ECB’s Visco: Recent Vaccine News Grounds for ‘Cautious Optimism’

23 November 2020

By David Barwick – FRANKFURT (EconoStream) – Recent progress towards a medical resolution of the pandemic is grounds for hope, European Central Bank Governing Council member Ignazio Visco said on Monday.

In a welcome address at an online conference of economists working in the European System of Central Banks, Visco, who heads the Banca d’Italia, said the pandemic would impair economic developments until well into 2021.

‘Recent news on vaccine development offer reason for cautious optimism, but it will take time until widespread immunity is achieved’, he said. ‘The outlook remains largely dependent on the evolution of the health crisis, which is likely to continue to weigh on global economic activity well into the next year.’

Until ‘a substantial fraction of the population’ has been immunized, mitigating the situation caused by the pandemic ‘remains our most urgent priority’, he said.

Although making predictions about a post-pandemic world is difficult, there is likely to be ‘substantial reallocation of capital and labour in the near future across sectors and firms’, he said. ‘These adjustments may be painful and lead to temporarily higher unemployment, discouragement and low labour market participation, inefficient matches of workers with firms.’

Visco reiterated his opposition to putting too much emphasis on the risk of fiscal dominance in the current environment. Indeed, he said, if monetary and fiscal policy don’t complement each other so as to boost aggregate demand sufficiently to restore price stability, then this could wind up posing a threat to central bank independence.

‘Not only should we not end up being accused of failing to fulfil our duties, but we should explicitly recognise that cushioning the consequences of such a huge shock goes beyond the possibilities and instruments of fiscal or monetary policy alone’, he said. ‘A coordinated effort is required and its effective implementation in the majority of countries is a major achievement.’