With England and Scotland rolling out their third blanket lockdown and most of Europe tightening their COVID restrictions, governments across the region are turning to the new tax efforts needed to support the economy until vaccination campaigns clear the pandemic can control successfully.
UK Chancellor of the Exchequer Rishi Sunak announced Tuesday a package of "top-up grants" worth £ 4.6 billion (US $ 6.2 billion) for around 600,000 retail and hospitality companies.
The announcement comes after several government-funded measures since the pandemic began in March 2020, including a job support program that expires in late March.
In 2020, the British government spent the equivalent of more than 8% of gross domestic product on direct direct household spending to counter the effects of the pandemic. That is about as much as in Germany and significantly more than in France, Italy or Spain.
Other European governments are currently considering other rounds of fiscal stimulus to accommodate the unexpected severity of the second wave of the pandemic. Federal Finance Minister Olaf Scholz announced last month a doubling of the German loan plans for 2021 and said he was ready to spend more if necessary.
Laurence Boone, chief economist of the Organization for Economic Co-operation and Development, warned Western governments this week against taking austerity measures to correct what is perceived as unsustainable national debt. "Interest rates will stay low long enough that we can rethink what we do with fiscal policy," she told the Financial Times.
Read: Companies have thrown a $ 6.2 billion lifeline to deal with the recent lockdown in the UK
The outlook: The current situation doesn't quite compare to the spring 2020 lockdowns as the end of the COVID-19 pandemic may be in sight: vaccination campaigns have started across Europe, albeit at different speeds, but they should have a significant impact as soon as one a sufficient number of people have been vaccinated.
As pointed out by Boone, there is a risk that governments will panic about the size of their debt-to-GDP burden once the recovery is actually in sight – in the second half of the year. And as she explains, governments should try to avoid the mistakes they made in the immediate aftermath of the 2008 global financial crisis by plunging into austerity far too early.
From the archives (December 2020): The global recovery remains uncertain – which is why the OECD wants fiscal stimulus to continue