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The IMF warns that the euro zone will need more massive aid due to the second wave of infections

2020-11-30T22:27:18.012Z


The international body warns that the most indebted countries may have to borrow from the rescue fundThe vaccine for covid-19 is already standing as the only catalyst with enough power to bring Europe to the field of economic growth. The International Monetary Fund (IMF) warns that the second wave of contagion will weaken the activity of the last quarter of 2020 and the first of 2021, posing a "significant risk" for the recovery of the euro zone. The agency warns that this deterioration will impo


The vaccine for covid-19 is already standing as the only catalyst with enough power to bring Europe to the field of economic growth.

The International Monetary Fund (IMF) warns that the second wave of contagion will weaken the activity of the last quarter of 2020 and the first of 2021, posing a "significant risk" for the recovery of the euro zone.

The agency warns that this deterioration will impose greater public fiscal support, which the most indebted countries could cover with loans from the European recovery plan or the rescue fund (ESM) that until now it had avoided using.

The IMF does not rule out that, in a worst-case scenario, defenses will have to be expanded.

On the eve of Christmas, France or Belgium have already decreed parties without bars or restaurants, while Germany has decided to postpone the reactivation of public life until January.

The economic rebound that followed the crash was sharply interrupted by the second wave of infections.

And there is no longer any doubt that only the vaccine will keep the virus at bay.

Brussels has come to terms with the idea that the bulk of the recovery will be delayed by the persistence of the pandemic.

And now the body headed by Kristalina Georgieva supports that thesis after verifying the "devastating" "human and economic" costs of the outbreak in Europe.

According to the report corresponding to the fourth article of the IMF for the euro zone, the new round of contagions will make it "probable" that fiscal policies will be required "for longer than initially planned."

The key is how long.

A slow and costly recovery, the document notes, would mean an increase in poverty and inequality.

In addition, it would put countries with more committed public finances on the ropes.

Without naming them, the IMF looks to Greece, Italy, Spain or Portugal.

"For some countries with already high debt levels, providing the necessary fiscal support and meeting existing obligations could risk adverse market reactions," the report notes.

The IMF recommends not removing the “lifeline” from companies and workers to prevent the recovery from “derailing”.

The IMF advocates that countries with more financial straits use the loans of the European recovery plan, dubbed Next Generation EU, or resort to the precautionary credits of the ESM, which until now all countries have refused to request, especially Spain and Italy , for fear of the stigma of requesting help from the institution that acted as a rescue fund during the previous financial crisis.

But if the recovery ends up slipping further than expected, the IMF is in favor of even "expanding the defenses."

The IMF therefore supports the theses of the finance ministers of France, Bruno Le Maire, and Italy, Roberto Gualtieri, who last week asked in Rome for a new instrument to support the most affected economic sectors.

The first proposal of the European Commission, in fact, provided for a solvency instrument so that all countries could face with equal conditions the rescue of companies in distress.

However, the leaders decided to sacrifice this mechanism to save the fund that will pay for the recovery plans.

The report published this Monday asks to recover it due to the role it could play in the "integrity of the Single Market" given the uneven capacity of capitals to give liquidity to companies in trouble.

The European recovery fund, however, is now in the hands of Hungary and Poland, who refuse to link these funds to compliance with the principles of the rule of law.

The IMF urges to overcome these "obstacles" and warns that their delay "would damage the prospects for recovery" in the euro zone.

The Washington-based institution also encourages that these resources do not serve to replace already planned investments, but that they are the trigger for investment plans and structural reforms in all the countries of the single currency.

And although this program is not the permanent fiscal instrument that it has been claiming for a long time, it does believe that it could be an embryo of a future community bazooka to face economic crises.

Suspension of fiscal rules

The report also calls for maintaining the

de facto

suspension

of

the Stability and Growth Pact until "the recovery is firmly established" and asks the euro partners to take advantage of this period to reform fiscal rules.

“EU leaders should commission the European Commission to propose fundamental reforms to the rules as part of its review of the fiscal framework.

The reforms should aim to simplify the current rules, making them easier to communicate and to enforce ”, the document adds.

The IMF stresses that, on this occasion, Europe's political response has been "remarkable" for its "speed, scope and scale."

And while it points out that more fiscal stimulus might be needed, it also judges that the European Central Bank (ECB) will have to increase the shooting power of its asset purchase program after inflation has returned to negative territories for the first time. since 2016. "As the economic outlook deteriorates further, additional stimulus will be needed to facilitate a sustained rise in inflation," the report notes.

The president of the ECB, Christine Lagarde, has already signaled to the market that next December she will expand support for the economy by expanding the pandemic purchasing plan.

The IMF applauds the institution's commitment to “recalibrate” its economic policy instruments at its next meeting.

However, the IMF calls for it to go beyond the program, so far of 1.35 trillion euros, and consider other options.

Among them, he suggests considering "direct support to non-financial companies if the loan channel" ends up deteriorating.

Source: elparis

All business articles on 2020-11-30

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