Euro Area's fiscal policy in focus in a new recession

There are diminishing returns from European Central Bank's further QE. This implies that Euro Area's fiscal policy is likely to take centre stage in any renewed recessionary scenario. 

However, while providing short-term support, the medium-term sustainability of already bloated public debt levels would again come into question. An aspect frequently discussed is the combination of fiscal stimulus financed by a permanent increase in the central bank's balance sheets ("helicopter money").

While the effectiveness as regards activity can be discussed, there are serious problems related to how credibly a central bank can, irreversibly, expand its balance sheet and not put future price stability in jeopardy. 

"Given the controversy of such policy, also in terms of market and incentive distortions, a deeper structural reform looks favorable which remains a key area of untapped potential in Europe. With renewed recession, the relevance of deeper economic reforms in euro area than seen so far would also rise", says Societe Generale.