The European Central Bank (ECB) said in a report on Wednesday that abruptly ending support measures brought in due to the COVID-19 pandemic could lead to cliff-edge effects on household and corporate income, with knock-on effects for economic activity in 2021, adding that Italy and the Netherlands were the EU countries most exposed to these risks.
"Countries relying more on moratoria, direct support and tax deferrals appear more exposed to cliff effects in policy support for 2021," the ECB said in its Financial Stability Review.
"Across the largest euro area countries, simulations suggest that such effects would be most pronounced in the Netherlands, mainly owing to the phasing-out of a large part of the direct support coupled with the ending of tax deferrals and short-time working schemes.
"Likewise in Italy, the broadly simultaneous expiration of the majority of loan moratoria, exit from short-time working schemes and ending of direct support would indicate a substantial drop in the support to the recovery in 2021".
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