Thread by @Isabel_Schnabel

On Friday, I gave a speech at Deutscher @juristentag about the distributional effects of the COVID-19 pandemic and the danger of “unequal scars”. My goal was to add a European dimension to the debate. Here is my usual Twitter summary, including some of the charts. 1/11

https://twitter.com/ecb/status/1306988188137857027

The pandemic is a global shock that hit all euro area countries almost simultaneously. But it has become increasingly clear that the pandemic has very different impacts on different countries, as can be seen from the @EU_Commission’s forecast of economic growth. 2/11

There is a negative correlation between the projected fall in GDP for 2020 and (a) the extent of government-imposed restrictions, measured by the Oxford Stringency Index, and (b) the dependency on tourism. 3/11

The countries hit hardest by the pandemic are often those that had already high levels of public debt before the crisis, which may limit the scope for fiscal stimulus measures. A widely shared concern is that the fiscal response in these countries could be insufficient. 4/11

Decisive monetary policy measures by the @ecb calmed financial markets (#PEPP, #TLTRO), in combination with fiscal measures, especially the agreement on a European recovery package. Sovereign bond spreads are now close to pre-crisis levels. 5/11

Unlike in the global financial & euro area crisis, monetary and fiscal policy are today acting in a complementary manner and are reinforcing each other. This policy response made it possible to effectively counter what is the most severe economic crisis in living memory. 6/11

Within countries, too, there are indications that pre-crisis inequalities are reinforced by the pandemic. The share of employees in the sectors that were most strongly affected by the lockdown measures decreases notably in income. 7/11

During the period of home schooling, students from US districts with higher average household incomes earned a higher number of badges for completing online courses than those from districts with lower incomes. This may cause inequality to increase in the long run. 8/11

Moreover, the share of employees in sectors that were most strongly affected by the lockdown measures tends to decrease in age, and women across almost all age groups are more affected by the restrictions than men. 9/11

The #ECB’s single monetary policy has limited means to deal with the threat of rising inequality, especially on individual level. Instead, it is the task of fiscal policy to implement targeted measures to prevent inequality from turning into a structural phenomenon. 10/11

In the longer run, the key objective should be to prevent permanent scarring effects due to a structural entrenchment of inequalities emerging in the context of the crisis. Education and family policy are likely to play an important role in this context. 11/11