In a written interview with Harvard International Review, ECB President Christine Lagarde said the pandemic is a “common global shock” but the “local impact is going to be uneven”. Output losses in H1 ranged from less than -11.5% in Germany to more than -22.7% in Spain. These differences “reflect both the severity of the outbreak, the design of the national response – itself a function of diverse fiscal positions –, the economic structure, the sectoral activity, the fiscal absorption capacity and the resilience of the corporate and financial sectors.”
“It is clear that the crisis might leave behind a legacy of even more pronounced divergences among the economies of the euro area than we have observed so far. Countries will return to pre-COVID GDP levels at different points in time, some earlier, some later. Those countries set to struggle for longer with the aftermath of the pandemic shock will likely suffer from deeper and longer-lasting scars. All this risks prolonging and even entrenching structural heterogeneity within the euro area.” She added.
That’s the reason why the Next Generation EU recovery package is “so critical. It has a “dual function”, supporting depend and increase the structural resilience and growth potential of the “entire area”.
