IMF: “Support measures are essential to ensure medium-term growth” in Europe

Director of the European Department of the IMF defended that European countries "must do whatever is necessary to contain the pandemic", but also that countries should have plans for the medium term. He recalled the importance of policies in supporting companies' liquidity, as well as ensuring that insolvent but viable companies can remain active.

It is too early to withdraw budgetary stimulus and European countries must continue to endorse all efforts in this direction, however, it is also necessary to have growth plans for the medium term, which allow creating pillows to absorb possible external shocks in the future. The idea was defended by Alfred Kammer, director of the European Department of the IMF, who also warned that the nature of the European economy will change after the crisis caused by the pandemic.

"Support measures are essential to guarantee growth in the medium term and protect the capacity of the economy," said the IMF official on Wednesday at a press conference on regional economic prospects for Europe this year and next and economic policy priorities in the coming months.

Alfred Kammer, stressed that “it is necessary to recognize that budget deficits reflect in the first place a reduction in economic activities, which we are protecting to get them back on track, and reflect more spending on the health response and also a very large support for companies and workers". Emphasizing that these factors will have less weight in the future and that budget deficits will therefore decrease, however, he underlined the need not to forget sustainability.

“We defend the idea that countries should have plans for the medium term, creating budget buffers. We must have budgetary space to respond to new shocks. We have to have them so that the economy is prepared to respond to the crisis in the future ”, he stressed.

Even so, the director of the European Department again defended, as the IMF president has done, that the authorities “must do whatever is necessary to contain the pandemic and its economic losses”, so “they should not withdraw support prematurely so that the mistake of the global financial crisis is not repeated ”.

In a broad compliment to the positive impact that the discretionary budgetary measures announced this year by European countries had to support the effects of the pandemic, the IMF recalled that they averaged 6,2% of GDP for advanced economies and 3,1% of GDP for Europe's emerging economies.

“This discretionary support was added to the powerful European automatic stabilizers. A large part of the budgetary measure packages have been used for employment maintenance and liquidity support programs for companies. These programs have been very successful in limiting the degree of job destruction and avoiding a succession of bankruptcies and bank closures, ”he said.

He thus stressed that economic policy interventions in Europe contributed to avoiding an even deeper recession, projecting that without them and without “strong support from the European Union”, economic activity between the countries of the Union could have been 3 to 4 percentage points GDP growth in 2020.

“Over time, support must be more targeted and also more flexible, to facilitate the reallocation of resources and the transformation of the economy. It remains imperative to protect people's health, including through international cooperation, ”he said, stressing that“ the nature of these support measures must change ”.

For the IMF "the nature of the economy is going to change and it will also change because there are many transformations that exist, such as digitalization". It also recalls the importance of policies in supporting companies' liquidity, as well as ensuring that insolvent but viable companies can remain active.

In the report “Regional Economic Perspectives” published this Wednesday, he explains that in advanced economies, about a third of the drop in solvency as a result of the pandemic could be cured by the announced policies, such as wage subsidies, subsidies or tax cuts, once that the pandemic can jeopardize jobs in insolvent companies that can amount to more than 8% of the workforce in Europe.

"It is necessary to introduce policies that facilitate the rapid restructuring of debt, whether or not in the context of bankruptcies, or that, in some cases, provide capital for viable companies", he defended.

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