COMMUNICATION FROM THE COMMISSION TO THE COUNCIL One year since the outbreak of COVID-19: fiscal policy response
Date: 2021-03-03
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: coronavirus disease, economic forecasting, economic policy, economic recovery, economic situation, epidemic, fiscal policy, investment, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.3.2021  COM(2021) 105 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL One year since the outbreak of COVID-19: fiscal policy response  
 
 
One year since the outbreak of COVID-19: fiscal policy response 

1.  Introduction 

The outbreak of the COVID-19 pandemic caused an unprecedented global public health 
crisis, which entailed a severe decline in economic activity. Member States have faced the 
double  need  of  addressing  the  public-health  emergency  and  supporting  the  economy.  The 
forceful policy response at the national and EU level has cushioned the impact of the crisis on 
Europe's economic and social fabric. The economic downturn and emergency fiscal  support 
have resulted in a sharp increase in government deficits and public debt. 

This Communication sets out the Commission’s considerations on how to coordinate at 
EU level the conduct of fiscal policy, taking to the next phase the concerted approach of 
addressing  the  pandemic,  sustaining  the  economy,  supporting  a  sustainable  recovery 
and  maintaining  fiscal  sustainability  in  the  medium-term.  Member  States  are  currently 
implementing their 2021 budgets, tailoring timely, temporary and targeted policy measures to 
their country-specific circumstances. In April, Member States will submit their Stability and 
Convergence  Programmes,  setting  out  their  medium-term  fiscal  policies.  In  the  coming 
months,  following  the  entry  into  force  of  the  Regulation  on  the  Recovery  and  Resilience 
Facility  (RRF),  Member  States  will  submit  their  Recovery  and  Resilience  Plans,  the 
implementation of which will entail in many cases a sizeable fiscal impulse financed by the 
EU. For these reasons, this Communication provides Member States with broad orientations 
for the conduct of fiscal policies in the period ahead.  

The  current  situation  is  still  highly  uncertain,  but  some  of  the  challenges  that  our 
economies will  face as  they emerge from  the  pandemic are clear. To successfully tackle 
those  challenges,  a  coordinated  and  consistent  policy  response  will  be  needed,  involving 
credible medium-term fiscal policy strategies in order to support the recovery, while ensuring 
fiscal sustainability. 

The activation of the general escape clause of the Stability and Growth Pact in response 
to the onset of the COVID-19 pandemic has allowed Member States to depart from the 
budgetary  requirements  that  would  normally  apply.  As  the  clause  does  not  suspend  the 
procedures  of  the  Pact,  the  European  Commission  continues  to  operate  the  annual  cycle  of 
fiscal  surveillance.  This  Communication  provides  policy  orientations  to  facilitate  the 
coordination  of  fiscal  policies  and  the  preparation  of  Member  States’  Stability  and 
Convergence  Programmes.  It  discusses  the  proper  design  and  quality  of  fiscal  measures, 
looking  at  their  effectiveness,  their  gradual  adjustment  from  emergency  to  more  targeted 
measures,  and  their  eventual  phasing  out.  It  also  sets  out  the  Commission’s  considerations 
regarding  the  deactivation  or  continued  activation  of  the  general  escape  clause.  Finally,  the 
Communication provides general indications on the overall fiscal policy for the medium term, 
including the implications of the RRF for fiscal policy.  

These considerations provide input to the ECOFIN Council and Eurogroup discussions 
and will be further detailed in the fiscal policy guidance that will be proposed as part of the 
Commission’s spring European Semester package in late May 2021.  

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2.  Economic situation and outlook  

Europe is still firmly in the grip of the pandemic, a year after the COVID-19 pandemic 
hit the EU and the global  economy. The resurgence of infections in  autumn 2020 and the 
emergence  of  more  contagious  variants  have  aggravated  the  epidemiological  situation  and 
forced  Member  States  to  reintroduce  or  tighten  containment  measures  that  affect  economic 
activity.  

At  the  same  time,  recent  months  have  brought  light  at  the  end  of  the  tunnel.  The 
breakthrough  development  of  vaccines  last  autumn  and  the  start  of  mass  vaccination 
campaigns in all Member States have brightened the outlook beyond the near term and raised 
hopes  for  a  return  to  a  new  normality.  Furthermore,  agreement  was  reached  on  the 
Multiannual Financial Framework and Next Generation EU. The RRF has entered into force, 
which will help Member States on the way to a sustainable recovery. 

The European economy is  expected to have ended 2020 and started the new year on a 
weak  footing,  but  the  Commission  2021  winter  forecast  projects  European  growth  to 
resume this spring and gather momentum in the summer. Economic activity contracted in 
the fourth quarter of 2020 and survey indicators point to depressed economic activity at the 
start of the year. Progress in the vaccination of vulnerable populations is, however, assumed 
to facilitate an unfreezing of economic activity. External demand is set to support the recovery 
on the back of an improved outlook for the global economy. All in all, growth is forecast to 
rebound to about 3¾% in 2021 in the EU and the euro area, after contracting by around 6½% 
in 2020. As the recovery takes hold, the 2022 annual growth rate should settle at around 4% in 
the EU and 3¾% in the euro area. Real GDP is now expected to reach pre-crisis levels in the 
second  quarter  of  2022  on  average  in  the  EU  and  the  euro  area.  However,  output  is  not 
projected to return to its pre-crisis trend by the end of 2022 (Appendix Graph 1).1   

The  recovery  is  set  to  be  uneven  across  countries.  The  expected  speed  of  the  recovery 
reflects  differences  in  the  severity  of  the  pandemic,  the  stringency  and  duration  of 
containment  measures,  the  relative  importance  of  tourism  and  leisure  activities,  the 
economy’s resilience and fundamentals, and the size and timeliness of policy responses. Some 
Member States are expected to  see the distance to  their pre-crisis  output levels  close by the 
end of 2021 while some others are not even expected to reach those levels by the end of 2022. 

These  projections  are  subject 
to  significant  uncertainty  and  elevated  risks, 
predominately  linked  to  the  evolution  of  the  pandemic  and  the  success  of  vaccination 
campaigns (Appendix Graph 2). On the upside, the vaccination process could lead to a faster 
easing of containment measures and therefore an earlier and stronger recovery. Moreover, the 
strength of the rebound could surprise on the upside.  A burst of post-crisis optimism could 
unleash  stronger  pent-up  demand  and  investment  projects,  thanks  to  historically  high 
household  savings,  low  financing  costs,  and  supportive  policies.  On  the  downside,  the 
pandemic could prove more persistent or turn out to be more severe in the near term. There is 

1 Trend output as forecast in the Commission 2020 winter forecast, i.e. before the COVID-19 outbreak in the 
EU. 

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the  risk,  amongst  others,  that  new  and  more  contagious  variants  of  the  coronavirus  could 
delay  the  lifting  of  containment  measures.  This  would  delay  the  expected  recovery,  which 
would risk leaving deeper scars in the fabric of the European economy and society inflicted 
by  the  protracted  crisis,  through  bankruptcies,  rising  long-term  unemployment  and  higher 
inequalities.  It  is  a  risk  that  premature  withdrawal  of  fiscal  support  could  hold  back  the 
recovery and exacerbate scarring across the EU. Finally, widening cross-country divergences 
could deepen, disrupting the functioning of the internal market, causing efficiency losses and 
ultimately becoming self-reinforcing. 

An  ambitious  and  swift  implementation  of  the  Next  Generation  EU  programme, 
including  its  RRF,  would  provide  a  strong  boost  to  the  EU  economy.  Following  the 
political  agreement  reached  on  the  RRF  in  December  2020,  the  preparation  of  national 
Recovery and Resilience Plans has intensified in all Member States. So far, most draft plans 
have  not  been  incorporated  in  the  Commission  forecast.  When  the  measures  of  the 
forthcoming Recovery and Resilience Plans are implemented, the economic recovery in 2021 
and 2022 could turn out stronger than currently projected. In parallel with the development of 
their Recovery and Resilience Plans, Member States should also accelerate the programming 
of their 2021-2027 cohesion policy funds so that all instruments are coherent in their support 
for a sustainable, green and digital recovery. 

The deterioration  of the health  and economic  situation in the last quarter of 2020 and 
beginning  of  2021  led  Member  States  to  extend  emergency  measures  or  provide 
additional fiscal support. At the same time, sovereign debt risk premia remained low, in 
part due to a combination of decisive EU and Member State actions.  The latter include 
the close coordination of policy responses and the strongly supportive policy stance on both 
the  fiscal  and  monetary  sides.  A  premature  withdrawal  of  fiscal  support,  in  the  EU  and  in 
other  large  economies  (Box  1),  or  a  departure  from  the  commitment  to  preserve  fiscal 
sustainability in the medium term could change financial markets’ perceptions. 

Box 1: Fiscal policies in the rest of the world  

The global fiscal response to the COVID-19 pandemic amounted to around EUR 6 trillion of 
direct  budgetary  support  in  2020  (close  to  7½%  of  world  GDP),  with  most  support  coming 
from  the  G20  countries.2  This  is  more  than  double  the  amount  provided  in  response  to  the 
global  financial  crisis  in  2008-2010.  The  fiscal  support  has  mitigated  the  effects  of  the 
pandemic  on  consumption  and  output,3  while  leading  to  a  rise  in  public  deficits  and  debt. 
Global  public  debt  is  estimated  to  have  reached  98%  of  world  GDP  at  the  end  of  2020,4 
compared  with  84%  of  GDP  for  the  same  year  based  on  projections  made  just  before  the 
outbreak  of  the  pandemic.  Additional  health  sector  spending  amounted  to  EUR  800  billion, 
while direct fiscal support to households and firms reached almost EUR 5 trillion. 

On top of direct fiscal stimulus, governments provided around EUR 5 trillion (around 6% of 

2 IMF Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic (January 
2021). https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19 
3 International Monetary Fund – IMF (2021), World Economic Outlook, January 2021 Update. 
4 International Monetary Fund – IMF (2021), Fiscal Monitor, January 2021 Update. 

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world  GDP)  of  liquidity  support  measures  to  companies  and  households,  such  as  equity 
injections,  loans,  asset  purchases  or  debt  assumptions,  and  guarantees.  Any  possible  future 
impact of these contingent liabilities on public debt and deficit depends on the extent to which 
these guarantees are taken up by the private sector and the extent to which they will be called 
upon or activated. 

Access  to  affordable  financing,  the  size  of  the  welfare  state  and  available  policy  space 
influenced  country-specific  fiscal  responses.  Countries  with  wider  safety  nets  expanded 
existing measures and their policy response relied relatively more on automatic stabilisers. In 
contrast,  countries  with  more  limited  safety  nets  had  to  adopt  larger  discretionary  fiscal 
measures. For example, in 2020 the US adopted budgetary measures of close to 17% of GDP 
and liquidity support for 2.4% of GDP, while a new USD 1.9 trillion package (around 10% of 
GDP) is under discussion in the US Congress. Another bill is expected to be presented later 
this  year  and  to  focus  on  measures  to  create  jobs,  improve  infrastructure,  combat  climate 
change and address racial equity. 

In a context of constrained monetary policy, Japan employed a relatively large fiscal stimulus, 
amounting to  around 15½% of GDP of direct  fiscal  support and more than 28% of GDP of 
liquidity  support.  China  provided  budgetary  support  of  around  4½%  of  GDP  and  liquidity 
support  of  more  than  1%  of  GDP.  In  the  UK,  budgetary  measures  and  liquidity  measures 
amounted each to over 16% of GDP. Finally, the share of measures targeting the health sector 
reflected  the  epidemiological  situation  and  pre-existing  conditions  in  the  health  sector,  with 
total public spending on health ranging from 0.1% of GDP in China to more than 5% of GDP 
in the UK.  

Generally, advanced  economies were able to  borrow more cheaply than  other countries and 
were thus able to finance larger packages. Whilst on average advanced economies deployed 
about  24%  of  GDP  in  fiscal  measures,  this  stood  in  stark  contrast  with  6%  in  emerging 
markets  and  less  than  2%  in  low-income  countries.5  Support  from  the  international 
community through  grants,  concessional finance, and debt  relief is essential to  facilitate the 
policy response of EU partner countries. 

3.  The  national  fiscal  policy  response:  addressing  the  pandemic, 

sustaining the economy and supporting a sustainable recovery  

Member  States  undertook  an  unprecedentedly  strong  and  rapid fiscal  policy  response, 
with fiscal and liquidity measures estimated to  have cushioned the contraction in GDP 
in  2020  by  around  4.5  percentage  points.6  This  response  was  facilitated  by  the  early 
activation of the general escape clause of the Stability and Growth Pact  in  March 2020 and 
the use of the full flexibility foreseen under EU State Aid rules, in particular by means of a 
Temporary  Framework  also  adopted  in  March  2020.  In  total,  fiscal  support  in  the  EU  – 
automatic stabilisers and discretionary measures –  in 2020 is estimated at about 8% of GDP, 

5 https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19 
6 See: Updated Commission estimates based on the simulation analysis presented in  Pfeiffer, P., Roeger W. and 
in ’t Veld, J. (2020), ‘The COVID-19 pandemic in the EU: Macroeconomic transmission and economic policy 
response’, ECFIN Discussion Paper 127, July 2020.  

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considerably more than the fiscal support provided in 2008-2009. Member States took crisis-
related  discretionary  fiscal  measures  amounting  to  close  to  4%  of  GDP  in  2020  (Appendix 
Table 1) on top of already sizeable automatic stabilisers estimated at around 4% of GDP. The 
bulk of discretionary measures consisted of additional spending (3.3% of GDP). This included 
emergency spending on health care (0.6% of GDP), for example to  increase the capacity of 
health  systems,  to  provide  protective  equipment  or  to  set  up  testing  and  tracing  systems. 
Expenditure  measures  in  other  areas  (2.7%  of  GDP)  consisted  of  compensations  to  specific 
sectors  for  income  losses,  as  well  as  short-time  work  schemes  and  other  items.  Tax  relief 
measures  accounted  for  an  additional  0.4%  of  GDP.  Member  States  also  provided  sizable 
liquidity  support  (around  19%  of  GDP),  mostly  in  the  form  of  public  guarantees.  Around  a 
quarter  of  available  guarantees  has  been  taken  up  so  far.  In  many  cases,  these  guarantee 
schemes  have  required  State  aid  assessment  and  approval  by  the  Commission,  which  was 
swiftly granted in line with EU State aid rules.  

On  20  July  2020,  the  Council  recommended  Member  States  to  take  all  necessary 
measures  to  effectively  address  the  pandemic,  sustain  the  economy  and  support  the 
recovery. Looking ahead, it also recommended that Member States pursue, when economic 
conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and 
ensuring debt sustainability, while enhancing investment.   

Measures  adopted  by  Member  States  are  proving  effective  at  protecting  jobs.  National 
short-time  employment  support  initiatives  protected  around  20%  of  employment  in  the  EU. 
Member  States  are  making  ample  use  of  financial  support  in  the  form  of  favourable  loans 
under  Support  to  mitigate  Unemployment  Risks  in  an  Emergency  (SURE)  to  finance  short-
time  work  schemes  and  similar  measures  to  protect  employees  and  the  self-employed.7 
Measures  included  a large variety of programmes, including making  existing schemes more 
flexible to support job transitions, skills upgrading, and extraordinary vocational trainings as 
an  alternative  to  reduced  working  time.  These  state-sponsored  schemes  are  reducing  labour 
costs for businesses while offering better replacement incomes for workers, compared to the 
usual unemployment benefits. They are also helping safeguard jobs and mitigate further drops 
in the number of jobs, households disposable income and domestic demand. These schemes 
are  proving  very  effective:  the  EU  unemployment  rate  increased  only  marginally  in  2020, 
despite the large drop in economic activity. This increase was much lower than that implied 
by the historical relationship between unemployment and GDP growth (Appendix Graph 3). 
Furthermore, the EU unemployment rate fluctuated markedly less than in the US (Appendix 
Graph 4). Employment support schemes are most effective in countries with well-established 
national  schemes.  Countries  that  introduced  such  schemes  during  the  pandemic  may  have 
witnessed a somewhat smaller mitigating effect on unemployment. 

Vital  liquidity  support  prevented  liquidity  shortages  from  turning  into  solvency 
problems. The corporate sector suffered during the crisis and many financially healthy firms 
with  viable  business  models  were  pushed  into  financial  distress.  The  impact  differed  across 
industries, exerting particular pressure on firms in the service sector that rely more directly on 

7  Council  Regulation  (EU)  2020/672  on  the  establishment  of  a  European  instrument  for  temporary  support  to 
mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak; EUR 100 billion of 
financial assistance in the form of loans to be provided to the Member States requesting it. 

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social  contact.  Measures  included  equity  injections,  opening  of  credit  lines,  provision  of 
public loan guarantees,  postponing of interest  payments,  postponing or cancelling of certain 
taxes  and  social  contributions  and  insolvency-related  measures8.  Commission  estimates 
suggest that without government support measures (beyond short-time work schemes) or new 
borrowing, a quarter of EU companies would have experienced liquidity distress by the end of 
2020 after exhausting their capital buffers. Government credit guarantees and loan repayment 
moratoria have so far prevented a rise in loan defaults. Administrative delays, loan repayment 
moratoria  and  the  temporary  relaxation  of  bankruptcy  regulations  led  to  fewer  companies 
going bankrupt in 2020 than in the year before. 

Discretionary  fiscal  policy  support  is  projected  to  gradually  decline,  due  to  the 
withdrawal  or  expiry  of  emergency  measures.  Recently,  many  Member  States  have 
reconsidered the pace of discontinuation of emergency measures due to the evolution of the 
pandemic and continued restrictions on social contact, confirming the need for national fiscal 
responses  to  remain  agile.  Overall,  the  impact  of  COVID-19  related  measures  is  currently 
expected  to  amount  to  around  2.6%  of  GDP  in  2021  and  around  0.6%  of  GDP  in  2022.  In 
addition, automatic stabilisers will continue to provide further support to the economy. 

Member  States’  2021  Draft  Budgetary  Plans  were  overall  in  line  with  the  fiscal  policy 
recommendation. In autumn 2020, the Commission assessed euro area Member States’ Draft 
Budgetary  Plans  for  2021,  based  on  a  qualitative  assessment  of  fiscal  measures,  including 
their  targeted  and  temporary  nature.  Most  of  the  measures  in  the  Draft  Budgetary  Plans 
support  economic  activity  against  the  background  of  considerable  uncertainty.  In  most 
Member States, the presented measures were mostly temporary. However, some measures set 
out in the Draft Budgetary Plans of a few Member States did not appear to be temporary or 
matched  by  offsetting  measures.  Since  the  assessment  of  the  2021  Draft  Budgetary  Plans, 
Member  States  have  taken  measures  with  an  additional  direct  budgetary  impact  of  1.0%  of 
EU  GDP  in  2021,  almost  all  on  the  expenditure  side.  Additional  healthcare  spending  and 
expenditures  on  short-time  working  schemes  are  estimated  at  0.2%  of  GDP  each.  The 
additional  spending  also  includes  various  support  schemes  for  companies  affected  by  the 
crisis, including subsidies to particularly affected sectors.  

4.  The EU policy response: making best use of the general escape clause 

and Next Generation EU  

In March 2020, the EU activated the general escape clause of the Stability and Growth 
Pact, allowing for a temporary departure from the normal operation of fiscal rules in a 
situation of a severe economic downturn in the EU. The Commission proposed to activate 
the  general  escape  clause  for  the  EU  to  continue  to  respond  quickly,  forcefully  and  in  a 
coordinated  manner  to  the  fast-evolving  crisis.  Specific  provisions  in  the  EU’s  fiscal  rules 
allow for a coordinated and orderly temporary deviation from the normal requirements for all 

8 Including such measures as suspension of the duty (for debtors) and the possibility (for creditors) to file for 
insolvency or moratoria on the enforcement of claims or the termination of contracts and interruption of court 
proceedings. Overview of insolvency measures taken by the Member States is available at https://e-
justice.europa.eu/content_impact_of_covid19_on_the_justice_field-37147-en.do  

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Member States in a situation of generalised crisis. Specifically, for the preventive arm of the 
Pact,  Regulation  (EC)1466/97,  Articles  5(1)  and  9(1)  state  that  “in  periods  of  severe 
economic  downturn  for  the  euro  area  or  the  Union  as  a  whole,  Member  States  may  be 
allowed temporarily to depart from the adjustment path towards the medium-term budgetary 
objective, provided that this does not endanger fiscal sustainability in the medium term”. The 
Commission found that the general escape clause does not suspend the procedures of the Pact, 
but  its  activation  would  allow  the  Commission  and  the  Council  to  undertake  the  necessary 
policy  coordination  measures  within  the  framework  of  the  Pact,  while  departing  from  the 
budgetary requirements that would normally apply.  

In May 2020, the Commission adopted reports under Article 126(3) of the Treaty on the 
Functioning of the EU for all Member States except Romania, which was already under 
an excessive deficit procedure. These reports assessed Member States’ compliance with the 
deficit criterion  in  2020, based on their plans or on the Commission’s 2020 spring forecast. 
For some Member States, they also assessed compliance with the debt criterion in 2019. As a 
consequence  of  their  policy  response  to  the  COVID-19  crisis,  Member  States’  planned 
deficits for 2020 were  generally  above the 3% of GDP threshold. The Commission  reached 
the conclusion that, at that juncture, a decision on whether to place Member States under an 
excessive  deficit  procedure  should  not  be  taken.  This  was  justified  by  the  exceptional 
uncertainty  created  by  the  macroeconomic  and  fiscal  impact  of  the  COVID-19  outbreak, 
including for designing a credible path for fiscal policy.  

In the view of the Commission, the decision on the deactivation or continued application 
of the general escape clause should be taken as an overall assessment of the state of the 
economy  based  on  quantitative  criteria.  The  economic  outlook  remains  highly  uncertain 
and does not allow for a firm anticipation of the end of the severe economic downturn in the 
EU or the euro area. The deactivation of the clause should be conditional upon the state of the 
EU  and  euro  area  economy,  recognising  that  it  will  take  time  for  the  economy  to  return  to 
more normal conditions. Various indicators could be considered, but also have limitations: 

  Estimates of the gap between actual and potential output are a common feature of the 
EU fiscal rules but are subject to particularly large uncertainty at the current juncture 
due to the severity of the economic shock and its unique features.  

  Quarterly or even yearly economic growth rates only provide a partial reading of the 
state  of  the  economy,  with  strong  economic  growth  rates  in  2021-2022  confounding 
the strength of the recovery given the unprecedented decline in GDP in 2020 and the 
ensuing deep scarring.  

  Labour  market 

indicators,  such  as 

the  recorded  unemployment  rate,  might 
misrepresent economic conditions due to the massive use of short-time work schemes, 
involuntary part-time work and the fact that labour market indicators react with a lag 
to economic developments.  

  The level of economic activity in the EU or euro area compared to pre-crisis levels is a 

more suitable indicator to gauge the state of the recovery.9  

9 The European Fiscal Board also suggested such an approach. See: European Fiscal Board (2020), ‘Assessment 
of the fiscal stance appropriate for the euro area in 2021’, July 2020. 
https://ec.europa.eu/info/sites/info/files/2020_06_25_efb_assessment_of_euro_area_fiscal_stance_en.pdf 

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The level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) 
would  therefore  be  the  key  quantitative  criterion  for  the  Commission  in  making  its  overall 
assessment of the deactivation or continued application of the general escape clause. Based on 
the Commission  2021 winter forecast,  EU GDP is  projected to  reach  its 2019 level  towards 
the  middle  of  2022.  Therefore,  current  preliminary  indications  would  suggest  to  continue 
applying the general escape clause in 2022 and to de-activate it as of 2023. The Commission 
will assess the deactivation or continued application of the general escape clause as part of its 
spring  European  Semester  package,  on  the  basis  of  the  Commission  2021  spring  forecast. 
Country-specific situations will continue to be taken into account after the deactivation of the 
general  escape  clause.  In  case  a  Member  State  has  not  recovered  to  the  pre-crisis  level  of 
economic activity, all the flexibilities within the Stability and Growth Pact will be fully used, 
in particular when proposing fiscal policy guidance. 

Unprecedented  EU  actions  have  supported  and  complemented  national  fiscal  policy 
responses. The SURE instrument is providing cheap loans to Member States to help them to 
support workers. In 2020, the Council approved a total of EUR 90 billion in SURE support to 
18  Member  States,  with  another  Member  State  applying  in  February  2021.  The  European 
Investment  Bank  has  set  up  a  safety  net  for  businesses,  while  the  European  Stability 
Mechanism’s Pandemic  Crisis  Support  Instrument  extends a safety net  to  Member States to 
support financing of healthcare, as well as cure- and prevention-related costs arising from the 
COVID-19  pandemic.  Next  Generation  EU,  including  the  RRF,  will  ensure  a  sustainable, 
even, inclusive and fair recovery. Finally, cohesion policy funds were redirected where most 
needed  through  the  Coronavirus  Response  Investment  Initiative  Plus.10  The  EU’s  policy 
response also included the adoption a Temporary Framework to enable Member States to use 
the full flexibility foreseen under State Aid rules to support the economy in the context of the 
COVID-19  outbreak.  It  was  later  amended  to  increase  possibilities  for  public  support  to 
research, testing and production of products relevant to fight the pandemic, to protect jobs and 
to  further  support  the  economy.  Later,  it  was  extended  to  enable  recapitalisation  and 
subordinated  debt  measures,  to  further  support  small  companies  and  to  incentivise  private 
investments. More recently, the Temporary Framework was prolonged until end 2021, certain 
aid  ceilings  were  increased  and  the  conversion  of  certain  repayable  instruments  into  direct 
grants  was  allowed.  In  response  to  the  economic  fallout  caused  by  the  pandemic,  the  ECB 
took  a  broad  set  of  monetary  policy  measures,  most  notably  launching  the  pandemic 
emergency  purchase  programme  (PEPP)  and  providing  additional  liquidity  through  targeted 
longer-term  refinancing  operations.  These  measures  contribute  to  preserve  favourable 
financing  conditions  over  the  pandemic  period  for  all  sectors  of  the  economy,  thereby 
underpinning economic activity and safeguarding medium-term price stability. 

The  RRF  will  support  Member  States’  efforts  to  increase  growth  potential  through 
structural  reforms  and  investments  while  contributing  to  the  green  and  digital 
transitions. The facility will provide EUR 312.5 billion of non-repayable support and up to 
EUR  360  billion  of  loans  to  Member  States  and  is  oriented  towards  the  economies  worst 
affected by the economic fallout of the pandemic. The facility will help  mitigate the risk of 
divergences  in  both  economic  and  social  conditions  within  the  euro  area  and  the  EU.  The 

10 OJ L 99, 31.3.2020, p. 5–8. 

8 

 
 
                                                 
overall  scale  of  the  facility  is  made  possible  by  an  unprecedented  recourse  to  EU  debt 
issuance.  Maintaining  the  benefit  of  advantageous  financing  of  Next  Generation  EU  will 
equally depend on the quality of the spending and EU Member States’ ability to implement 
their plans in practice, including by putting in  place effective structures to  absorb large  and 
front-loaded EU funding. Consistency between Member States’ medium-term fiscal planning 
and  their  investments  and  reforms  under  the  RRF  is  also  an  important  prerequisite  for  the 
successful use of EU support under Next Generation EU. 

Model-based  simulations  highlight  the  significant  growth  impact  of  Next  Generation 
EU. EU GDP is estimated to be almost 2% higher in the short and medium term and 1% in 
the long term, under the assumption that all grants and half of the loans are used to increase 
productive  public  investment.11  Higher  investment  is  expected  to  boost  short-term  demand 
and medium-term potential growth. With interest rates at the effective lower bound, the risk 
of the fiscal stimulus crowding out private investment is limited. Higher GDP will also have a 
favourable  impact  on  debt-to-GDP  ratios,  especially  in  high-debt  Member  States,  with  the 
consequent  decline  in  risk  premia  stimulating  private  consumption  and  investment.  Finally, 
the coordinated nature of the fiscal stimulus generates positive growth spillovers on account 
of increased intra-EU export opportunities.  

The  rollout  of  the  RRF  has  important  implications  for  national  fiscal  policies. 
Expenditure  financed  by  the  facility  will  provide  a  substantial  fiscal  impulse  in  the  coming 
years. The expenditure financed by the RRF with non-repayable support will make it possible 
to  fund  high-quality  investment  projects  and  cover  costs  of  productivity-enhancing  reforms 
without giving rise to higher deficits and debt. RRF financing will thus contribute to Member 
States  supporting  the  economic  recovery,  fostering  higher  potential  growth  and  gradually 
improving  their  underlying  fiscal  positions.  This  opportunity  is  particularly  important  for 
Member  States  with  less  fiscal  space  or  high  levels  of  public  debt,  who  should  maintain 
prudent  fiscal  policies.  Provided  the  absorption  of  RRF  funds  is  successful,  the  additional 
expenditure  financed  by  RRF  will  provide  a  significant  fiscal  impulse  in  the  coming  years, 
which  will  abate  after  the  first  years  of  frontloading  RRF  investments.  In  designing  their 
medium-term fiscal strategies, Member States should take into account this interplay between 
the RRF and nationally-financed spending to make use of the window of opportunity (see also 
section 5). The approval of the Own Resources Decision is a prerequisite to finance the RRF 
via  Next  Generation  EU.  Member  States  should  take  all  necessary  steps  to  ensure  a 
swiftapproval, in line with their national requirements. 

The RRF is meant to spur Member States to improve the growth-friendliness of public 
expenditure  and  revenue.  For  this  to  happen,  public  investment  funded  by  RRF  non-
repayable  support  should  come  on  top  of  existing  levels  of  investment.  Only  if  that  RRF 
support  finances  additional  productive  and  high  quality  investment,  will  it  contribute  to  the 
recovery and lift potential growth, in particular when combined with structural reforms. If, on 
the  contrary,  the  RRF  support  does  not  result  in  an  increase  in  investment,  it  will  only 
temporarily reduce deficits and debt ratios, with no positive effect on potential growth in the 

11  See:  Commission  Economic  Forecast,  Autumn  2020.  https://ec.europa.eu/info/sites/info/files/economy-
finance/ip136_en_2.pdf  Update  of  the  initial  model  simulations  presented  in  European  Commission  (2020), 
`Identifying Europe’s recovery needs’, SWD (2020) 98 final.  

9 

 
 
                                                 
medium  to  long  term  and  risking  to  result  in  a  worse  composition  of  public  spending. 
Moreover,  the  additional  fiscal  space  provided  by  the  RRF  is  temporary  and  hence  not 
intended  to  finance  additional  recurrent  expenditures.  Instead,  new  permanent  measures 
should be matched by national funding sources that can be maintained over time. 

term.12 

Implementing 

the  medium 

Member States should ensure that their Recovery and Resilience Plans include reforms 
and investments that sustain the recovery and strengthen economic and social resilience. 
In line with the Regulation agreed with the European Parliament and Council, Member States 
should  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the  relevant 
country-specific  recommendations,  including  those  that  contribute  to  sustainable  public 
the  country-specific 
finance  positions  over 
recommendations  would  also  support  the  recovery  and  enhance  resilience.  On  the  revenue 
side, this could include measures to strengthen tax collection and enforcement, to widen tax 
bases  and  to  undertake  growth-friendly  tax  shifts,  which  inter  alia  reduce  the  burden  on 
labour and support environmental and climate objectives. On the expenditure side, this could 
include  measures  to  strengthen  public  financial  management  and  to  undertake  expenditure 
reviews, which lead to a meaningful redirection of spending towards more productive uses. It 
could  also  involve  measures  to  ensure  the  sustainability  of  social  welfare  systems,  for 
example by reforms that increase employment rates and reducing the risk that the COVID-19 
crisis  leads  to  higher  long-term  unemployment  or  a  decline  in  labour  market  participation, 
also in view of an ageing population. Finally, measures that remove unnecessary impediments 
to  investment  and  doing  business  are  important  to  preserve  sound  public  finances  through 
higher economic growth, while often not entailing budgetary costs.  

5.  Orientations for coordinated fiscal policies  

Coordination  of  national  fiscal  policies  is  crucial  to  underpin  the  recovery  in  an 
uncertain  environment  with  constrained  monetary  policy.  In  the  context  of  the 
Recommendation  on  the  economic  policy  of  the  euro  area,  the  Council  agreed  that  fiscal 
policies should remain supportive in  all euro area Member States throughout 2021.13 Policy 
measures should be tailored to country-specific circumstances and be timely, temporary and 
targeted.  Member  States  should  continue  coordinating  actions  to  effectively  address  the 
pandemic,  sustain  the  economy  and  support  a  sustainable  recovery.  When  epidemiological 
and economic conditions allow, emergency measures should be phased out, while combatting 
the social and labour market impacts of the crisis. Moreover, the Council Conclusions on the 
Alert Mechanism Report, adopted in January 2021, called for further targeted and temporary 
measures  to  support  the  recovery,  taking  into  account  existing  and  emerging  risks  to 
macroeconomic  stability.  This  coordinated  orientation  for  the  conduct  of  fiscal  policy  at 
Member State and EU level remains fully valid.  

Against this background, the conduct of fiscal policies in the period ahead should rely on 
a number of key considerations. First, coordination of budgetary policies remains essential 

12 OJ L 57, 18.2.2021, p. 17–75 
13   (forthcoming) Council Recommendation on the economic policy of the euro area. Agreed text available on: 

https://data.consilium.europa.eu/doc/document/ST-14356-2020-INIT/en/pdf 

10 

 
 
 
                                                 
 
in the context of Member States’ submission of Stability and Convergence Programmes and 
Recovery  and  Resilience  Plans.  Second,  fiscal  policy  should  remain  agile  and  adjust  to  the 
evolving  situation  as  warranted.  Third,  a  premature  withdrawal  of  fiscal  support  should  be 
avoided. Fiscal policy is an effective tool, especially in an uncertain environment. Risks of an 
early withdrawal are higher than the risks associated with keeping support measures in place 
for too long. Moreover, premature withdrawal would lead to an unbalanced overall policy mix 
in  a  situation  where  monetary  policy  is  likely  to  operate  at  or  close  to  the  effective  lower 
bound  for  some  time  to  come.  Fourth,  once  health  risks  diminish,  fiscal  measures  should 
gradually pivot to more targeted measures that promote a resilient and sustainable recovery. 
Fifth, fiscal policies should take into account  the impact  of the RRF. Finally, fiscal  policies 
should take into account the strength of the recovery and fiscal sustainability considerations. 
Member States should as part of a well-sequenced and gradual withdrawal of policy support 
and,  at  the  appropriate  moment,  pursue  fiscal  policies  aimed  at  achieving  prudent  medium-
term fiscal positions, while enhancing investment. 

These considerations have implications for the conduct of fiscal policy in the near future, 
specifically  regarding  the  design  of  measures,  the  overall  fiscal  impulse,  and  the  need  to 
consider differing situations across Member States. They will be further detailed as part of the 
guidance in the forthcoming European Semester spring package. 

Design of fiscal support measures 

Support  measures  should  be  timely,  temporary  and  targeted  Fiscal  measures  should 
maximise  support  to  the  recovery  without  pre-empting  future  fiscal  trajectories.  Therefore, 
measures should avoid creating a permanent burden on public finances. When Member States 
introduce permanent measures, they should properly fund them to ensure budgetary neutrality 
in the medium term. 

Once  health  risks  diminish,  support  measures  should  pivot  from  emergency  relief  to 
more  targeted  measures  that  promote  a  resilient  and  sustainable  recovery.  It  is  crucial 
that  measures  preserve  their  efficacy  over  time  and  that  their  withdrawal  is  gradual.  The 
quality  of  measures  will  be  very  important  to  efficiently  support  the  economy  with  limited 
fiscal  resources.  As  containment  measures  are  lifted  and  economic  activity  normalises, 
continued  fiscal  support  should  pivot  towards  minimising  long-term  economic  scarring  and 
ensuring a swift  reallocation of resources. At the same time,  governments  will have to  start 
addressing the legacies of the crisis, including elevated public and private debt levels and the 
social and labour market impacts.  

As the economy and individual sectors move into the recovery phase, authorities should 
step-up employment incentives for workers. Policies should shift from protecting existing 
employee-firm  relationships  to  increasing  job  opportunities  for  unemployed  and  inactive 
persons,  and  supporting  transitions  from  crisis-induced  unemployment  or  short-time  work 
schemes  towards  other  employment  opportunities  in  future-proof  sectors.  Measures  that 
reduce  the  risk  of  higher  structural  unemployment  include  government  programmes  for 
education, up- and reskilling and targeted extensions of short-time work schemes to support 
job transitions, as well as well-designed, temporary hiring incentives. 

11 

 
 
 
Targeted support measures  should help viable but still-vulnerable firms to reopen and 
adjust  their  business  models.  Liquidity  support  should  be  withdrawn  gradually  to  ensure 
that  accumulated  liabilities  do  not  result  in  solvency  problems.  For  solvent  but  liquidity-
constrained  firms  that  are  expected  to  suffer  a  temporary  impact  from  the  COVID-19  crisis 
maintaining  support  is  essential  to  prevent  insolvency  problems.  Targeted  and  temporary 
corporate tax cuts or wage subsidies could continue to be justified in specific cases. Financing 
for  viable  firms  should  become  more  diversified  towards  equity  and  other  capital  (hybrid 
solutions). Incentivising the provision of capital by the private sector (e.g. tax deductions for 
strengthening capital of viable companies with solvency problems) or blending of private and 
public solvency support could be considered. 

As  the  recovery  takes  hold,  fiscal  policy  should  prioritise  higher  public  and  private 
investment,  supporting  the  transition  towards  a  green  and  digital  economy.  These 
investments  should  be  wisely  selected  and  coupled  with  reforms  in  order  to  maximise  their 
impact. Significant additional investments should address strategic policy objectives, namely 
to  strengthen  productivity,  help  meet  the  new  2030  climate  target  and  the  objectives  of  the 
European Green Deal, upgrade digital capacities, and other investments where strong positive 
spillovers exist. A successful recovery strategy will also incorporate investment that promotes 
social and gender inclusion, in particular through education and skilling, as well as regional 
cohesion. Funds received through the RRF for the implementation of reforms and investment 
will also contribute to these objectives. 

Considering the total fiscal impulse 

The  overall  fiscal  impulse,  stemming  from  national  budgets  and  the  RRF,  needs  to 
remain supportive in 2021 and 2022. The extent of the fiscal impulse provided by the RRF 
needs to be explicitly taken into account in national budgetary planning as it is not captured 
by  the  usual  metrics  for  evaluating  the  fiscal  stance.  With  the  RRF  coming  on  stream,  the 
usual  indicators  normally  used  in  fiscal  surveillance  will  underestimate  the  fiscal  impulse 
being  provided  to  the  economy.  Expenditure  financed  by  grants  from  the  RRF  represents  a 
fiscal  impulse  that  will  not  translate  into  a  higher  deficit  or  debt.  This  additional  fiscal 
impulse will be particularly important for those Member States where funding provided by the 
RFF is the largest in comparison with the level of GDP or total public investment. 

The  RRF  is  a  unique  window  of  opportunity  to  improve  the  underlying  fiscal  position 
without choking off growth. The fiscal impulse and higher potential growth resulting from 
RRF  measures  are  mutually  beneficial.  As  health  risks  abate  and  emergency  measures  are 
phased  out,  the  rollout  of  the  RRF  investments  and  reforms  provides  an  opportunity  for 
Member  States  to  improve  their  underlying  fiscal  positions  in  the  medium  term  while  still 
supporting  growth  and  job  creation.  It  is,  therefore,  essential  that  Member  States  take  an 
integrated view of national spending and revenue-raising decisions by embedding the RRF in 
their medium-term budgetary strategies.  

Taking into account different situations across Member States 

In the perspective of economic activity gradually normalising in the second half of 2021, 
Member  States’  fiscal  policies  should  become  more  differentiated  in  2022.  Member 

12 

 
 
 
 
States’ fiscal policies should take into account the state of the recovery, fiscal sustainability 
risks and the need to reduce economic, social and territorial divergences: 

 

Increased  differentiation  in  fiscal  guidance  to  Member  States  should  go  hand-in-hand 
with  an  overall  supportive  fiscal  stance  in  2022,  avoiding  a  premature  withdrawal  of 
fiscal support. Premature withdrawal would be a policy mistake with adverse effects on 
economic  activity  (both  domestically  and  in  other  Member  States)  and  confidence.  It 
would  risk  scarring  the  social  and  economic  fabric  and  make  it  more  difficult  to 
implement those reform priorities that will help to enhance the EU’s economic and social 
resilience and regional cohesion. Given the need to support a sustainable recovery in the 
EU,  Member  States  with  low  sustainability  risks  should  gear  their  budgets  towards 
maintaining a supportive fiscal policy in 2022, taking into account the impact of the RRF. 

  Sustainability risks have increased due to the severe impact of the crisis. The much higher 
levels  of debt-to-GDP  ratios and the negative impact  on trend  growth  as  a result of the 
crisis  are  likely  to  lead  to  less  favourable  trajectories  over  the  medium-term.14  Low 
interest  rates  provide  benign  financing  conditions  for  all  Member  States  to  undertake 
spending that can boost potential growth and avoid a low-growth high-debt trap. Credible 
medium-term  fiscal  strategies  are  needed  to  anchor  expectations.  On  balance,  Member 
States  with  high  debt  levels  should  pursue  prudent  fiscal  policies,  while  preserving 
nationally-financed  investment  and  using  RRF  grants  to  fund  additional  high-quality 
investment projects.  

  All  Member  States  should  focus  on  the  composition  and  the  quality  of  public  finances, 
both on the revenue and expenditure side of the budget. They should also give priority to 
fiscal  structural  reforms that will help provide financing for public policy  priorities and 
contribute to the long-term sustainability of public finances. 

For the period beyond 2022, fiscal policies should continue to take into account the strength 
of the recovery, the degree of economic uncertainty and fiscal sustainability considerations. A 
refocusing  of  fiscal  policies  towards  achieving  prudent  medium-term  fiscal  positions,  at  the 
appropriate moment, including by phasing out support measures, will contribute to ensuring 
fiscal sustainability in the medium term. This should be done in a way that mitigates the social 
and labour market impact of the crisis and contributes to social sustainability. 

6.  Conclusions and next steps 

Member States are expected to submit Stability and Convergence Programmes that take into 
account  the  2020  country-specific  recommendations,  the  Annual  Sustainable  Growth 
Strategy,  the  Council  Recommendation  on  the  Economic  policy  of  the  euro  area  and  the 
policy orientations included in this Communication. Member States’ Recovery and Resilience 
Plans should be fully consistent with those policy orientations.  

As  the  general  escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth 
Pact,  the  Commission  will  assess  the  Stability  and  Convergence  Programmes  and  propose 

14   See: European Commission (2020), ‘Debt Sustainability Monitor 2020’, February 2021. 

https://ec.europa.eu/info/publications/debt-sustainability-monitor-2020_en 

13 

 
 
 
                                                 
country-specific fiscal policy guidance as part of the European Semester spring package. The 
proposed  fiscal  guidance  will  respect  the  Stability  and  Growth  Pact,  while  using  the  full 
flexibility within it to ensure that the coordination of fiscal policy addresses the exceptional 
situation that the pandemic has given rise to. Based on the considerations outlined above, the 
Commission’s proposals for fiscal policy guidance will remain predominantly qualitative and 
include  some  differentiated  quantified  element  as  part  of  the  medium-term  guidance.  The 
fiscal  impulse  from  the  RRF,  an  improvement  of  the  underlying  fiscal  position,  and  the 
implementation of reforms and investments to boost potential growth are mutually beneficial. 
This will be taken into account in the proposed policy guidance. 

In  May  2020,  the  Commission  reached  the  conclusion  that,  at  that  juncture,  a  decision  on 
whether to place Member States under an excessive deficit procedure should not be taken. As 
in  spring  2020,  the  Commission  intends  to  prepare  reports  under  article  126(3).  In  this 
context,  the Commission intends to  take into account  the high uncertainty, the agreed  fiscal 
policy  response  to  the  COVID-19  crisis  and  the  Council  recommendations  for  2021.  The 
Commission approach will be confirmed in the spring European Semester package, based on 
the outturn data for 2020 and Member States’ Stability and Convergence Programmes. 

As  part  of  the  European  Semester  spring  package,  and  following  a  dialogue  between  the 
Council and the Commission, the Commission will also assess the deactivation or continued 
application of the general escape clause of the Stability and Growth Pact. In the view of the 
Commission, the decision on whether to deactivate the general escape clause or continue it for 
2022  should  be  taken  as  an  overall  assessment  of  the  state  of  the  economy  based  on 
quantitative criteria. The level of output in the EU or euro area compared to pre-crisis levels 
would  be  the  key  quantitative  criterion.  Current  preliminary  indications  would  suggest  to 
continue applying the general escape clause in 2022 and to de-activate it as of 2023. 

framework.  The  Commission’s 

When the recovery takes hold, the Commission intends to relaunch the public debate on the 
review  of  February  2020 
economic  governance 
identified well-recognised  challenges  with  the  fiscal  framework  and  its  implementation.15 
While overall deficit and debt levels decreased, very high public debt had persisted in some 
Member  States  prior  to  the  current  crisis.  The  fiscal  stance  at  Member-State  level  had 
frequently  been  pro-cyclical,  both  in  good  and  in  bad  times,  respectively  by  not  building 
sufficient buffers in some periods or not making sufficient use of fiscal space in others. The 
composition of public finances had also not become more growth- and investment-friendly. In 
the event of large economic shocks, the ability to steer the fiscal stance for the euro area had 
been hampered by a lack of prudent policies in good times and remained constrained as long 
as it rested exclusively on coordination of national fiscal policies, in the absence of a central 
fiscal stabilisation capacity. Moreover, the framework has grown increasingly complex.  

The pandemic has significantly changed the context of the public debate, with higher levels of 
debt  and  deficit  and  significant  output  losses,  increased  investment  needs  and  the  related 
introduction of new policy tools at EU level. Moreover, the general escape clause was used 

15 See: European Commission (2020), ‘Economic governance review’, February 2020.  
https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-
governance-monitoring-prevention-correction/economic-governance-review_en 

14 

 
 
                                                 
 
for  the  first  time  in  the  implementation  of  the  fiscal  surveillance.  Therefore,  the  crisis  has 
highlighted  the  relevance  and  importance  of  many  of  the  challenges  that  the  Commission 
sought to discuss and address in the public debate. Relaunching the public consultation on the 
economic  governance  framework  will  allow  the  Commission  to  reflect  on  these  challenges 
and draw lessons. However, in light of the COVID-crisis and the need to focus on the RRF 
and the immediate policy response, its relaunch has been put on hold. 

15 

 
 
 
 
Appendix 

Table 1: overview of national fiscal measures in response to the COVID-19 pandemic 

Source: European Commission 2021 winter forecast  

Graph 1 

Real GDP in the EU, 2019-2022 (index, 2019Q4=100) 

Graph 2 

World pandemic uncertainty index, 2010Q1-

16 

00-01-1900EU-27bln EUR% of GDPbln EUR% of GDPbln EUR% of GDPInitiatives by the Member States1A.  Measures with a direct budgetary impact2497.83.8364.72.683.10.61. Expenditure438.53.3322.22.365.90.41. a) Health care 80.80.658.90.414.90.11. b) Other363.02.7264.51.952.30.42. Revenue59.30.442.50.314.10.1B. Automatic stabilisers3± 4C. Liquidity measures without a direct budgetary impact2505.918.9-307.8-0.41. Tax deferrals 206.51.6-307.8-0.42. Public guarantees (available framework)41877.014.2-307.8-0.4of which current take-up (actual contingent liability)456.03.40.00.03. Others422.43.2-1370.0-1.84 Figures refer to the maximal public funds involved if all of the available guarantees were taken-up. Guarantees to EU and international level instruments are excluded. For Germany, the size of available guarantee schemes is included, while the overall guarantee framework is actually unlimited.3 The impact of automatic stabilisers is estimated as the residual after subtracting the estimated impact of fiscal measures from the change in the primary balance2020-20221 The amounts included cover the impact of nationally-financed measures, net of funding provided e.g. by EU initiatives2 The impact of the measures is given in increments compared to 2019 in accrual terms (ESA2010). GDP projections are based on the Commission 2021 winter forecast. 20202020-2021 
 
 
 
2020Q4 

Note: Pre-pandemic forecast for 2022 is obtained by 
extrapolating 2021 quarterly growth rates. 
Source: European Commission 2020 and 2021 winter forecasts. 

Source: Ahir, Bloom and Furceri, "The World Uncertainty Index", 
mimeo. 

Graph 3 

Actual unemployment rate and Okun’s prediction 
in the EU, 2019Q4-2020Q2 (%) 

Graph 4 

Unemployment rate in the EU and the US, January 
2010-December 2020 (%) 

Note: Okun’s law is an empirically observed relationship between 
unemployment and real GDP growth.  
Source: European Commission based on Eurostat’s Labour Force 
Statistics and National Accounts.  

Source: Eurostat. 

17 

8590951001052019202020212022Latest forecastPre-pandemic forecast2.7% of 2019Q4 GDP051015202519Q119Q219Q319Q420Q120Q220Q320Q40246810 2019Q4 2020Q1 2020Q2Actual unemployment rateUnemployment rate predicted by Okun's law0481216Jan-10Jan-12Jan-14Jan-16Jan-18Jan-20United StatesEuro area