— Stresses Fiscal Policy Must Undertake Havy Lifting Vs Q4 Downturn
By Laurie Laird
LONDON (MaceNews) – The rapid development of a Covid vaccine is unlikely to provide a quick fillip to the battered European economy, according to a top European Central Bank official.
While welcoming the announcement of positive medical trial results released on Monday, ECB Governing Council member Klaas Knot noted questions over the “deployment [and] distribution of a Covid vaccine will “continue to create uncertainty” and potentially “weigh on economic output.” The outlook “in 2021 is the same as it is now,” he said, although an orderly roll out of the vaccine will “at least provide an end point” to the pandemic.
The eurozone economy rebounded more rapidly than expected in the third quarter, said Knot, with output rising by 12.7%. But “the virus is still amongst us … and economic activity will be subject to a bumpy trajectory,” he added. ECB economists expect output to contract by 2.0% in the fourth quarter.
Knot praised the aggressive fiscal action of eurozone member states and the “landmark next-generation EU recovery fund” agreed by member states over the summer. Dutch politicians argued fiercely for transfers to southern European nations to be tied more closely to structural reform.
Eurozone nations must be wary of cutting spending “prematurely,” and fiscal policy “may have to be scaled up,” Knot added, noting the “limits to what monetary policy can achieve.” The ECB will be “recalibrating” its monetary instruments this month, as announced following the October policy meeting, but Knot provided no hints as to what adjustments the governing council is considering. ‘We will have another look … at where we are today … and we do that against the background of having a second wave” of the coronavirus.
Knot also serves president of Dutch central bank. Under the Council’s rotating voting system, Knot voted at both the October meeting and will weigh in again at the December gathering.
However, he did raise concern over the growing debt pile in many member states. The bloc “will exit [the current downturn] with debt levels that are unprecedented in peace time,” he said. Only productivity growth will sufficiently raise the rate of real growth to erode fiscal debt. “With the demographics ahead of us, the main source of [debt reduction] is productivity growth. At some point, we will have to arrive at this option.
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Contact this reporter: laurie@macenews.com.
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