The managing director of the International Monetary Fund, Kristalina Georgieva, congratulated the EU for stepping up its collective response to the COVID-19 crisis with the proposed €750 billion recovery fund, but cautioned that the proposal will first have to survive “long nights of negotiations”.
In contrast with IMF’s past reputation as a defender of fiscal discipline, Georgieva stressed that her recommendation to governments was to spend more to stimulate the bloc’s economy in the wake of the pandemic.
Georgieva, who was the EU’s Budget commissioner between 2014 and 2016, highlighted the European effort among the strong global responses to the recession prompted by the pandemic.
“What it’s being done today is truly remarkable”, she said in an event co-organised by Globsec, Institut Montaigne and Bruegel think tanks.
During the financial crisis in 2008-2010, she recalled that the fiscal stimulus initially put forward was around $1 trillion, although it was later increased.
On this occasion, governments have already unveiled plans to inject $10 trillion into the real economy to address the fallout of Covid-19.
“Let me give some kudos to Europe for stepping up individual countries’ action but also the collective action,” Georgieva said.
The Bulgarian economist said that she was “very hopeful” for the EU’s €750 billion recovery fund proposed by the European Commission, “that got this very good name, New Generation EU”.
Recalling the times when she had to negotiate the EU budget with member states, she added that she had “no doubts that there will be long nights and negotiations on this fund”.
But she insisted on the importance of its approval “symbolically” and financially, as it would represent an opportunity to restart the European growth engine, which has been “stalling for some time”.
The coronavirus pandemic is expected to trigger the deepest recession in Europe since World War II.
In order to overcome the downturn, the Commission proposed in late May an unprecedented stimulus package of which €500 billion will be given to the most affected countries via grants.
EU leaders will discuss the recovery fund and the EU’s seven-year budget for 2021-2027 during a video call this Friday (19 June).
EU institutions and member states are aiming for an agreement in July, but officials and diplomats have agreed that this is highly optimistic. Two additional summits could be needed next month in order to bridge major differences among the capitals.
[Edited by Benjamin Fox]