1/8 Policymakers in 🇪🇺 are facing a set of (self-imposed) constraints in assuring a succesful recovery from #COVID19. Member States will have to i) meet increased spending needs while also ii) containing higher debts and deficits iii) without significant tax hikes. A 🧵. 2/8 The biggest open question is how governments hope to fund huge investments needs to support the recovery and the dual green and digital transitions. Normally, higher spending would require that Member States either take on more debt or increase taxes.

1/5 A recent research note by the @AtlantaFed shows that the removal of price controls and the restarting of production lines after WWII unleashed a wave of pent-up consumption demand which culminated in a short-lived #inflation spike of 20% in 1946-1947.

atlantafed.org/research/publi… 2/5 The @federalreserve subsequently implemented a series of contractionary policies that mostly involved an increase in reserve requirements and the discount rate, with inflation stabilising again back at 2% in 1949. Plenty of parallels with the current situation.