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Unconventional Fiscal Policy to Exit the COVID-19 Crisis (VoxEU, 8 min read) German’s unexpected (and temporary) VAT cut should effectively encourage spending, boost tax revenues, and raise inflation expectations. The piece shows it is more effective than forward guidance on interest rates which should, in theory, do the same thing. [Bullish inflation]
Europe’s ‘Hamiltonian Moment’ or ‘Fort Sumter Fusillade’? (Project Syndicate, 4 min read) Germany is finally coming to realise that for the Euro area to survive it must move towards joint fiscal policy, yet CEE countries and the frugal four of Austria, Denmark, the Netherlands, and Sweden are not. A Eurozone (rather than EU) recovery fund should instead be considered. [Bearish euro-area]
Financing Japan’s Record Stimulus (OMFIF, 3 min read) The announced fiscal stimulus measures include reallocated spending, government guarantees and contingent lending, yet only part of the support package represents new budgetary spending. And higher net issuance will be easily absorbed into a market where the BoJ holds nearly 50% of outstanding bonds. [Bullish JGBs]