VENDREDI 07 MAI 2021 BIZWEEK ÉDITION 341 Therefore, it is essential to ensure in coming months adequate access to international liquidity for all. Low-income countries in need will benefit from recently decided, with full EU support, further extension of the pause on international debt repayments under the Debt Service Suspension Initiative (DSSI) until December 2021. Although several countries « have very high levels of debt vulnerability », IMF Chief Economist Gita Gopinath does not see signs of a « systemic debt crisis » looming. However, the EU is pushing for an effective use of the new G20 Common Framework for orderly debt restructuring that was adopted last year. All creditor countries, including China, should actively participate in this effort in coming months. The recently decided new allocation of $ 650 billion of the IMF’s Special Drawing Right willalso provide needed liquidity protection in highly uncertain times, as the EU have been asking for, since many months. « We see a significant gap in the speed of recovery between China plus advanced economies on the one hand and other emerging and developing countries on the other. It was not the case during the great recession of 2008-2009. This role reversal bears » geopolitical risks. One year after the start of the pandemic, we see a significant gap in the speed of recovery between China plus advanced economies on the one hand and other emerging and developing countries on the other. This is the most relevant geopolitical issue at this stage. It was not the case during the great recession of 2008-2009 : the richest countries suffered then more than emerging and developing ones. This role reversal bears geopolitical risks, if it were to continue. For the future, it is essential that this divergence is not allowed to persist and grow. A significant gap between US and the EU However, there is also a significant gap POST SCRIPTUM within the advanced economies between the United States and the others, particularly the European Union. This is because the US federal government has much more accelerated its public spending than others. Both in 2020 and this year with the new $1.900 billion stimulus plan announced by Joe Biden, pending his $2 000 billion dollar multi-year investment plan. As a consequence, GDP per capita in the US is expected to grow by 1.8% between 2019 and 2021 according to IMF, while it should decline by 0.9% in Japan and 2.6% in the euro area. The big amount of money mobilized by Joe Biden’s stimulus plan has raised concerns. It has been criticized by some observers, including Larry Summers, former Treasury Secretary and Olivier Blanchard, former IMF chief economist, because it risks creating higher inflation. Although oil, metal and food world prices are indeed already rising, the IMF does not seem to fear a significant rise in inflation in the coming months. Rather, some observers see a new Washington consensus emerging between the world financial institutions and the American government around economic policy, including the need to use extensively expansionary monetary policy and fiscal spending in the face of the current crisis. Maybe it is too early to characterize it as a « new Washington consensus », but certainly things have changed compared to previous times, when the fight against inflation and the level of public expenditure were the main concerns of the world financial institutions … The post pandemic world is being built now In this context, if we want to avoid Europe stalling in comparison to the US and China, it is necessary that EU member states do not relax too early their fiscal support to the economy, as they did in 2010 during the last crisis, while we accelerate the vaccination roll-out. At the same time, we must succeed now in getting the Next Generation EU plan off the ground without additional delay. This is essential not only for the wellbeing and future of Europeans themselves, but also for the EU to have a say in tomorrow’s world affairs. The post pandemic world is being built now. 8 |
