Italian central bank chief warns of threat to global recovery

The uneven pace at which countries are vaccinating their populations against Covid-19 is the single greatest threat to a global economic recovery Italy’s central bank governor said, ahead of the country hosting a G20 summit this week.

Ignazio Visco, who will co-host the virtual G20 meeting of finance ministers and central bank governors on Wednesday with Daniele Franco, Italy’s economy minister, warned that a patchy international vaccine rollout could result in sharply different recoveries for developed and developing nations.

“The main instrument we have at the moment is neither monetary nor fiscal, it is vaccinations,” he said in an interview with the Financial Times. 

“We need to maintain close international co-operation within the G20 to avoid that the different stages of the vaccination campaign in the various countries result in excessive divergences of the respective economies.”

Visco praised the co-operation between governments in the pandemic response thus far, but said ongoing multilateral measures would be critical to ensuring an evenly distributed global recovery.

“We must not waste what we have done last year: one of the main lessons from past crises is that we need to be very careful not to remove the support measures too soon,” he said. “The vaccination campaign allows us to see the light at the end of the tunnel, but we cannot make any mistakes.”

Visco also defended the scale of Europe’s economic response to the pandemic in comparison with the US. He pointed out that significant amounts of stimulus had been also provided by national governments alongside the EU’s €750bn post-pandemic recovery fund, known as “Next Generation EU”.

“The Next Generation EU plan has a completely different nature [to the US stimulus] because, while smaller in size, it will be mostly made of infrastructure investments,” he said. 

“This choice is also due to the fact, usually neglected by many commentators, that very large relief packages have been implemented in Europe, and are still operating, at the level of national governments.”

All large European governments, Visco said, had sharply increased their budget deficits to provide direct assistance to households and companies outside the scope of the EU recovery fund.

The G20 meeting this week comes as the pace of the US’s vaccination push has increased significantly compared with the EU’s. Economists have also forecast the US economy to grow faster than those of European countries this year.

Visco said progress in the EU’s vaccination programme meant that the bloc would not be left behind by the US. However, he added that reducing this risk for developing economies was a priority.

“This is not so much a problem for Europe with respect to the US — as the EU is aiming at immunising a substantial fraction of the population by July — it is rather a question of advanced versus developing economies.” 

Visco also said that the G20 meeting would focus on measures to assist developing economies in their recovery, including ongoing discussions of increasing the issuance of IMF special drawing rights (SDRs), a financial instrument that would boost those countries’ balance sheets.

“The G20 is aware of the serious difficulties facing the most vulnerable countries and is committed to offer not a sterile solidarity . . . but concrete help to ensure that these countries have the necessary resources to respond to the crisis and can then get back on track,” he said.

This would include discussion of extending beyond June of this year the so-called debt service suspension initiative, which provides temporary relief from debt repayments for 73 eligible poor countries.

Visco said the allocation of SDRs would “provide unconditional liquidity to low-income countries, helping them to deal with the liquidity problems originated by the pandemic”. He added that it was “crucial to ensure that the new available resources go to those who really need them and not, for example, to repay past debts”.