ECB Governing Council member Olli Rehn said it’s “essential” EU would come up with a “convincing package” tomorrow to “mitigate the economic effects of the crisis, especially for the weakest countries.” He warned that “the future of Europe as a political community is also at stake.” The difficulties caused by the coronavirus pandemic are “not due to any single country’s reckless management of finances,” he added. ” It is therefore necessary to support the most severely hit countries.”
Rehn also noted that a “joint solution” is likely to be found by using EU’s “budget framework rather than through joint loans.” “Joint European solutions are also in Finland’s interest because our own economy, too, is highly dependent on the European economy’s development and recovery. Alone we can boost our domestic demand but not exports,” he added.
As for ECB, “we will continue to monitor the situation and stand ready to adjust all of our measures, as appropriate,” he said.
ECB: Impact of trade tensions escalation could heighten financial stress and lower confidence
In a paper released today, ECB noted that last year’s increased in trade tensions and the repercussions of the tariffs implemented pose only a “modest adverse risk” to the global and euro area outlooks. Also, impact of implemented tariffs and tariff announcements owing to uncertainty effects appears to have remained “confined to the targeted sectors” for the time being.
However, if trade tensions were to escalate once again, “the impact would be larger”. Model-based simulations indicate that the medium-term direct impact of an escalation could be “sizeable, compounded by heightened financial stress and a drop in confidence.” The longer-term effects would be “even more pronounced”.
ECB also warned that “although free trade is often seen as one of the factors behind rising inequality both within and across countries, winding back globalisation is the wrong way to address these negative effects.” “A retreat from openness will only fuel more inequality, depriving people of the undisputed economic advantages that trade and integration bring.”. The paper urged that “countries should seek to resolve any trade disputes in multilateral fora”.
Full paper “The economic implications of rising protectionism: a euro area and global perspective“.