An exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. (OLIVIER DOULIERY / AFP)
The 19 countries within the eurozone were advised by the International Monetary Fund, or IMF, to increase government spending by an extra 3 percent of GDP over the course of the next year to help stave off economic damage caused by the coronavirus pandemic and speed up recovery.
A faltering vaccination program in Europe and repeated periods of lockdown, combined with a smaller stimulus package than the one being offered by the government in the United States combine to mean the bloc's recovery could lag that of some of its major trading partners, so more money being pumped in by state spending would cushion the blow.
"Fiscal measures to stimulate investment and to facilitate job creation and reallocation would speed up the recovery," the IMF's latest economic outlook for the European region said.
"The faster the recovery, the less scarring people and businesses will suffer from unemployment, lost human capital and lower investment and research and development."
A faltering vaccination program in Europe and repeated periods of lockdown, combined with a smaller stimulus package than the one being offered by the government in the United States combine to mean the bloc's recovery could lag that of some of its major trading partners, so more money being pumped in by state spending would cushion the blow
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European Central Bank President Christine Lagarde, a former head of the IMF, likened the eurozone's recovery to a patient needing crutches to learn to walk agXain.
"You don't want to remove either crutch, the fiscal or the monetary, until the patient can actually walk fine, and to do that means support well into the recovery," she said on Wednesday.
Italy's new Prime Minister Mario Draghi, who was Lagarde's predecessor as chief of the bank, is one of those in the eurozone leading the way in doing what the IMF has suggested. He is currently finalizing an economic stimulus program, accounting for around 2.5 percent of Italy's GDP, which he is expected to put to Parliament later this month.
The government in Germany, which faces a federal election in September, recently approved a substantial supplementary budget. In the Netherlands, where there has recently been a general election, extra expenditure measures are also being discussed.
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The latest advice from the IMF comes two weeks after it published a global economic forecast which said the long-term impact of the pandemic on developed economies would be considerably less than that of the severe economic crisis of 2008.
In three years, it said the productivity level in advanced countries would be around 1 percent less than pre-pandemic figures, as opposed to more than 10 percent in the aftermath of the post-crisis recession.
The IMF's chief economist, Gita Gopinath, said the damage would be "much smaller", and that advanced economies "are getting very little (economic) scarring and (in) the US (there is) effectively no scarring" from the disease.