Recovering from the pandemic : the role of the macroeconomic policy mix

Abstract

A new emphasis on policy coordination to mitigate the economic consequences of the COVID-19 pandemic led to a faster than expected European economic recovery, particularly compared to the Global Financial Crisis. However, policy coordination is still a challenge and will require a clear understanding of an unfamiliar economic context, together with strong agreement among European policymakers. European policymakers learned important lessons about the need for monetary and fiscal policy coordination from the Global Financial Crisis, which they applied at the start of the pandemic. The resulting recovery has been faster than expected, despite successive waves of variants. However, learning these policy lessons has not eliminated the many barriers to policy coordination, especially when there is disagreement among policymakers over macroeconomic performance, assignment of policy instruments to economic targets and concerns about policy interaction. Unfortunately, the pandemic economic recovery has fostered such a context, as have efforts to respond to demographic change, global warming and digital innovation. Under this scenario, successful policy coordination will require both careful analysis of what is clearly an unfamiliar economic situation and strong political agreement on what European policymakers should do about it.