COVID-19 and Fiscal Policy in the Euro Area
In this chapter we document fiscal policy developments in the main euro area economies over the last two decades and highlight the dramatic changes triggered by the COVID-19 pandemic. We analyse how euro area yield curves respond to COVID-19 related expectations of fiscal expansion. We show how fiscal constraints may affect interest rates. Upward pressure on national yields from higher debt levels could compromise fiscal and financial stability in the long-term.
Keywords: Sovereign Yields • Debt • COVID-19 • Fiscal Policy • Interest Rates