Solidarity and Cooperation: Europe’s Response to the Disaster
February 22, 2021
As ready for supply
Thanks for the chance to handle you right now. As EU Commissioner I benefitted from interactions with this Convention and am honored to affix you once more at this vital time.
Jean Monnet as soon as stated: “Individuals solely act in a state of necessity and often solely acknowledge necessity in a scenario of disaster.”
We’re in a disaster and it’s time for motion. In 2020, 90 p.c of the international locations completed the yr with a smaller economic system than at first of it — the worst efficiency the world has had throughout peace time. Nevertheless it may have been a lot worse. Exceptionally sturdy and coordinated actions by central banks and by finance authorities have performed a vital position in mitigating the human and financial impacts.
I wish to pay tribute to Christine Lagarde and the ECB for reacting swiftly with extraordinary coverage lodging, and to all of the governments of the EU for putting in large fiscal assist of over 3 trillion euros for corporations and households, together with job-retention schemes that helped over 54 million employees. And the Subsequent Technology EU initiative is a exceptional achievement in joint mobilization of funds.
These actions—along with unprecedented scientific advances on vaccines and coverings (many home-grown in Europe) and progress in making use of masks, social distancing, testing and phone monitoring—have helped stabilize the economic system and transfer the world and the EU in the direction of restoration.
Presently, we’re projecting world development of 5.5 p.c and 4.2 p.c within the EU this yr. However the path to restoration is extremely unsure and, most significantly, uneven. Unsure due to the continued race between the virus and the vaccines. Uneven due to the distinction in beginning positions, financial construction and capability to reply – inflicting inequalities to develop each throughout and inside international locations.
The latter is my deepest concern: that the Nice Lockdown of 2020 may morph right into a Nice Divergence in 2021.
Divergence is most profound within the growing world the place half of the international locations that used to catch up in earnings ranges with their wealthier friends are actually falling additional behind. However it’s a threat for the EU as effectively. Conventional vacationer locations have skilled a lot sharper contractions—greater than 9 p.c final yr in Spain, Greece, and Italy—in comparison with a median contraction of 6.4 p.c throughout the EU.
And we venture that by the top of 2022, per capita earnings for the rising markets of Central and Jap Europe shall be 3.8 p.c beneath pre-crisis projections, in comparison with a shortfall of simply 1.3 p.c for the EU’s superior economies—a adverse affect nearly 3 times bigger that may gradual the tempo of convergence.
We additionally see rising divergence inside international locations, within the type of worsening inequality.
Areas with decrease GDP per capita went into the disaster with decrease productiveness, bigger contact-intensive sectors, and fewer jobs that enable for distant working—in order that they have been hit all of the tougher. Tens of millions of jobs have been misplaced, with girls and younger folks struggling probably the most, particularly these with decrease incomes and financial savings.
So: the large query going through EU policymakers is: how can we guarantee a powerful restoration and deal with this menace of divergence?
First—finish the well being disaster. This yr, vaccine coverage is on the coronary heart of financial coverage, in Europe and world wide. Till we defeat the pandemic in all places, we threat new mutations that threaten our progress.
Scaling up manufacturing and distribution of vaccines is vital. So too, is extra financing to safe doses and pay for logistics, in addition to well timed reallocation of extra provides. This requires cooperation.
Second—battle the financial disaster. Till the pandemic is defeated, assist for corporations and households ought to proceed. Gradual withdrawal has to comply with, not precede, a sturdy exit from the well being disaster. It issues internally, and likewise when it comes to spillovers – a untimely tightening of coverage when worse-hit economies are nonetheless deeply fragile may exacerbate divergence between international locations.
Whereas now will not be the time to withdraw assist, it’s the time to establish the energy of insolvency regimes. Huge assist in 2020 led to decrease than common bankruptcies. As soon as assist declines and with structural change accelerating, the chance of a better charge of debt defaults will go up. Insolvency preparations and larger emphasis on fairness assist may assist forestall debt overhangs and ratcheting bankruptcies.
Third—and most essential over the long term—harness the response to the disaster to spur structural shifts to digitalization and greening, and energy up Europe’s convergence engine.
A coordinated inexperienced infrastructure funding push is a should. Our evaluation exhibits that this might increase world GDP over a 15-year interval by about 0.7 p.c every year, creating thousands and thousands of latest jobs. Carbon pricing might help restore fiscal balances, channel personal investments into inexperienced sectors, and ship substantial emissions reductions. Elevated entry to high-speed web in rural and underserved areas would increase productiveness. Training spending and job coaching applications would construct the abilities wanted for a digital and inexperienced age.
And Europe can step up reforms to handle persistent structural challenges. The Subsequent Technology EU could be extra than a catalyst for financial transformation: it’s a forerunner to new shared fiscal instruments to enhance the ECB’s single financial coverage. The EU can take additional steps in the direction of banking and capital market union to spur development and integration. And efforts to make worldwide company taxation match for the digital age might help increase revenues and deal with inequality.
Let me end with a phrase of thanks to your assist to the work of the IMF on this disaster.
From the outset we swiftly recalibrated coverage recommendation. Our message “Spend however preserve the receipts” was uncommon for the Fund, however applicable for this disaster. And we put our cash the place our mouth is. We supplied over $105 billion in new financing to 85 international locations—together with in Europe, to Albania, Bosnia and Herzegovina, Kosovo, Moldova, Montenegro, North Macedonia, and Ukraine.
We adjusted our capability growth work to the wants and modalities of labor through the pandemic. We strengthened give attention to inclusive development—particularly with our European companions—on points like progressive taxation and social spending.
And we’ve stepped up work on local weather change — which isn’t solely a menace to financial and monetary stability, but in addition a possibility for inexperienced development and jobs. Our evaluation of insurance policies to succeed in the EU’s formidable carbon emission discount objectives exhibits our dedication to place local weather change on the coronary heart of our work.
We’re working intently with the EU to do extra for low-income international locations—they face painful selections between tackling the well being disaster, assembly peoples’ primary wants, and fostering macroeconomic stability and boosting public funding which can be important for sustainable development.
EU residents could be happy with their help to weak international locations throughout this disaster. You have got backed up all our efforts and have contributed to our debt reduction and concessional lending capability. And you’re looking for methods for us to do extra, together with via a brand new SDR allocation to spice up reserves with out compounding debt burdens. I drastically admire EU finance ministers’ assist on this regard.
You’ll be able to rely on us. As we rely on you.
The European Union was the most effective innovations of the 20th century. Its values of solidarity and inclusion stay the 21st century’s finest hope.
IMF Communications Division
Cellphone: +1 202 623-7100E mail: MEDIA@IMF.org