The countries of the European Union appear to be bouncing back after the pandemic and economic shutdown, but this is no time to be complacent according to new ECB President Christine Lagarde. To keep unemployment down and confidence up, she warned the governments of the EU that they must keep up their deficit spending for as long as it takes.
“Confidence in the private sector rests to a very large extent on confidence in fiscal policies. Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”
“Keeping job support schemes in place is critical to avoid a sharp increase in unemployment later in the year.”
While that’s easy to say, Lagarde didn’t address how long this should go on, and how the individual countries should keep up the pace even as they run huge deficits.
Unlike countries that control their own printing presses (like the U.S.), the nations of the euro rely on the ECB to control the currency. The economic bloc decided earlier this year to issue debt that will be used to assist nations harder hit by the pandemic and economic slowdown, but the funds won’t be enough to keep job support programs in place for long.
What happens when the money runs out? That’s a question facing nations around the world.