Eurozone economy needs more support with second wave, considers IMF

"With the second wave, national fiscal policies are likely to need general support for longer than initially estimated," said the IMF, in its review of the eurozone economy.

Bogdan Cristel / Reuters

Eurozone governments and the European Central Bank (ECB) should extend extraordinary budgetary and monetary support to contain the economic effects of the second wave of the covid-19 pandemic, the International Monetary Fund (IMF) said today.

"With the second wave, national fiscal policies are likely to need general support for longer than initially estimated," said the IMF, in its review of the eurozone economy.

In a press conference call, the institution's director general, Kristalina Georgieva, applauded the ECB's “potent” monetary response and the “unprecedented” fiscal stimulus that helped to cushion the impact of the crisis.

Georgieva stressed, however, that due to the effects of the second wave, which forced to resume mobility restrictions and partial confinements in the European Union (EU), it is important to “not withdraw too quickly” support.

The European Commission has temporarily suspended budgetary discipline rules so that countries can increase spending and has allowed aid to companies to prevent the collapse.

In its assessment, the organization recognized the financial problems that may face the most indebted economies in the euro area, such as Portugal, Italy or Spain, if the recovery takes longer than expected.

"For some countries with already high levels of debt, providing the necessary budget support and meeting existing obligations can create the risk of adverse market reactions," according to the report.

In October, the IMF predicted a 8,3% fall in the eurozone economy for this year.

For 2021, the institution expects a moderate recovery in the euro area of ​​5,2%, supported by the “huge and innovative” recovery package approved by the EU in the amount of € 750.000 billion.

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