| ** Dear readers,
The Brief will take a short break and be back with you on 8 April.
Faced with the far-reaching implications of the COVID-19 pandemic in 2020 and a mounting global energy crisis from 2021 onwards, European governments have embraced a Keynesian approach, spending billions to keep companies afloat and help consumers. But those times are over. As many economics students have long learnt through a widely popular 1994 rap video, macroeconomic policy can be described as a back-and-forth between two competing schools of thought. One is the classical liberal theory, which bets on markets to restore equilibrium naturally and argues for minimal state intervention. The other is Keynesianism, which assigns a much bigger role to governments, particularly in fighting off economic crises, and builds on the premise that even in tight economic conditions, spending is needed to spur spending. Contrary to the 2012 European sovereign debt crisis, which was accompanied by a sweeping rise of austerity policies—hinging on the opposite theory that during economic crises, governments need to turn off the tap of public spending—the COVID pandemic saw the Keynesian approach dominate across the bloc, preventing what was threatening to turn into the biggest shock to European economies since the Second World War. European governments spent billions to keep people in jobs via furlough or short-work-schemes, supported by the EU’s SURE program, which enabled more favourable lending conditions for an additional spending of €98 billion. The crisis also led the EU to overstep a previously critical red line for many countries, taking on joint debt and dispersing the money to member states through the “Next Generation EU” recovery programme, initially worth €723 billion. | 