An Assessment of the Euro Area Fiscal Stance since the Pandemic

This Economic Brief analyses the euro area fiscal stance since 2020, i.e. the impulse that national budgets and the EU budget have been providing to the euro area economy since the pandemic. Overall, the euro area fiscal stance was highly supportive in 2020-2023, during the COVID-19 and the energy crises, while it is forecast to turn contractionary in 2024 and, under unchanged policies, neutral in 2025. The fiscal stance estimates are based on the Commission 2024 spring forecast. For 2025, in an alternative to the no-policy-change forecast, illustrative results are also presented, assuming that Member States will follow a fiscal adjustment needed to keep their public debt on a sustainable path and bring or keep deficit below the reference value, as defined in the context of the new EU fiscal framework. Under this ‘normative approach’, the euro area fiscal stance would be contractionary in 2025, ranging from around ¼ % to around ½ % of GDP. Such a contractionary fiscal stance is considered to be broadly appropriate, from a debt sustainability standpoint but also with a view to supporting monetary policy in lowering inflation. The fiscal stance factors in the impulse from the EU budget, which currently includes the Recovery and Resilience Facility, created in the wake of the pandemic to support the recovery of the EU economy through high quality spending and reforms.