## Euro Area is Recovering Strongly, But Challenges Lie Ahead

_IMF News, February 7, 2022_

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**Canonical URL:** [Euro Area is Recovering Strongly, But Challenges Lie Ahead](https://www.imf.org/en/news/articles/2022/02/07/cf-euro-area-is-recovering-strongly-but-challenges-lie-ahead)

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## Bibliographic details
- Published: February 7, 2022

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### Recovery drivers and current assessment
- Economic policies in the euro area have forcefully supported household incomes and protected corporate balance sheets.
- High levels of vaccination and increasing adaptation to the pandemic have helped foster a strong economic recovery.
- The labor market recovered rapidly but unevenly across sectors.

### Key risks and uncertainties
- Elevated uncertainty from the evolution and legacies of the pandemic, and ongoing geopolitical tensions.
- Upside inflation risks have clearly increased, even though under the baseline medium-term inflation dynamics are expected to remain weak.
- Stretched asset valuations, especially in real estate markets, pose financial stability risks in some euro area countries.

### Policy guidance and recommendations
- Coordinate the normalization of economic policy with agility, and increasingly target policies to contain scarring and mitigate a potential rise in inequality and poverty.
- Highly indebted countries, in particular, will need to reduce their debts once the expansion is firmly underway; credible plans to achieve this should be announced now.
- Reform European Union fiscal rules, including consideration of an EU-level climate fund.
- The European Central Bank should stand ready to adjust course as needed in response to evolving inflation risks.
- Some euro area countries could tighten their macroprudential stance given stretched asset valuations.
- Facilitate labor reallocation and protect the vulnerable through:
  - Reskilling and upskilling workers.
  - Using hiring subsidies.
  - Enhancing targeted safety nets.
- Advance structural reforms and high-impact investment envisioned in the Next Generation European Union package to enhance resilience, support green and digital transitions, and boost potential growth.

*IMF European Department, February 7, 2022*

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## References

- [http://imf.org/europe](http://imf.org/europe)
- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the Article IV](https://www.imf.org/en/publications/cr/issues/2022/02/07/euro-area-policies-2021-article-iv-consultation-with-member-countries-on-common-euro-area-512879)
- [The IMF and Europe](https://www.imf.org/en/Countries/Regions/Europe)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2022/02/07/cf-euro-area-is-recovering-strongly-but-challenges-lie-ahead_