International Monetary Fund chief Kristalina Georgieva told European media that ‘very modest’ growth in Europe in the post-COVID era calls for Italy, France, and Spain to step up their efforts to combat mounting debt and deficit levels.
“These three countries have seen their debt-to-GDP ratios jump significantly,” she said in an interview with several newspapers, according to a transcript published by Italy’s Corriere della Sera.
“Their fiscal response to COVID was appropriately very strong, but it led to increasing debt and deficit levels. So now they truly have to buckle up and go for fiscal adjustments. For Italy, the problem is compounded by the slowing of growth as a result of withdrawal of policy support measures,” Kristalina Georgieva said.
“The budget for Italy should be strengthened: the fiscal adjustment Italy is taking is not going to work fast enough to bring deficits and debt levels down,” the IMF chief added.
While acknowledging that France is in a better position because growth there is more accommodating for fiscal adjustment, the managing director of the IMF stated that France must undergo a significant shift in its tightening policies by 2024.
Spain is projecting a 0.3% adjustment, which she says the IMF deems acceptable provided it ‘does not renew the policy support measures that are expected to expire at the end of this year.’
Overall, Kristalina Georgieva flagged concerns for economic recovery in Europe.
“Unlike the US, which has recovered to its pre-pandemic trend, the Eurozone is still 2% below its pre-pandemic trend, and growth is very modest,” she said.
Kristalina Georgieva cited the war in Ukraine and demographic challenges as the leading factors for the current situation.
When asked about the impact of the war between Israel and Hamas on the world economy, Kristalina Georgieva stated that it hasn’t had much of an effect thus far, but that might change if it continues or gets more intense.
“Economically, the most significant impact is at the epicentre of the conflict. In Gaza, the destruction is massive. Growth in Israel is inevitably going to be affected,” she said.