Monetary policy was already accommodative before the pandemic shock. The prospect of persistent below-target inflation had resulted in a further easing of the monetary stance in September 2019: the deposit facility rate had been lowered to minus 0.5 per cent and net asset purchases were resumed at a rate of € billion per month under the ECB’s baseline asset purchase programme (APP).
In the euro area, the contribution to economic stabilisation made by these stabilisers is generally higher, on average, than in other industrialised countries due to the high sensitivity of revenues and expenditures to economic fluctuations in Europe. However, we have serious doubts about the efficiency of discretionary fiscal policies. Activist policies may have pro-cyclical effects, given the time-lags involved.