Thursday, August 18

Don’t stifle recovery with austerity policies, IMF chief Georgieva warns Europe

The European Union should not jeopardize economic recovery with “the stifling force of austerity,” IMF Managing Director Kristalina Georgieva told Euronews.

Georgieva praised the EU’s recovery plan for the next generation, describing it as a “remarkable” act of solidarity between European nations.

And he told Efi Koutsokosta of Global Conversation that the Europe of the future must be “innovative, vibrant, highly skilled and agile” if the world is to move forward.

Kristalina Georgieva: What we are seeing is that the recovery in the euro area is strong. For this year we project a growth of 5%, for next year 4.3%. That comes after it fell by six and a half percent last year. So this bounce (bounce) is very impressive. It is based on three pillars. Vaccines, support for policies and companies and people learning to function with the pandemic that still surrounds us. What we saw was in the third quarter, a very significant increase. But, as your question indicates, in the fourth quarter the growth outlook is weaker. They are weakened by an increase in infections. In that sense, the uncertainty of the new variant does not help.

Efi Koutsokosta: How deep could this dent be?

Kristalina Georgieva: We do not expect any significant downgrade for the eurozone. We believe that the most important element is the fact that companies and consumers are operating, relatively speaking, in a robust way, despite the fact that there is an increase in infections and that is also supported by continued policy measures.

Fears of inflation

Efi Koutsokosta: There is another factor that we have also seen in your forecast and that is inflation. So is rising inflation a real threat to economic progress and living standards?

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Kristalina Georgieva: Inflation in the euro area is temporary. It is driven by the price of energy, supply disruptions and also by the fact that we are seeing an increase in demand after the years of shutdowns. That, we expect to recede in 2022. So, by the end of next year, inflation would be relatively weak, below the ECB’s 2% target. And this is why our message is: don’t be too quick to tighten monetary policy because you can pour cold water on growth prospects, not for good reason. In other words, inflation expectations in the euro area are well anchored. Now, with that said, if there is a push in wages, if there is a problem in the housing market or if China …

Efi Koutsokosta: We can already see this …

Kristalina Georgieva: … if these problems become more pronounced, of course conditions may change. And that is why the ECB has to be very vigilant, recognizing that risks are on the rise.

Efi Koutsokosta: But given that the pandemic is far from over, there are doubts here in Europe about the debt accumulated by governments to support their economies and healthcare systems. The EU is expected to visit the issue next year. What should be done?

Kristalina Georgieva: So let me first say that exactly, for this reason, the ECB must be very careful not to tighten financial conditions prematurely and without a solid reason, because today’s high levels of debt are accompanied by a level lower than before the pandemic. debt service level. Fiscal rules. If we are to reinstate fiscal rules in 2023, this would be counterproductive for the recovery of the eurozone and, in fact, is undesirable. So our recommendation is: don’t do it. Consider changing the rules, so that they are simpler, can be implemented and rely more on national ownership: in countries that monitor their fiscal position.

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European debt is piling up

Efi Koutsokosta: You know, the International Monetary Fund was a supporter of austerity measures a decade ago, after the financial crisis. Would you make the same assessment now that Europe’s debt is mounting?

Kristalina Georgieva: Europe’s debt has risen for good reason: to provide a cushion when the economy stalled, to keep households and businesses running. We have unemployment levels before the pandemic, we don’t have bankruptcies everywhere. That is a very solid result of the political decisions made. And of course we want to see a strong recovery, medium-term reconstruction buffers that address that, but not with the stifling force of austerity.

Efi Koutsokosta: But we still see that both the recovery and debt levels are not evenly distributed across Europe. Countries like Italy, Greece and Spain have much bigger problems. Do you see the old division between the south and the frugal north revive?

Kristalina Georgieva: One of the beautiful things about Europe is that Europe, in a moment of crisis, comes together and the act of solidarity presented by the next generation of the EU is simply extraordinary. What it does is directing more aid to the countries that need it most and is putting Europe’s borrowing capacity for the first time at the service of European citizens. We hope to see that kind of solidarity, continued camaraderie because of the green agenda.

Efi Koutsokosta: So to finish, reduce debt, boost green and digital investment while the rules are brought back. How could it be done and what should Europe prioritize?

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Kristalina Georgieva: First of all, Europe must prioritize the recovery from the pandemic and support structural reforms and structural transformation, which is to lead it to a green and digital future. It is not an easy task, because it requires investment, public and private, and requires retraining and upgrading the capabilities of the European workforce. If you set your eyes on what you want Europe to be 10, 15 or 20 years from now: you want it to be innovative, vibrant, highly skilled, agile, capable of moving the world forward.

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