According to the IMF, COVID-19 could widen the wealth gap in Europe
© Reuters. FILE PHOTO: IMF and World Bank hold fall meetings in Washington
By Jan Strupczewski
BRUSSELS (Reuters) – The COVID-19 pandemic is likely to widen the prosperity gaps in Europe unless policymakers help end the global health crisis, support economies until the pandemic ends and invest in a greener economy, said the International Monetary Fund.
Speaking to a European Parliament conference on Monday, IMF Executive Director Kristalina Georgieva praised EU governments for spending more than € 3 trillion on tax aid to businesses and households, including measures to keep jobs who have helped more than 54 million workers.
“But the path to recovery is … uneven … due to different starting positions, economic structure and responsiveness, which leads to increasing inequalities both within and within countries,” she said.
She said that in the EU of 27, traditional countries like Spain, Greece and Italy shrank more than 9% in 2020, compared to an average decrease of 6.4% across the bloc.
According to IMF projections, per capita income for Central and Eastern Europe would be 3.8% below its pre-crisis projections by the end of 2022, compared to a deficit of only 1.3% for advanced EU economies.
Economists have warned that such divergence would make the EU’s economic management, including the European Central Bank’s monetary policy, more difficult and increase the risk of future crises.
“A gradual retreat must follow, not precede, a permanent exit from the health crisis. It is important both internally and with regard to spillovers tighten the countries. ” Georgieva said.
EU finance ministers want to keep fiscal incentives for now, but will have talks in the second quarter on when to move from the current flat-rate support for all businesses to a more targeted approach when the economy recovers and how to deal with a wave is expected to result from bankruptcies.
The EU agreed last year to jointly borrow € 750 billion and spend it through grants and loans on reforms and green and digital investments to fuel the potential growth of the most vulnerable.
Georgieva said coordinating such green and digital investments was the most important action in the long run.
“Our analysis shows that this could increase global GDP by about 0.7 percent per year over 15 years and create millions of new jobs,” she said.
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