Public Finances in EMU 2009 (EC)

The report of the European Comission reviews how Member States are tackling the challenges from the financial and economic crisis. It assesses the prospects for public finances and policy needs ahead based on past experiences with financial crises. The analysis reveals that direct and indirect fiscal costs of the financial crisis will be massive. It finds that quick, resolute and comprehensive policy responses in the financial sector, together with an exit strategy of timely unwinding government interventions can contain the costs. In addition to the direct fiscal costs of interventions in the financial sector, large fiscal deficits and low economic growth rates lead to sharp increases in government debt ratios.