The European Union risks letting the Great Confinement experienced in 2020 become the Great Divergence in 2021. That is, after the experience of the strict confinement measures forced by the covid-19 pandemic, countries are in danger of entering into a prolonged process of economic divergence that will be visible both between countries and within each state, in the form of increased inequalities. The warning is from Kristalina Georgieva, the director-general of the International Monetary Fund, and was left this Monday.
Georgieva’s “biggest concern” is that “the Great 2020 Confinement will become a Great Divergence in 2022”, the leader assumed in a speech during the European Parliament Week, this year organized in virtual format because of the covid-19.
After countries have supported the economic struggle caused by the pandemic, they are preparing to enter a recovery process, but it is fraught with risks. The biggest is that of divergence and growing inequality. Georgieva immediately recalled that the countries were not all affected in the same way by the pandemic: those more dependent on tourism suffered more, having recorded recessions greater than the average. The IMF leader gave the example of Spain, Greece and Italy. He did not speak of Portugal, but the Portuguese economy also fits the description, since it contracted 7.6% last year, above the EU average of 6.4%.
Likewise, Georgieva noted that the countries of Central and Eastern Europe are expected to experience an impact by 2022 three times greater than that experienced by the most advanced economies in the EU.
To respond to this divergence, the IMF president left three lines of action that she considers fundamental: first, “increasing the production and distribution of vaccines is critical”, she stressed. It is that while the pandemic is not overcome on a global scale, “we risk new mutations that threaten progress” even in parts of the globe where contagions are more controlled, he explained. And for production to increase, “cooperation” is needed, he defended.
Second, there is a need to continue to support businesses and families “as long as the pandemic is not over”. “The gradual withdrawal [dos apoios] it should follow, but not precede “the exit from the health crisis.” A premature tightening of policy while the most affected economies are still very fragile can exacerbate divergences between countries, “he warned.
On the other hand, in the meantime, countries should take the opportunity to improve their insolvency regimes. Kristalina recalled that the support from 2020 postponed insolvencies that may now materialize.
Finally, and this is the “most important issue in the long term”, stressed the person responsible for the Fund, it is necessary to promote structural changes for digitalization and the green economy. IMF calculations indicate that a coordinated investment in green infrastructure can raise world GDP by 0.7% per year.
At this point, Next Generation EU can be more than a program to promote economic transformation: “it could be an antecedent of new shared fiscal tools to complement the ECB’s monetary policy”, he argued. “The EU can take new steps towards banking and capital markets union to promote growth and integration”, added the IMF leader.
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