All euro-zone countries have announced a massive budgetary response to the crisis but it is uncertain that governments have this unlimited budgetary capacity, analysts at Natixis report.

Key quotes

“We expect growth in 2020 (at an annual average) to come in around -2% in France and Spain, -3% in Germany, and -4% in Italy.”

“Given the loss of growth compared with what was expected (3 to 4 percentage points), we can expect an increase in fiscal deficits of at least 2 percentage points of GDP.” 

“If all euro-zone countries are affected, a mutualisation of additional fiscal deficits reduces the weight for the peripheral countries but does not solve the overall problem of excess fiscal deficits.”

“The only solution is then monetisation of these additional fiscal deficits by the ECB, and therefore a significant increase in QE on government bonds (by at least EUR 250 billion if the additional fiscal deficits are 2% of GDP).”