European Central Bank (ECB) President Christine Lagarde on Monday said that a winter surge in COVID-19 cases and the emergence of mutated variants of the novel coronavirus pose a “significant downside risk” to the economy, despite hope from the start of vaccinations.
Lagarde told a session of the European Parliament that “the mutations in the virus and the strict containment measures are a significant downside risk to the euro area economy.”
She reiterated the bank’s promise to keep pouring stimulus into the financial system to support the recovery: “Our pledge to preserve favorable financing conditions is crucial in the current environment.”
It was essential for governments and the EU to complement the bank’s efforts through spending to support businesses and through the EU’s 750 billion euro (US$906 billion) recovery fund based on collective borrowing, Lagarde said.
The economy in the 19 countries that use the euro shrank 0.7 percent last quarter as businesses were hit by a new round of lockdowns aimed at containing a resurgence of the COVID-19 pandemic. For the year, the eurozone shrank 6.8 percent.
The near-term outlook for growth remains shaky and the IMF has downgraded its growth forecast for the eurozone to 4.2 percent this year from 5.2 percent.
The ECB at a meeting in December last year decided to add 500 billion euros to its bond purchase stimulus, bringing the total size of the effort to 1.85 trillion euros to run at least through March next year.
It has also kept interest rate benchmarks that affect borrowing conditions at record lows, and offered banks long-term cheap loans to keep them lending to companies.
The cheap loans can come with negative interest rates, meaning the ECB pays the banks to borrow.
Meanwhile, concerns that Germany might have an unfair competitive advantage because of billions of euros pumped into its virus-hit companies are not backed by data that show other EU states doing as much if not more for their businesses, Europe’s antitrust chief said.
Since the start of the pandemic last year, EU Competition Commissioner Margrethe Vestager has approved 3.1 trillion euros in state aid to airlines, restaurants, farmers, entertainers and others across the 27-country bloc suffering from the economic hit of COVID-19.
Germany accounts for 51 percent of the total approved aid to date, trailed by Italy with 14.7 percent, France at 13.9 percent and Spain at 4.8 percent.
That has triggered concerns among some EU countries that German aid might tilt the level playing field, giving companies in Europe’s largest economy an unfair advantage.
Vestager, in an interview with Reuters on Monday, cautioned against reading too much into the approved sums versus the amounts that were actually disbursed by EU governments.
“What we saw when we looked at the funds paid out, we saw quite a different pattern. And this is of course why it is really interesting to see what are the real sums that are being paid out,” Vestager said.
“Germany paid out about 25-27 percent of the total [approved] aid paid out, France more or less the same, maybe a little bit more actually, then Spain and Italy. So you get a much more nuanced picture when you look at the actual spending,” she said.
Vestager was referring to the period between the middle of March and the end of June last year, when she gave the green light to 2.3 trillion euros in state aid, of which 354 billion was paid out.
Of this total, France disbursed 123 billion, Germany 96 billion, Spain 65 billion and Italy 26 billion.
The European Commission is seeking the latest data from EU countries on their disbursements to get a more comprehensive picture.
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