Bruegel | Policy Contribution Issue n ̊15 | July 2020
Introduction: One of the first consequences of COVID-19 lock downs has been an immediate fall in household incomes. In a March 2020 survey for the G7 countries, 31 percent of households reported that the coronavirus had already impacted their incomes. Workers throughout the European Union have seen over time a reduction in weekly hours worked, temporary suspensions and even redundancies. Many self-employed workers and small businesses have been particularly impacted, and some might cease to operate altogether (Anderson, 2020). Governments have tried to compensate for this shock to income through direct support or deferral of tax and loan payments. The European Central Bank and other EU institutions have also put measures in place to provide governments with funds that will support health systems, businesses and households. In other words, a raft of measures has been introduced to supplement household incomes and mitigate these shocks.
But how well-prepared were households to handle shocks, a concept associated with financial fragility? As we show, two years before the pandemic hit, a substantial share of EU households reported that they would be unable to handle unexpected expenses. In some EU countries, many households had savings equivalent to just a few weeks of basic consumption. We also find that there are big differences in different countries and, thus, a need for more targeted policies to help families….