Jacques de Larosière, the former Managing Director of the IMF and former Governor of Banque de France told novekedes.hu that the Eurozone must engage in structural reforms that will reduce the present, growing heterogeneities of the regions.
When can the world economy return to the levels seen at the end of 2019? Which regions can perform better?
The last IMF forecasts show that the Covid level of GDP of 2019 would only be regained in 2022. But this seems optimistic at least for the more affected advanced countries (France, Italy, Spain, UK) that will probably have to wait for 2023.
However these forecasts are uncertain since we don’t know much about the evolution of the pandemia, its economic consequences and the long-term reactions of the population.
You previously worked as a managing director of the International Monetary Fund. Do you believe the IMF provides enough support during the COVID-19 crisis?
The IMF is one of the sources of multilateral financing in this pandemic crisis. It has reacted forcefully.
It has doubled its emergency facility so that these quickly disbursable credit lines could reach 100 Billion US dollars. 60 countries have already benefitted from these facilities.
The IMF has also decided to reduce the debt service burden for 27 countries (fiduciary fund in response to catastrophes). This fund could be trebled to 1,4 billion dollars.
The IMF, as well as the World Bank, have invited the G20 to reduce the burden of servicing bilateral loans to the most needy countries.
What do you think about the European Central Bank's current crisis management measures? What monetary policy steps could support a faster recovery?
The ECB has taken bold measures to provide liquidity to economic agents and avoid a complete seizure of the system. The 18th March 2020, the ECB announced an exceptional plan of quantitative easing : 750 Billion Euros will be used to buy securities (Pandemic Emergency Purchase Programme). This facility is no more limited to 33% by country, and purchases can deviate from the capital distribution grid).
The Targeted Long Term Repurchasing Operations that incite banks to lend to the economy has been enlarged.
This monetary action is extremely powerful. In 2020-21, more than ¾ of the new sovereign securities issuance will be purchased by the ECB.
In your opinion, should the focus be on stimulus measures or fiscal adjustments in the indebted peripheral countries of the eurozone?
In the immediate, and given that governments are directly responsible for closing large parts of the economy, it seems logical to rely on fiscal assistance, as is the case today.
But this does not mean that countries with over-extended fiscal positions will be always exempted from reforming their budgets.
How can the situation of the most indebted EU countries, including Italy, be addressed?
The situation of the most indebted countries requires, indeed, structural reforms that will gradually reduce excessively high ratios of public expenditure to GDP. What will be important is to engage in a debt stabilization process through primary surpluses that will reassure markets.
How do you see the future of the euro?
The Euro has acted – because of the ECB and Commission decision – as a shielding force for all the countries of the Eurozone.
This being said, for the future, the Eurozone must engage in structural reforms that will reduce the present – growing – heterogeneities of the regions.
Earlier you said that central banking authorities and bad economic policy decisions were responsible for the financial crisis. In your point of view, are these institutions working properly now?
My views on the negative consequences of an over-accommodative monetary policy stance are well known.
I believe that this policy has triggered the search for yield and asset-bubbles; weakened the financial system and made it more prone to crisis; anesthetized government will to reform; and discouraged long term investment while pushing savers into short term and speculative assets.