Source: Bank for International Settlements
2020 has been a year like no other. We have faced an economic contraction without precedent in peacetime: in the first half of this year output in the euro area declined by more than 15%. But we have also seen a collective response that has no precedent in the history of our monetary union.
That response has protected our economy from a potentially catastrophic depression. And now, with positive news on vaccines, we are finally able to glimpse the light at the end of the tunnel.
But we still need to pass through the tunnel. 2021 will likely be a “pandemic year”, characterised by high uncertainty and widespread vulnerabilities among firms and households. How the European economy emerges from the crisis will depend on how we manage this transition.
So what I would like to argue today is that policymakers must commit to continue providing certainty to the economy. The end of the pandemic is now in sight, and we need to extend policy support in order to underpin the recovery.
But expansionary policies must not be wasted. Only by taking the opportunity to invest in Europe’s recovery can we re-emerge on the other side with a more dynamic economy and a more sustainable debt burden.