By David Barwick – FRANKFURT (EconoStream) – Euro area countries must counter the economic fallout from the pandemic with a “strong, symmetric fiscal response,” the only option in the interest of all of them, European Central Bank Executive Board member Fabio Panetta said Tuesday.

In an opinion piece for Politico, Panetta urged that fully funding the cost of a strong response be put off until way in the future.

Given the interconnectedness of European economies, a contraction in a significant part of the area would have a ripple effect all throughout it, he said. Moreover, the importance for Europe of international supply chains would compound the impact of lockdowns, he said.

“Only if all economies act with the necessary force to contain the recession will the loss in output for the entire Eurozone be minimized,” Panetta affirmed.

A failure to act promptly would ultimately entail even higher costs, in addition to undercutting existing policy measures, he said. “For example, without visibility on future sovereign funding costs and rollover risks, government guarantees on bank loans will either be priced differently across countries — or fewer such loans will be extended,” he reasoned. “Either way, the result will be fragmentation and a more persistent loss of economic potential.”

So far, he lamented, the magnitude of fiscal responses in Europe has tended to be in inverse proportion to the pandemic’s impact, because the countries most severely affected are concerned about assuming unsustainable debt. This, he said, poses a threat to the single market, as companies’ location will become the key factor for their survival.

Implicitly downplaying the appeal of so-called coronabonds, Panetta said that “rather than transfers between member states or a mutualisation of existing debts,” countries should jointly ensure that the response is commensurate with the severity of the crisis and that low funding with no rollover risk is available to all governments.

Observing the various strands of the discussion about how to fund a policy response, Panetta said that “whichever path is taken, the goal of fiscal policy must be to push the financing costs of this crisis far — very far — into the future.”

He noted that an appropriate response to the crisis by Europe would make the ECB’s asset purchases easier and monetary policy thus more effective.