In an interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Luis Doncel and published on 11 April 2021, Panetta highlights the fragility of the euro area’s recovery and the slow progress of the vaccine rollout. This slow progress is affecting the economy, as uncertainty remains high and the pandemic continues to spread in some countries, weighing on the economic outlook. Panetta notes that the euro area will not return to pre-crisis levels until mid-2022, and may have permanently lost two years of growth. Inflation is projected to remain below the ECB’s 2% target in the medium term, compared to other countries like the UK, US, and Canada. Panetta calls for more ambition to support economic activity and ensure inflation converges towards the ECB’s aim. He also emphasizes the need to provide consumers and investors with more certainty about the prospects for the European economy.
Regarding the Spanish Government’s forecasts for this year, Panetta cautions against betting on a rapid recovery and highlights the potential damage to the economic fabric that may not be immediately visible. He suggests that injecting too much stimulus is a prudent policy approach to support the economy.
Panetta acknowledges the risk of divergence in the recovery across countries and emphasizes the importance of using the EU recovery instrument wisely to achieve a more uniform exit from the crisis. He suggests that investing the funds in future-oriented growth sectors can lead to a more balanced recovery and serve as a prototype for a future common fiscal instrument.
In response to whether Europe should follow the United States’ example and provide greater fiscal stimulus, Panetta acknowledges the ambitious fiscal stimulus program in the US and its positive impact on growth. He calls for making the EU recovery instrument operational and considering more fiscal support to drive demand back to its potential level faster.
Panetta expresses hope that the German Federal Constitutional Court will make a decision on the EU recovery plan soon, as the release of European funds is crucial for a faster and stronger recovery for all Member States.
Regarding the increase in debt market yields, Panetta highlights the effectiveness of the ECB’s decisions to protect the European bond market and exert downward pressure on real interest rates. He emphasizes the importance of favorable financing conditions for achieving the ECB’s primary objective of inflation close to 2%.
Panetta discusses the diverging inflation outlook between the United States and the euro area. He notes that the US is seeing a return to healthy levels of inflation due to forceful monetary and fiscal policies, while the euro area’s medium-term inflation outlook is unsatisfactory. He suggests that with a more dynamic policy mix, the euro area could fully benefit from the improved global outlook.
Panetta expresses his desire for central bankers to become less relevant in the future by ensuring an improved economy and reaching the inflation objective. He emphasizes the need for essential decisions and action when necessary to avoid having to take even more action at a later date.
On the topic of a digital euro, Panetta highlights the need for caution and careful analysis of all key factors before deciding on its introduction. He acknowledges that other countries like China, Canada, and Sweden are more advanced in their digital currency efforts but emphasizes that it is not a race and that cooperation and learning from each other are important.
Panetta reassures stakeholders about the risks of a digital euro and emphasizes that the ECB will proceed with caution to avoid compromising financial stability or intermediation.
Regarding the ECB’s ongoing strategy review, Panetta mentions discussions on fighting climate change and changing the inflation aim. He believes that 2% is the most suitable inflation level, and it should be symmetrical. He notes that the ECB is committed to incorporating climate change as an important factor while maintaining its primary objective of price stability. An answer on these matters is expected later this year.