances, policymakers decided to activate the general escape clause in the Stability and Growth Pact. The activation of this clause temporarily lifted all restrictions on fiscal policy.
This helped prevent undue procyclical fiscal consolidations, such as during the sovereign debt crisis. But shouldn’t an effective and concerted monetary and fiscal policy response also be possible under less dramatic circumstances than the Covid crisis?