On 24 October, ECO Section Bureau member, David Croughan, along with representatives of other major Brussels based institutions, attended the IMF policy lunch in the Stanhope Hotel, hosted by Jeffrey Franks, IMF Senior Resident Representative to the EU.
Downside risks have risen in the last six months, while the potential for upside surprises has receded. Identified concerns were: trade wars, implemented or approved, could reduce global growth by 0.8%; adverse growth effects of withdrawal of stimulus and more financial tightening may result in higher borrowing in highly indebted countries; the planned deficit in Italy of 2.4% of GDP is based on optimistic forecasts which implies increased debt; the downside risk of a no-deal Brexit is in no-one’s interests.
The Banking Union has made the EU safer, but substantial gaps still remain and some roll-back in the US is a concern. Many countries that needed to take corrective measures may have missed the opportunity. According to some analysts, certain countries in the EU had not built up enough fiscal buffers. Concerns were expressed about how to handle a possible Chinese crisis, while it continued to remain outside the main international fora.
The political consequences of Italian budgetary surveillance were also mentioned. Other views expressed were: nothing will happen for at least six months; we need risk reduction not risk sharing; the EU has chosen to focus on financial union not fiscal union; change in fiscal rules are not on the table; biggest crisis is not debt but trust and willingness to cooperate; giving money to bad management cannot be justified to electorate; backstop is supposed to limit contagion; debt sustainability should be relooked at; problems of countries that lack fiscal space to carry out essential reforms are being ignored.