The outbreak of the COVID-19 pandemic is not only a humanitarian crisis, but also a drastic economic crisis. While the course can hardly be predicted, it is already foreseeable today that the economic and financial consequences of the pandemic will be a major challenge for the functioning of the eurozone. The economic policy measures to ease the recession and the shortfall of tax revenues will cause government debt to skyrocket. Even though the COVID-19 shock hits all European countries, the countries differ in their starting position in terms of debt and thus in the scope for additional debt. 

In the first weeks of the COVID-19 crisis, the ECB took action to stabilize the eurozone government bond markets and launched a new comprehensive securities purchase program. As part of the Pandemic Emergency Purchase Program (PEPP), the Eurosystem will purchase a volume of EUR 1,350 billion by at least the end of June 2021. The PEPP overrides the rules on purchase ceilings that applied to previous government bond purchases by the Eurosystem. The ECB also reserves the right to deviate from the ECB's capital key when distributing bond purchases among the euro countries. This development aggravates existing questions about the problematic but important role of the ECB for government debt financing in the euro area.

Another highly controversial question is whether and through which new fiscal instruments, if any, could help finance COVID-19 damage at European level. While the heavily indebted euro countries in particular are in favor of jointly designed “corona bonds”, the northern European euro countries tend to favor the activation of the European Stability Mechanism (ESM). This debate largely neglects the question of how Europe can deal with countries that are exposed to over-indebtedness as a result of the COVID-19 shock and hence, even European liquidity provided cannot help them to cope with this situation.  

Against this background, the objective of this research project is to analyze the development and use of the bond purchase programs, including the PEPP, to examine the effects of the bond purchase programs on the returns of the euro countries’ bonds and to find strategies for an ECB exit from euro sovereign debt financing in the post-COVID-19 era.


Brigitte Strube Stiftung , Stuttgart , DE

Project duration

01.05.2020 - 31.05.2021