European Fiscal Monitor: January 2022

As the EU enters the third year of the COVID-19 pandemic, the future macroeconomic outlook remains unusually uncertain due to the emergence of new variants. A strong economic recovery was reported in 2021 (5% on average), which is expected to continue in 2022 but at a slightly slower pace (4% on average).

The fiscal stance in most countries remained very supportive throughout 2021, as governments continued with large-scale measures to support the economy. In the 25 countries  covered by this European Fiscal Monitor (EFM), policy measures cost on average about 5% of GDP in 2020 and 4% of GDP in 2021. 

With the economy recovering strongly, many governments have started to gradually phase out COVID-related fiscal measures. COVID-19-related fiscal stimulus announced within 2022 budgets  is expected to cost about 1% of GDP. This figure might increase, however, should the epidemiological situation deteriorate.

Many questions remain about the deactivation of national escape clauses. Following the decision to prolong the EU general escape clause throughout 2022, national escape clauses have also been prolonged in most EU Member States that have a national escape clause. Nevertheless, many countries already reached their pre-pandemic output levels in 2021. National IFIs in these countries are concerned about the risks of excessive long-term public spending if governments are not subject to a rules-based framework without a compelling rationale .

This EFM provides an overview of the activities of 29 national IFIs, and the fiscal measures adopted in response to COVID-19 in 24 EU Member States and the United Kingdom. The monitor is based on a survey of IFIs carried out in December 2021, mostly covering the information linked to autumn 2021 forecasts . The information obtained for each country is based on the assessment by the national IFI or by the national government, depending on the mandate of the IFI. 

National IFIs are independently mandated by national governments to: i) monitor compliance with national and EU fiscal rules; ii) produce or endorse macroeconomic and in several cases budgetary forecasts; and/or iii) advise national governments on fiscal policies. This puts them in a good position to assess public finances at national level.