This is considered an “emergency medicine” as economic activity across the region has declined again this month.
Lagarde made the aforementioned statement in an interview with French newspaper Le Monde over the weekend. According to the ECB boss, the aim is that the recovery fund will be distributed at the beginning of 2021 and the parliaments of the EU member states will approve the establishment of the fund. She said that the economic stimulus programme through the recovery fund needs to hit the right targets, otherwise it will not be able to really support regional economies. In addition, European leaders should consider setting up this fund in the long term, something which remains a matter of contention among them.
The ECB President’s statement was issued in the context of the second wave of the pandemic having broken out in a substantial way in Europe over recent days, once again pushing the regional economy into a “slough of recession”. Newly released statistics from IHS Markit have shown that the Eurozone’s Purchasing Managers’ Index (PMI) in October fell for a third consecutive month to four-month low, 49.4. The PMI indicator falling below 50 points reflects a decline in the economy and rings an “alarm bell” concerning Europe’s economic health. Evaluating the regional economies, IHS Markit said that Germany, Europe’s biggest economy, was the only bright spot, while France and the rest of the Eurozone continued to slide further. IHS Markit’s chief economist stated that economic activity across the EU has declined again in October as the service sector has seen a severe slump due to concerns over the resurgence of COVID-19.
Along with the declining macroeconomic indicators, a wave of unemployment has also grown in Europe since August. According to official data from the European Statistical Office (Eurostat), the unemployment rate in 19 Eurozone member countries rose to 8.1% in August 2020, from 7.9% in July. Eurostat said that in August alone, there were about 13.2 million unemployed people in the Eurozone and the number of people losing their jobs increased by 251,000. Economists have issued a worrying forecast that the unemployment rate in Europe may increase even more sharply during the last months of the year, when salary support programmes expire. Meanwhile, the second wave of COVID-19 has caused many European countries to re-impose travel restrictions, thus seriously affecting social and corporate activity. The Eurozone economy recovered positively at the end of the second quarter, but the “dark clouds” have come back as many countries have been forced to impose travel restrictions and close their doors to neighbouring nations. The International Monetary Fund (IMF) has warned that the Eurozone economy will “witness a historic shock in 2020” with a total decline of 8.3% this year. According to IMF experts, the regional economic situation could be even worse and European countries should increase their spending to prevent the “free falls” of the economy due to the coronavirus disease. This financial institution said the EUR750 billion recovery package is a righteous solution to support European economic growth.
Given the aforementioned context, the ECB’s announcement of the early implementation of the EUR750 billion recovery fund can be considered a timely and necessary “stimulant” for the region. In addition, the pressure of economic recovery may also force European leaders to narrow their disagreements over the details of the multiannual grant and loan mechanism called “Next Generation EU”. Once this mechanism is put in place, the ECB will have an additional “financial medicine” to help European nations overcome the difficulties caused by the pandemic.
