ECB’s Panetta Acknowledges Pandemic Crisis Phase Coming to an End
27 July 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Fabio Panetta on Tuesday implicitly acknowledged that the pandemic crisis phase is coming to an end.
In a blog post on the ECB’s website about European economic governance, Panetta wrote, ‘As the acute phase of the pandemic draws to a close, we are faced with a fundamental choice: Do we go back to the pre-crisis model of economic policymaking or do we opt to transform it?’
The pandemic and public health policy response to it ‘caused not only a huge negative demand shock but also a powerful and potentially long-lasting adverse supply shock’, he said, and ‘accelerated digitalization and automation in ways that will radically transform production and the labour market.’
This set the stage for three ‘paradigm shifts’, he continued: a common EU fiscal instrument, ‘the recognition that reforms are more likely to emerge in a growing economy’, and the ‘explicit commitment by EU countries to transform their economies using European funding, so that the investment eventually repays itself through higher productivity growth and positive demand spillovers.’
Europe can build on these paradigm shifts and thus strengthen its economic foundation, he said, if it embraces sound recovery and resilience plans, if the ‘EU liquidity toolbox’ is enhanced, and if fiscal rules are reformed to ‘include both a conjunctural component (ensuring that fiscal policy is responsive to short-run market fluctuations and enables a strong recovery) and a structural component (strengthening the sustainability of debt over the economic cycle).'