Stricter measures against Covid-19 will ‘take toll’ on European economies
The pandemic has created a new pile of bad loans that banks will have to handle
Athens — The stricter measures intended to stem the coronavirus’s resurgence across the euro area will take an extra toll on local economies, said Fabio Panetta, a member of the European Central Bank’s executive board.
The bank’s latest staff projections show growth returning to pre-crisis levels by the end of 2022, and new measures “may push this horizon even further away”, Panetta said in an interview with Greek newspaper Kathimerini.
There’s little appetite among most policymakers to expand bond buying again at this month’s meeting, people involved in deliberations said earlier this week. But the ECB is ready to act, according to Panetta.
“We stand ready to adjust all of our instruments, as appropriate, to achieve our objective of bringing inflation back to our medium-term aim in a sustained manner,” he said.
The most recent inflation data that the ECB has show that there is a risk of inflation dynamics being weaker than projected, Panetta told the paper.
The pandemic has created a new pile of bad loans that banks will have to handle. Greek lenders have already a huge stock due to the decade-long debt crisis and the average non-performing loans ratio in second quarter stood at 36.7%.
The Greek government has in place an Italian-style plan to help banks cut their soured debt, called Hercules, but the Bank of Greece proposed the creation of a bad bank to address the issue.
The ECB is closely co-operating with all relevant stakeholders, including the Bank of Greece, on these issues, Panetta said. “All avenues for NPL reduction need to be examined,” and “further potential additions to the NPL resolution toolkit should also be thoroughly analysed.”
The pandemic is also expected to lead to an increase in Greece’s public debt to almost 200% of GDP in 2020. The ECB’s executive board member said Greece faces low debt-servicing costs and long average maturities on its borrowing.
“The preliminary debt sustainability assessments by the European Commission on the eligibility of euro area countries for the ESM’s pandemic crisis support programme concluded that Greece’s debt is sustainable,” Panetta said.
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