Europe’s COVID-19 Crisis and the Fund’s Response
IMF Blog, March 30, 2020
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- Authors: Poul M Thomsen
- Published: March 30, 2020
Overview
- Author: Poul M. Thomsen
- Date: March 30, 2020
- COVID-19 has struck Europe with "stunning ferocity." The economic impact is described as severe and a "deep European recession this year is a foregone conclusion."
Economic impact and key statistics
- Nonessential services closed by government decree account for about one-third of output.
- Each month these sectors remain closed translates into a 3 percent drop in annual GDP.
- The IMF reports that more than 70 other member countries throughout the world have already sought access to rapidly-disbursing, low-conditionality IMF emergency facilities.
- Most of the nine non-EU emerging economies in Central and Eastern Europe have already applied for emergency assistance.
- A $50 billion pool is available via the IMF’s rapid financial support facilities.
- The IMF has 189 countries worldwide as shareholders.
Analysis of country groups and constraints
- The analysis distinguishes three sets of countries with differing policy space and constraints:
- Advanced European economies:
- Have substantial policy space and institutions.
- Implemented large monetary and fiscal expansions.
- Fiscal rules and limits are being suspended to enable large-scale emergency support.
- Central banks launched massive programs for asset purchases.
- Financial regulators eased requirements to allow banks to support customers and the economy.
- In the Euro Area, large-scale interventions by the European Central Bank and calls for the European Stability Mechanism to provide a European supplement to national fiscal efforts are highlighted as critical for countries with high public debt.
- Emerging-market economies that are EU members but not in the Euro Area:
- Do not have the same policy space as advanced economies.
- Will benefit from having reduced fiscal and external deficits and debt in recent years, and from strengthened bank systems.
- Substantial effort has gone into building buffers, which now should be used.
- Non-EU emerging economies, especially smaller emerging markets:
- Fiscal space varies notably within this group.
- Lack depth of financial markets and EU linkages that contribute to policy space.
- Limited access to external capital and smaller and less developed banking systems hinder ability to finance large increases in fiscal deficits.
- Lack the degree of potential access to financial support and policy/institutional credibility that accompanies EU membership.
Policy recommendations and institutional response
- All countries in Europe should respond aggressively, with actions that are bold and commensurate to the crisis scale.
- Use of available buffers and policy space is urged.
- Countries are responding in innovative and unfamiliar ways and can learn from each other; the IMF has established a website to provide information on how individual countries are dealing with practical problems and to help distil emerging international best practice.
- The IMF is dramatically streamlining internal rules and procedures to respond with the speed, agility, and scale required.
- The Fund stands ready to play its role in supporting Europe’s efforts to fight the pandemic.
Poul M. Thomsen, March 30, 2020
Content in this bundle
- La crisi COVID-19 in Europa e la risposta del Fondo Monetario