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U.S. stimulus will cause ‘positive spillovers’ in Europe, ECB chief economist says


LONDON — The $1.9 trillion coronavirus relief package in the United States is a “significant engine for the world economy” and will have positive spillover effects in the euro zone, the chief economist of the European Central Bank told CNBC.

Earlier this month, President Joe Biden signed a massive fiscal stimulus plan that will send direct payments of up to $1,400 to most Americans. The program, which is already underway, is expected to prop up the world economy. In fact, the Organization for Economic Cooperation and Development estimated this month that the relief bill will add about 1 percentage point to global growth this year.

And the euro zone is expecting to benefit from that too.

“There will be positive spillovers from the U.S., the fact that there is a significant stimulus in the U.S. will boost global GDP, will boost exports from the euro area,” ECB Chief Economist Philip Lane told CNBC’s Annette Weisbach Monday.

A large part of the economic output in the euro area is driven by exports, which were severely hit by the pandemic. Data released in January showed that euro zone exports dropped 11.4% over a 12-month period.

“Of course, the initial impact was visible more in the financial market, but over time, as this stimulus gets rolled out, it will be a significant engine for the world economy,” Lane added.

European officials often come under criticism for not providing similar fiscal power to the United States. The 27 European nations, for example, agreed in July to implement a 750 billion euro ($895 billion) joint stimulus, but those funds have not yet been distributed.

“Given the nature of the U.S. you can have very large fiscal packages embodied in a single piece of legislation. As you know in the European situation we’ve a mix, we have 19 fiscal policies and then we have the joint fiscal action,” Lane said.

Lane pointed to a recent meeting among euro zone finance ministers, where there were commitments to “an agile fiscal response” with no early exit.

At the same meeting, European officials also said that it is likely that stricter budgetary targets will remain on hold in 2022, so member states will continue to have the capacity to address the economic challenges of the coronavirus pandemic.

The parameters of the fiscal debate have clearly moved with the US decision. And it is an important issue for European policymakers to reflect upon.

Philip Lane

ECB chief economist

The euro area has been severely hit by the health emergency, having contracted almost 7% in 2020. Though the ECB has forecast a growth rate of 4% for the euro area this year, this comes with a large level of uncertainty.

The economic performance will depend on the evolution of the pandemic, including new variants; as well as the vaccination rollout, which has been difficult for the EU so far. In addition, some EU nations are currently facing the start of a third wave of infections and have therefore imposed tougher restrictions on movement.

In this context, whether at the national or European level, Lane suggested that member states might soon be discussing how to provide more help for their populations.

“The parameters of the fiscal debate have clearly moved with the U.S. decision. And it is an important issue for European policymakers to reflect upon about how to calibrate the European fiscal response, and to make sure it’s sufficient to get through this pandemic,” Lane said.

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