The single biggest threat to global economic recovery is the countries that are vaccinating their populations against Covid-19 at this uneven pace, the governor of Italy’s central bank said earlier this week ahead of the G20 summit.
Ignacio Visco, who will co-chair a virtual G20 meeting of finance ministers and central bank governors with Italian Economy Minister Daniel Franco on Wednesday, warned that a patched international vaccine rollout could lead to a separate recovery for developed and developing countries.
In an interview with the Financial Times, he said, “The main ingredient we have right now is not financial or financial, it’s vaccines.
“We need to maintain close international co-operation within the G20 to avoid over-dividing the respective economies as a result of different phases of the vaccination campaign in different countries.”
Visco has so far praised the cooperation between governments in responding to the epidemic, but said ongoing multilateral measures are important to ensure an evenly distributed global recovery.
“We shouldn’t waste what we did last year: a key lesson from past crises is that we need to be very careful not to remove the support system too soon,” he said. “The vaccination campaign lets us see the light at the end of the tunnel, but we can’t do anything wrong.”
Visco also maintained the scale of Europe’s economic response to the epidemic compared to the United States. He noted that in addition to the EU’s € 750 billion epidemic recovery fund, significant stimulus was provided by national governments. “Next Generation EU”
“The next generation EU plan has a completely different nature [to the US stimulus] Because, even though it is small in size, it will be built with most of the infrastructural investment, ”he said.
“This choice is also generally ignored by many commentators because very large relief packages have been implemented in Europe and are still in place at the level of national governments.”
All major European governments, Visco said, have sharply increased their budget deficits to provide direct assistance to families and organizations outside the European Union’s recovery fund.
The G20 meeting this week comes as the pace of immunization in the United States has increased significantly compared to the European Union. Economists also forecast faster growth in the US economy than in European countries this year.
Visco said progress in the EU’s vaccination program meant the bloc would not lag behind. However, he added that mitigating this risk was a priority for developing economies.
“It’s not so much a problem for Europe as it is for the United States – the EU aims to sustain a significant population by July – it’s a question of a developed vs. a developing economy.”
Visco added that the G20 meeting would focus on measures to help developing economies recover, including ongoing discussions on increasing the IMF’s provision of special drawing rights (SDRs), which would boost the balance sheets of these countries.
“The G20 is aware of the serious challenges facing the most at-risk countries and is committed to a non-aligned solidarity. . . But these countries have the resources to respond to the crisis and to help ensure that it can get back on track, “he said.
Visco said the allocation of SDRs would “provide unconditional liquidity to low-income countries and help them deal with liquidity problems caused by epidemics.” He added that “it is very important to make sure that the new resources are really needed by those who really need them and should not, for example, pay for the past.”