{
  "title": "Transcript of April 2021 European Department Press Briefing",
  "publication": "IMF News, April 14, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/04/14/tr041421-transcript-of-april-2021-european-department-press-briefing",
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  "summary": "Europe’s GDP growth is projected to rebound by 4.5 and 3.9 percent this and next year, respectively.",
  "publishDate": "2021-04-14",
  "sections": [
    {
      "heading": "Macroeconomic outlook and projections",
      "content": "- Europe’s GDP growth is projected to rebound by 4.5 and 3.9 percent this and next year, respectively.\n- Europe’s output is expected to return to its 2019 level by 2022 but remain below the level projected before the pandemic (economic scarring).\n- Permanent output losses for Europe are estimated at 1.5 percent (contrast: 12 percent during the global financial crisis).\n- The recovery is forecast to strengthen if vaccines are widely available in Europe during 2021 and across Europe during 2022; timing and speed of rollout are key uncertainties.\n- Pent-up demand from household savings accumulated during lockdowns could support recovery, but increases in precautionary savings are also expected; the net effect is uncertain."
    },
    {
      "heading": "Policy priorities and recommended shifts",
      "content": "- Number one priority: boost vaccine production and distribution, given Europe’s role as a hub for vaccine production and exports.\n- Continue lifeline support while shifting policy focus:\n  - Labor market policies: keep lifelines open but gradually shift toward helping workers move to expanding sectors; increase targeting toward viable firms and strengthen firms’ solvency.\n  - Financial policies: enable banks to keep credit flowing while ensuring adequate provisioning for problem loans.\n  - Fiscal policy: play an increasing role as monetary policy becomes less effective with interest rates at their lowest.\n- Recommended additional fiscal measures (Regional Economic Outlook Update for Europe):\n  - Transfers for households in need.\n  - Hiring subsidies to reintegrate the unemployed faster.\n  - Temporary tax incentives to bring forward private investment.\n  - Equity support schemes for viable firms.\n- Fiscal support scenario: additional support set at 3 percent of GDP over 2021−'22 could lift GDP by about 2 percent by 2022; over the medium term, robust supply effects would cut the impact of scarring by more than half.\n- Redeploy fiscal support to accelerate transformation through infrastructure investment in green and digital technologies; Next Generation EU plan cited as critical help."
    },
    {
      "heading": "Fiscal frameworks, consolidation, and debt dynamics",
      "content": "- Next Generation EU fund:\n  - Viewed as an important third-phase crisis response, targeted to countries most affected (tourism-dependent and lower-income).\n  - Grant component for some countries is more than 10 percent of GDP.\n  - Size of support currently seen as sufficient; timely development and implementation of national plans is crucial.\n  - Example: Spain has prefinanced some expenditures to start implementation.\n- Stability and Growth Pact:\n  - Current rules are too complex, difficult to monitor and communicate, and allow substantial discretionary application.\n  - Recommendation: simplify rules, consider an expenditure growth rule with a debt anchor to improve monitoring, enforcement, and communication.\n  - Need to reassess guidance in light of higher debt levels post-pandemic and spending priorities during consolidation.\n- Consolidation timing and approach:\n  - No fixed timing for consolidation phases; policies should adjust to pandemic evolution.\n  - Fiscal support needs to continue in 2021 and 2022 but be reoriented to support reallocation, solvency, and worker mobility.\n  - Passive unwinding of deficits will contribute to reduction in debt ratios, but active fiscal adjustment will be needed to rebuild buffers for future crises.\n- Debt dynamics and Greece:\n  - Greek debt already above 200 percent of GDP.\n  - Higher debt servicing costs are projected to be lower than earlier projections due to lower inflation and low interest rates.\n  - Emphasis on growth to generate revenue and on establishing fiscal buffers; Greece’s situation is similar to other high-debt European countries."
    },
    {
      "heading": "Financial sector, corporate solvency, and moratoria",
      "content": "- Moratoria, guarantees, lifelines and income support have sheltered firms and households; phase-out will reveal true viability of companies.\n- Banks must perform forward-looking assessments of corporate viability and provision for potential losses.\n- Estimated enterprise equity gap for Europe: 2 to 3 percent of GDP.\n- Public–private plans to close equity gaps underway in a number of governments.\n- Banking systems entered the crisis relatively resilient; expected capital losses under baseline are relatively small, but close monitoring is required."
    },
    {
      "heading": "Labor markets and structural reforms (country examples)",
      "content": "- Spain:\n  - Hard hit by COVID; Next Generation EU funds (e.g., announced €70 billion) are important for green and digital investment and productivity-enhancing structural reform.\n  - Urgent reforms: address labor market duality, reduce reliance on temporary contracts, expand training and re-skilling, adjust education curricula to be more relevant for businesses, and focus on youth employment to avoid a jobless recovery.\n  - IMF notes unemployment may not return to pre-COVID levels until 2026 (WEO reference).\n  - Spain plans: €13 billion for promoting electric vehicles and €7 billion for home renovation and urban regeneration — IMF supports these green and modernization investments and emphasizes complementary policies such as carbon pricing.\n- Portugal and moratoria:\n  - High proportions of credits in moratoria require careful unwinding; banks must assess viability and provision accordingly."
    },
    {
      "heading": "Financial stability and asset price risks",
      "content": "- Prolonged accommodative monetary policy is necessary to support the economy but raises financial stability risks.\n- Signs of froth:\n  - Housing price-to-income ratios are very high in metropolitan areas of Germany, France, and The Netherlands.\n  - Credit spreads are exceptionally low.\n- Risks include potential repricing if the pandemic persists, recovery underperforms, or interest rates rise faster than expected; these risks should be monitored closely."
    },
    {
      "heading": "Country notes and other observations",
      "content": "- Russia:\n  - Bank of Russia increased interest rates for the first time since 2018, citing faster-than-expected inflation; IMF expects inflation uptick to be temporary and not to materially affect growth forecast.\n- IMF’s assessment of prior large fiscal and monetary support:\n  - The rapid and large-scale fiscal and monetary response in 2020 (and continuing in 2021) preserved firms and jobs and prevented cascading bankruptcies; this response materially limited permanent output losses relative to the global financial crisis.\n\nSource: Transcript of April 14, 2021, European Department Press Briefing, IMF Communications Department.\n\n---\n\n\n References\n\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\n- Greece and the IMF\n- Portugal and the IMF\n- Russian Federation and the IMF\n- Spain and the IMF\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/04/14/tr041421-transcript-of-april-2021-european-department-press-briefing"
    }
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    "Published: April 14, 2021",
    "Europe’s GDP growth is projected to rebound by 4.5 and 3.9 percent this and next year, respectively.",
    "Europe’s output is expected to return to its 2019 level by 2022 but remain below the level projected before the pandemic (economic scarring).",
    "Permanent output losses for Europe are estimated at 1.5 percent (contrast: 12 percent during the global financial crisis).",
    "The recovery is forecast to strengthen if vaccines are widely available in Europe during 2021 and across Europe during 2022; timing and speed of rollout are key uncertainties.",
    "Pent-up demand from household savings accumulated during lockdowns could support recovery, but increases in precautionary savings are also expected; the net effect is uncertain.",
    "Number one priority: boost vaccine production and distribution, given Europe’s role as a hub for vaccine production and exports.",
    "Continue lifeline support while shifting policy focus:",
    "Recommended additional fiscal measures (Regional Economic Outlook Update for Europe):",
    "Fiscal support scenario: additional support set at 3 percent of GDP over 2021−'22 could lift GDP by about 2 percent by 2022; over the medium term, robust supply effects would cut the impact of scarring by more than half.",
    "Redeploy fiscal support to accelerate transformation through infrastructure investment in green and digital technologies; Next Generation EU plan cited as critical help.",
    "Next Generation EU fund:",
    "Stability and Growth Pact:",
    "Consolidation timing and approach:",
    "Debt dynamics and Greece:",
    "Moratoria, guarantees, lifelines and income support have sheltered firms and households; phase-out will reveal true viability of companies.",
    "Banks must perform forward-looking assessments of corporate viability and provision for potential losses.",
    "Estimated enterprise equity gap for Europe: 2 to 3 percent of GDP.",
    "Public–private plans to close equity gaps underway in a number of governments.",
    "Banking systems entered the crisis relatively resilient; expected capital losses under baseline are relatively small, but close monitoring is required.",
    "Spain:",
    "Portugal and moratoria:",
    "Prolonged accommodative monetary policy is necessary to support the economy but raises financial stability risks.",
    "Signs of froth:",
    "Risks include potential repricing if the pandemic persists, recovery underperforms, or interest rates rise faster than expected; these risks should be monitored closely.",
    "Russia:",
    "IMF’s assessment of prior large fiscal and monetary support:",
    "[IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)",
    "[Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)",
    "[Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)",
    "[Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)",
    "[Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)",
    "[Portugal and the IMF](http://www.imf.org/external/country/PRT/index.htm)",
    "[Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)",
    "[Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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