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Europe needs more short-term aid to counter continued Covid risks: IMF

Delphine TOUITOU
·3-min read

European economies need "an extra push" of financial support this year and next to overcome the long-term impacts of the Covid-19 crisis, a senior IMF official said on Wednesday.

Europe faces more risks to its economic recovery due to Covid-19 variants and delays in vaccination campaigns that threaten to prolong the health crisis, said Alfred Kammer, director of the International Monetary Fund's European department.

"Reflecting the periodic infection waves and the pace of vaccinations, the economic recovery in Europe is still halting and uneven," he said.

"We are suggesting an extra push, and an extra effort" to limit permanent damage to the region's productivity from the pandemic, he told AFP in an interview.

Europe is expected to see economic growth of 4.5 percent this year, 0.2 points lower than the October forecast, followed by a 3.9 percent expansion in 2022, according to the IMF's latest Regional Economic Outlook published Wednesday.

Governments still have "fiscal space to respond if more negative shocks are coming," Kammer said, calling for a "concerted effort... the sooner the better."

The IMF forecasts assume vaccines will be "widely available" by mid-year, and Kammer said "the number one priority is to boost vaccine production."

The current projections would only take the region's economy "back to its pre-pandemic level, but not to the path expected before the pandemic."

- Targeted and temporary -

A slower recovery could create "social unrest and more medium-term scarring of economies if the crisis lingers," the IMF report warned, and policymakers "need to continue to provide emergency support to households and firms."

However, Kammer said, "This is not a call for a package that boosts spending indiscriminately and permanently, but for a well-targeted and temporary shot in the arm of both demand and supply."

Additional spending of three percent of GDP through next year could lift GDP by about two percent by the end of 2022 and cut the impact of scarring by more than half, the IMF estimated.

"We can actually reduce these permanent output losses... and that will be hugely beneficial for everybody," Kammer said.

While the current level of support provided by European governments "looks sufficient," he cautioned that "we don't know how long (the recovery) is going to take" so fiscal support will need to continue in 2021 and 2022.

However, the European Union so far has failed to ratify a 750 billion euro ($885 billion) coronavirus recovery fund, after it was blocked by Germany's Constitutional Court.

"Further delays should be avoided," Kammer said.

- 'A fair shot' -

The Washington-based crisis lender credited governments with providing "unprecedented lifelines" during the pandemic that helped tens of millions people, but those funds now should shift to retraining programs to help workers find jobs in emerging industries.

The costs of these programs "would pale in comparison to the benefits."

Since the pandemic pain has hit certain groups the hardest, including youth, women and the poor, "inequality has been increased during the crisis, and it needs to be tackled," he said.

These groups must be given "a fair shot at opportunities... a fair shot for success in the future."

Dt/hs/cs