Covid-19: What Determines Policy Responses Across Europe?

This chapter analyses responses of European policymakers to the Covid-19 pandemic’s first and second waves. It is based on an empirical analysis where patterns are sought between contextual factors and policy responses. The results shows that that macroeconomic conditions and policy interactions appear to matter more than countries’ number of Covid-19 cases. The level of government indebtedness came out as a significantly positive determinant of fiscal stimulus. Policy interaction also matters, but merely between financial policies – social restrictions do not influence fiscal or prudential policy. In addition, unconventional policy measures support expansionary fiscal policy and loosening of prudential policy measures. The European institutional context of coordination and joint decision making in fiscal, monetary and prudential policy likely influence these results and raise important policy questions. Finally, it appears private initiatives such as moratoria or eased lending standards potentially substituted fiscal stimulus as the pandemic entered its second wave in Europe.