The head of Italy’s central bank has warned of a threat to the world’s recovery
The different pace at which countries are injecting their populations against Covid-19 is the biggest threat to the world’s economic recovery, the Italian central bank governor said ahead of the country’s upcoming G20 summit this week.
Ignazio Visco, along with Italian Economy Minister Daniele Franco, who will hold a virtual G20 meeting of finance ministers and central bank governors on Wednesday, warned that the expansion of international vaccines could lead to different recoveries in developed and developing countries.
“The main tool we have at the moment is neither money nor tax, they are vaccines,” he said in an interview with the Financial Times.
“We need to maintain close international cooperation within the G20 so that the different phases of the vaccination campaign in different countries can lead to excessive divergences in the corresponding economies.”
Visco praised the intergovernmental cooperation in its response to the pandemic so far, but said ongoing multilateral measures will be key to distributing the global recovery in a uniform manner.
“We have not wasted what we did last year: one of the main lessons of past crises is that we need to be very careful not to remove support measures too soon,” he said. “The vaccination campaign allows us to see the light at the end of the tunnel, but we can’t make mistakes.”
Visco also defended the extent of Europe’s economic response to the pandemic compared to the US. He noted that national governments had also provided significant incentives along with the EU’s € 750 billion pandemic recovery fund, “Next Generation EU”.
“The next generation EU plan is completely different [to the US stimulus] in fact, despite its smaller size, it will mostly be done with infrastructure investments, ”he said.
“This is also an option, often overlooked by many commenters, because very large aid packages have been set up in Europe and still operate at the level of national governments.”
All major European governments, Visco said, have significantly increased their budget deficits to provide direct support to households and businesses outside the EU recovery fund area.
This week’s G20 meeting has significantly increased the pace of the U.S. vaccine push compared to the EU. Economists predict that the U.S. economy will grow faster this year than European countries.
According to Visco, progress in the EU’s vaccination program means the bloc will not be left behind by the US. However, he added that reducing this risk for developing economies is a priority.
“This is not so much a problem for Europe as it is for the US – the EU aims to immunize a large part of the population in July – it is an economy of advanced and developing economies.”
Visco also said the G20 meeting will focus on measures to help revitalize developing economies, including discussions to increase the issuance of IMF special rights (CSRs), a financial instrument that will boost those countries ’balance sheets.
“The G20 is aware of the serious difficulties facing the country’s most vulnerable countries and is committed to not providing sterile solidarity… But concrete support to ensure that these countries have the resources to respond to the crisis and then return to the right path,” he said.
Visco said the CSR allocation “will provide unconditional liquidity to low-income countries to address the liquidity problems caused by the pandemic.” He added that “it is essential to go to those who really need the new resources available and, for example, to repay past debts.”