ECB’s Šimkus: Impact of Covid Fiscal Measures Not Yet Completely Evaluated

30 August 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Gediminas Šimkus on Friday said that the implications of fiscal measures to support business during the Covid period had not been fully evaluated.

During a panel discussion at Eesti Pank, Šimkus, who heads the Bank of Lithuania, said, ‘[F]or me, the most surprising thing is to what extent or by how much we have not evaluated the effects of various fiscal measures and their implications to the overall economic performance and onto the businesses in the future’, he said.

Fiscal support in 2020 and 2021 was ‘massive’ and, at least in Lithuania, resulted in businesses being stronger in 2022 than in the pre-Covid time, he said.

The situation would have been different if labour markets had been affected, he acknowledged.

The ECB was ‘not happy’ with the tight labour market due to its influence on wage dynamics, he said, though things could be worse.

‘I tend to believe that this is a better state of the situation than what we would have had if the economy was contract[ing], if there was a sharp increase in unemployment and we would have been reacting differently’, he said.

It was also surprising that monetary policy transmission went so smoothly considering the unprecedent ten interest rate hikes in 15 months by the ECB, he said.

‘After this sharp hike of interest rates, there were expectations that would see more NPLs [non-performing loans], but fiscal measures, how the economy in fact evolved, and the strength of businesses helped a lot to cushion these implications’, he said.