ECB’s de Guindos: Pandemic Caused No Structural Damage to Economy

26 July 2020

By David Barwick – FRANKFURT (EconoStream) – The European economy has suffered no structural damage in the wake of the pandemic, European Central Bank Vice President Luis de Guindos said Sunday.

In an interview with Spanish daily El Independiente, de Guindos praised the recent decision by EU leaders to establish a €750 billion recovery fund, according to a text provided by the ECB.

Asked whether the measures taken to date by the ECB would be sufficient, de Guindos responded indirectly, but in a manner suggesting relative optimism.

‘The economy wasn’t prepared for the lockdown, but in our view it has not suffered any structural damage’, he said. ‘A rebound will be possible, but our calculations show that it will take us two years to return to pre-COVID-19 levels of output.’

The agreement on a European recovery fund reached by EU leaders last week ‘is a good deal’ and ‘sends the right signal for the exit from the crisis’, he said. The willingness to fund the plan by mutualised debt, a first in Europe, ‘is extremely significant’, he said.

The plan’s importance also derives from its character as a response to the threat that economies across the region would otherwise recover from the crisis at divergent rates, he said. ‘[I]n this respect, the recovery fund reduces the risk of a two-speed Europe’, he said.

The economic slowdown so far seems unlikely to cause major bank solvency issues, he indicated, noting that the ECB will soon publish its vulnerability analysis of banks and that European banks have an average capital ratio of about 15%.

‘There is every indication that, with this high level of solvency, most European banks could withstand a 9% fall in GDP and survive the two years it will take to return to the level of output seen before the spread of COVID-19’, he said.