Euro area fiscal policy in focus in a new recession with ‘helicopter money’ remaining a mirage

There are diminishing returns from further QE. This implies that 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, we would instead argue in favour of deeper structural reform which remains a key area of untapped potential in Europe", notes Societe Generale.

With renewed recession, the relevance of deeper economic reforms in the euro area than seen so far would also rise.