ECB’s Visco: Postponing Exit Less Worrisome Than Winding Down Too Early

9 April 2021

By David Barwick – FRANKFURT (Econostream) – Deferring the removal of policy support is less of a concern than would be a premature unwinding of anti-crisis measures, European Central Bank Governing Council member Ignazio Visco said on Friday.

In an interview with Bloomberg, Visco, who heads Banca d’Italia, responded to a question about when the ECB could start reducing asset purchases by saying that ‘measures have to be maintained as long as necessary … perhaps a little bit postponing the exit is less worrisome than winding down too early.’

‘We have a large number of small and medium firms which have been heavily hit’, he continued. ‘Most of them are profitable, once things will return to some sort of normality.’

A wave of corporate insolvencies has to be avoided, he said, dismissing ‘the issue of zombification’ as something ‘to be taken with a grain of salt’.

‘On the other hand, I also think that we have to be very careful in becoming more selective as uncertainty is reduced and … macroeconomic conditions improve’, he added.

A bigger issue is household and consumer expectations about the future, he said. Their ‘fears have to be reduced’, he said, noting that some of the increased savings rate was due to precautionary reasons that must ‘be accommodated’ lest scarring occur and make the impact of the crisis more persistent.

‘So I think this is the area where confidence has to be restored’, he said. ‘This is why also vaccination has really to be faster. We see the light at the end of the tunnel, but we have to find a way to accelerate the exit from the tunnel.’

Visco, who is participating in the ongoing virtual spring meetings of the IMF and World Bank, said that the ‘two messages’ to emerge from these were ‘that the global economy is starting really to recover’ and that ‘this upturn remains fragile’, due in particular to uneven progress in vaccination, ‘one of the main concerns that came out from the meetings.’

Europe’s recovery fund is ‘crucial’, he said. Although the US fiscal stimulus is ‘really impressive’, he said, ‘it is mostly direct transfers. … But really what is most important is to ensure that … we will be able to accompany and maintain a stable recovery through investment in infrastructures and reforms, which is the objective of the Next Generation EU plan.’

Visco appeared to put recent increases in long-term yields down to ‘the fact that the recovery is coming up faster in the US’. In the same context, he defended Europe’s effort as ‘something that tries to cope with the moderate, very moderate rate of growth of our economies, which has been the concern obviously of the ECB in the last years.’

The US stimulus was ‘going to be very important’, he said.