ECB’s Lane Says Euro-Area Recovery Heavily Reliant on Fiscal Aid

(Bloomberg) -- European Central Bank Chief Economist Philip Lane said the euro area’s recovery from the pandemic is heavily dependent on fiscal policy, in a signal to governments not to delay their joint stimulus or pull back national support too soon.

“It is essential that fiscal policy counters the pandemic shock to incomes and the productive capacity of firms, ensures that overall demand conditions promote a timely recovery, and underpins medium-term growth prospects through growth-enhancing public investment and reforms,” Lane said at the virtual Ambrosetti Forum. “The macroeconomic role for fiscal policy is especially predominant under current conditions.”

ECB officials have shown mounting concern that the slowness of the European Union’s joint recovery fund, combined with a chaotic rollout of coronavirus vaccines, will leave the bloc lagging far behind other industrialized economies. The central bank has been forced to step up its bond-buying to keep borrowing costs in check, and foresees the euro-zone economy returning to its pre-pandemic size only around mid-2022 -- a year later than the U.S.

“Let me emphasize that shorter-term and longer-term economic performance are inextricably linked, especially in the current circumstances,” Lane said. “A sustained period of below-capacity economic activity damages the longer-term productive capacity of the economy.”

©2021 Bloomberg L.P.