We return from the holiday break this week with a series of previews of major policy plans for 2021. Today, our primer on the economy.

After the devastating blow dealt by the pandemic last year, 2021 will be all about whether — and how — Europe’s economies can get back on their feet. Faced with a record recession and ravaged public finances, EU leaders agreed on a massive recovery package of grants and loans financed by jointly-backed debt. Assuming the pandemic eventually begins to subside, this year will put the extraordinary stimulus to the test. With the first tranches of grants expected to reach national coffers by the summer, focus will shift to what kinds of investments and reforms governments opt to finance, and whether they can successfully absorb the funds. Here’s a look at what’s in store for Europe’s economy in 2021.

What to Expect This Year
Debt Deluge | To finance the recovery, the EU is taking an unprecedented step and issuing a tidal wave of jointly-backed debt. Kicking off in the first half of the year, it’s set to be one of the most-hyped new assets in financial markets, providing investors with safe bonds, a third of which will be much sought-after green securities. Demand for the bloc’s social debt last year smashed global records.

Hamiltonian Moment | The EU is keen to emphasize the temporary nature of the program to placate more frugal member states, but there’s no doubt that this is a big deal. The money will ease the strain in heavily-indebted nations like Italy, while the dream of Europe’s founders to have a safe mutual asset akin to what happened in the U.S. in 1790 is a step closer. The euro too is reveling in its “Hamiltonian Moment.”

Fiscal Rules | With EU budget rules suspended, the bloc’s finance ministers will have to tackle two thorny issues this year. The first is when and how quickly the fiscal framework should be reintroduced. The second, and trickiest, is whether the existing rules will still be fit for the post-pandemic era and, if not, how best to reform them.

Political Struggles | As nations seek to finalize plans for how they’ll use the recovery money, political tensions are bound to arise. The Italian government is already wobbling, with a junior ally threatening to dump the coalition amid disagreements over spending plans and the use of the ESM pandemic credit line.

Easy Money | The ECB boosted its stimulus measures in December, making sure that governments, companies and households will be able to borrow at low rates throughout this year. Drawn-out restrictions to contain the spread of Covid-19 have caused economists to lower their forecasts for 2021, with many now expecting another contraction in the first three months of the year.

In Other News...
Tricky Access | The U.K. will begin talks this week with the EU on how regulators will cooperate over financial services now that Brexit has been completed. That’s as EU officials warned the bloc is in no rush to reopen its doors to the British finance industry, dashing remaining hopes that the trade deal would unlock access.

Look Out | U.K. hospitals, swamped with Covid-19 patients even as the country pushes to vaccinate 200,000 people a day, hold a cautionary tale for the rest of Europe. While the U.K. is way ahead on its vaccine roll-out, its hospitals are being pushed to their limits by a surge in cases from a new, faster-spreading strain of the disease.

Troubled Waters | While Boris Johnson claimed last month’s Brexit deal will let the U.K. regain control of its fishing waters by taking back 25% of the EU’s rights, many fishermen feel let down. They’re upset that the share fell far below original demands and may even mean smaller amounts of some key catches.

Merkel Successor | Germany’s political future will start to take shape when Angela Merkel’s Christian Democratic Union picks a new leader on Saturday. The winner will be in prime position to run as the conservative bloc’s chancellor candidate in September's election. Meet the contenders.

Health Hack | Hackers posted confidential documents on Covid-19 medicines and vaccines on the internet after a data breach late last year at the European Medicines Agency. Timelines related to evaluating and approving Covid medicines and vaccines haven’t been affected, according to the EMA, which said it remains “fully functional” and that law enforcement authorities are taking action.

Chart of the Day

Angela Merkel warned that Germany may need to prolong its coronavirus lockdown until Easter due to risks posed by a fast-spreading variant from the U.K. Europe’s largest economy has already seen its outbreak intensify in recent days, despite tightening restrictions on movement and contact. Now authorities are looking with concern toward Ireland, where the new strain has contributed to one of the world’s worst contagion rates.

Today’s Agenda
All times CET.

• 10:30 a.m. Informal video conference of EU health ministers