Spread of the Crisis : Impact on Public Finances

We have reviewed the financial rescue and economic recovery measures taken in the EU at the end of 2008 and during 2009. Many member states have undertaken recapitalization efforts and provided debt guarantees to help systemically important institutions and restore confidence in financial markets. They have also stimulated purchasing power, pursued active labour market policies and spurred investment and business to fend off the recession. However, in doing so, some countries have not taken appropriate measures. Especially with regard to competitiveness on a EU (and even a global) level, the government rescue packages have done serious harm. This has occurred in the banking sector, but also in the automotive industry. The European Commission should give higher priority to creating a European level playing field, instead of focusing on the national level when considering the approval of state aid. Furthermore, several member states have not yet planned how to reverse the fiscal stimulus in the medium term and consolidate their financial budget. With worsening issuance conditions due to growing sovereign debt and higher interest rates, it may become more difficult to roll-over public debt in the future.