Solidarity and Cooperation: Europe’s Response to the Crisis

IMF News, February 22, 2021

Source details

2020 outcome: "90 percent of the countries finished the year with a smaller economy than at the start of it" — described as "the worst performance the world has had during peace time."
Policy response praised:
- "Exceptionally strong and coordinated actions by central banks and by finance authorities."
- Tribute to the ECB and Christine Lagarde for "reacting swiftly with extraordinary policy accommodation."
- "Massive fiscal support of over 3 trillion euros for firms and households, including job-retention schemes that helped over 54 million workers."
- "Next Generation EU initiative is a remarkable achievement in joint mobilization of funds."
Vaccines and public-health measures noted as stabilizing forces: "unprecedented scientific advances on vaccines and treatments" plus "masks, social distancing, testing and contact tracking."

Growth projections: "Currently, we are projecting global growth of 5.5 percent and 4.2 percent in the EU this year."
Uneven recovery emphasized: "The path to recovery is highly uncertain and, most importantly, uneven."
Cross-country divergence:
- Tourism impact: "Traditional tourist destinations have experienced much sharper contractions—more than 9 percent last year in Spain, Greece, and Italy—compared to an average contraction of 6.4 percent across the EU."
- Convergence setback: "By the end of 2022, per capita income for the emerging markets of Central and Eastern Europe will be 3.8 percent below pre-crisis projections, compared to a shortfall of just 1.3 percent for the EU’s advanced economies — a negative impact almost three times larger that will slow the pace of convergence."
- Global catching-up reversal: "Half of the countries that used to catch up in income levels with their wealthier peers are now falling further behind."
Within-country divergence and inequality:
- "Regions with lower GDP per capita went into the crisis with lower productivity, larger contact-intensive sectors, and fewer jobs that allow for remote working—so they have been hit all the harder."
- "Millions of jobs have been lost, with women and young people suffering the most, especially those with lower incomes and savings."

Health-first imperative:
- "End the health crisis."
- "Vaccine policy is at the heart of economic policy."
- Priorities: "Scaling up production and distribution of vaccines," "additional financing to secure doses and pay for logistics," and "timely reallocation of excess supplies." All require "cooperation."
Economic support stance:
- "Until the pandemic is defeated, support for firms and households should continue."
- "Gradual withdrawal has to follow, not precede, a durable exit from the health crisis."
- Warning: "a premature tightening of policy when worse-hit economies are still deeply fragile could exacerbate divergence between countries."
Insolvency and corporate distress:
- Observation: "Massive support in 2020 led to lower than average bankruptcies."
- Risk: "Once support declines and with structural change accelerating, the risk of a higher rate of debt defaults will go up."
- Recommendation: "Insolvency arrangements and greater emphasis on equity support could help prevent debt overhangs and ratcheting bankruptcies."

Green investment and climate policy:
- Recommendation: "A coordinated green infrastructure investment push is a must."
- Impact projection: "Our analysis shows that this could boost global GDP over a 15-year period by about 0.7 percent each year, creating millions of new jobs."
- Role of carbon pricing: "Carbon pricing can help repair fiscal balances, channel private investments into green sectors, and deliver substantial emissions reductions."
Digitalization and connectivity:
- "Increased access to high-speed internet in rural and underserved areas would raise productivity."
- "Education spending and job training programs would build the skills needed for a digital and green age."
European institutional reforms to support convergence:
- "The Next Generation EU can be more than a catalyst for economic transformation: it is a forerunner to new shared fiscal tools to complement the ECB’s single monetary policy."
- Further steps suggested: "banking and capital market union to spur growth and integration."
- International taxation: "Efforts to make international corporate taxation fit for the digital age can help boost revenues and address inequality."

IMF financial support: "We provided over $105 billion in new financing to 85 countries—including in Europe, to Albania, Bosnia and Herzegovina, Kosovo, Moldova, Montenegro, North Macedonia, and Ukraine."
Policy guidance and capacity development:
- Messaging recalibration: "Our message 'Spend but keep the receipts.'"
- Adjusted capacity development: "We adjusted our capacity development work to the needs and modalities of work during the pandemic."
- Focus areas: "inclusive growth—especially with our European partners—on issues like progressive taxation and social spending."
Climate work: "We have stepped up work on climate change — which is not only a threat to economic and financial stability, but also an opportunity for green growth and jobs."
Support for low-income countries: "We are working closely with the EU to do more for low-income countries—they face painful choices between tackling the health crisis, meeting peoples’ basic needs, and fostering macroeconomic stability and boosting public investment that are essential for sustainable growth."
SDRs and EU cooperation: EU support noted for "debt relief and concessional lending capacity" and "seeking ways for us to do more, including through a new SDR allocation to boost reserves without compounding debt burdens."

Appeal for continued cooperation: "You can count on us. As we count on you."
Values invoked: "The European Union was one of the best inventions of the 20th century. Its values of solidarity and inclusion remain the 21st century’s best hope."

Keynote Speech by IMF Managing Director Kristalina Georgieva, At the EU Parliamentary Conference, February 22, 2021.