(Bloomberg) — European Central Bank policy makers stepped up their pressure on the region’s governments to get on with their joint fiscal stimulus, using stronger language to warn of economic chaos for the region if politicians move too slow.
Bank of Italy Governor Ignazio Visco called the European Union recovery fund “crucial” in an interview with Bloomberg TV, and Executive Board member Isabel Schnabel said separately that a long delay would be a “disaster.”
ECB Vice President Luis De Guindos said it is “crucial that there not be unnecessary delays.” Bank of Greece Governor Yannis Stournaras told Bloomberg TV that he “absolutely” agrees with Schnabel and delays would mean there might not be a recovery this year.
The burst of comments suggest escalating concerns, two weeks after Germany’s top court temporarily blocked that nation’s ratification of the 750 billion-euro ($892 billion) fund’s bond issue. All goverments must sign off on that step before the fund can start.
The slow timeline for approving spending plans only by the end of this month and starting to disburse funds around the middle of the year is already posing a risk. As the U.S. powers ahead with its own $1.9 trillion stimulus, global bond yields are being pushed higher.
The ECB has been forced to accelerate its emergency stimulus to prevent euro-area borrowing costs rising too quickly while the bloc remains bogged down in extended coronavirus restrictions because of a botched vaccine rollout.
Stournaras pushed back against suggestions from his Dutch colleague Klaas Knot this week that the ECB could consider paring back its emergency bond-buying in the third-quarter, saying that’s too soon.
Both he and Visco said they would rather let stimulus run too long than risk ending it too early.
“We see the light at the end of the tunnel but we have to find a way to accelerate the exit from the tunnel,” Visco said, adding that ramping up vaccinations is also “crucial.”
The German legal challenge would be an economic disaster for Europe if the disbursement of the funds were to be delayed indefinitely,” Schnabel said in an interview published in German magazine Der Spiegel on Friday. “If that were the case, Europe would have to think about alternative solutions, but that could take some time.”
A political group filed an emergency case at the end of March claiming that the EU shouldn’t be allowed to issue the joint debt. In response, the Federal Constitutional Court said it needed to assess whether a preliminary order would be needed — while that step isn’t uncommon and can usually be done quickly, it has raised concerns that the EU’s cumbersome setup will undermine the recovery.
Schnabel, who is responsible for market operations at the ECB, warned that with equity and real-estate prices relatively high, “the risks of a correction are increasing, especially if the economic recovery falls short of expectations.”
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