Dispelling the Shadow of Fiscal Dominance? Fiscal and Monetary Announcement Effects for Euro Area Sovereign Spreads in the Corona Pandemic

We use event study regressions to compare the impact of EU monetary versus fiscal policy announcements on government bond spreads ten euro member countries. Our motivation is evaluate which two players – ECB or level has been more crucial for stabilization sovereign markets in crisis environment pandemic. This question substantial relevance assess potential risks effective independence future. key result that pandemic emergency measures through PEPP have highly effective, whereas rescue had much less impact. document a smaller and statistically significant spread-reducing effect only announcement Next Generation program. In contrast, temporary relaxation European rules activation emergency-escape clause under Stability Growth Pact associated with rising spreads. results an unpleasant implication debate looming dominance presence public debt levels as so far, appears hinge largely Eurosystem's role massive buyer high-debt countries' bonds.