ECB’s Schnabel Warns Governments Not to End Crisis Support Early

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European Central Bank Executive Board member Isabel Schnabel pledged that she and her colleagues will do everything needed to sustain the economic recovery, and warned governments not to undermine that by tightening fiscal policy too soon.

“The worst thing that can happen is that the support is ended prematurely. I can assure you that on the monetary-policy side, we’ll do everything to avoid that,” Schnabel said in an online event on Thursday.

“Maybe we should be worried more about fiscal policy,” she added, saying that in some countries “there’s already a debate ongoing about consolidation of public finances which may actually come a bit too early.”

Tensions were on display this week when Italian Prime Minister Mario Draghi, a former ECB president, insisted euro-area fiscal rules can’t return to how they were before the pandemic.

The directly contradicts Armin Laschet, the front-runner to succeed Angela Merkel as German chancellor, who said last week that stability policies will have to be reinstated when the effects of the pandemic on the global economy are over. Austrian Finance Minister Gernot Bluemel has made a similar case.

Schnabel also hinted that the ECB could seek to retain as much flexibility as possible in its bond-buying programs when the current 1.85 trillion-euro ($2.2 trillion) crisis measure ends.

The flexibility of the pandemic emergency purchase program was very important and “there is the danger that such periods of fragmentation will appear again,” she said. “We have to think very carefully about how to deal with that.”

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