According to the European Central Bank President Christine Lagarde, it is important for the various governments of the euro zone to continue to spend heavily in order to engineer a revival of the region’s economy from the historic recession that the bloc’s economy has been pushed into because of the economic impact of the novel coronavirus pandemic.
Lagarde said that such government spending would be beneficial because it would adequately complement the already super-easy monetary policy as implemented by the European Central Bank.
There re growing concerns in multiple quarters about the ability of governments to push through more support and some subsidies because many of the countries have by now surpassed the 100 per cent mark for their debt levels compared to their GDPs already this year.th the scenario has raised concerns that there could be a risk of increase in unemployment and abrupt end to various income schemes.
“Confidence in the private sector rests to a very large extent on confidence in fiscal policies,” Lagarde said in a speech. “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”
Several countries of the bloc have already extended their employment subsidy schemes and no some countries are pushing to lengthen such schemes. Some countries want to extend the schemes by a year or two in order to bolster confidence of people while a recovery from the recession is underway in the bloc. It is expected that the euro zone GDP could contract by as much as 8 per cent this year.
“Keeping job support schemes in place is critical to avoid a sharp increase in unemployment later in the year,” Lagarde added in a speech to the Annual Meeting of the Council of Governors of the Arab Central Banks and Monetary Authorities.
Governments were also urged by Lagarde to quickly come to a final agreement on the European Union’s 750 billion euro recovery fund which is still being discussed and considered by various countries and has been a subject of political bickering.
Lagarde said that since there is no place for complacency, adjustment of all of its instruments as needed will be done by the ECB to play its role in the revival of the economy. This is mostly a repetition of the bank’s stance that it had announced previously.
Its monetary policy has been eased by the ECB several times this year. The bank now estimates that its measures will add 1.3 percentage points to growth and 0.8 percentage point to inflation through 2022.
The ECB would “carefully” assess incoming data, including the strengthening of the euro, as that carried the risk of suppressing both growth and inflation, Lagarde also said.
(Adapted from WioNews.com)