The recovery of the Eurozone is “strengthening” but at the same time “the pandemic could have persistent consequences and fiscal support should not be withdrawn early”. This is underlined by an OECD report, according to which “in some sectors the pandemic can weaken demand permanently and unemployment could remain high for longer “.
Disruptions to the school system can also “affect the human capital of future generations, negatively affecting future growth”, it reads.
“Fiscal policy should continue to support the affected sectors until the recovery is consolidated, avoiding premature consolidation. In addition, a lasting recovery will require the completion of an ambitious reform agenda which would be supported by reforms of the economic architecture of the Eurozone “, adds the OECD.
The Paris institute also points out that one weak recovery “could threaten the cohesion of the European Union” because it would lead to “a growth in inequality, which would fuel discontent and damage confidence in the EU”.
The crisis, explains the Organization for Cooperation and Development, “could leave scars and reopen old wounds”.
For these reasons ECB monetary policy “should remain accommodative” after the central bank’s strategic review and “remain accommodative until inflation converges robustly towards the 2% target”.
“The support of the ECB in the face of the onset of the crisis was ready and decisive”, highlights the OECD.
“However, even if it picks up in 2021, core inflation in the medium term is still far from the ECB’s target. In this context, monetary support is still needed“, the report continues.
Finally, according to the OECD, Europe needs to improve its tax governance and the countries of the Union must work on a rapid implementation of their plans linked to the recovery fund.
The crisis linked to Covid has “significantly worsened” budgets and pushed public debt “to new highs”: in the face of this scenario, current tax rules must be evaluated “with the aim of ensuring greater sustainability of public budgets. “.