Europe Needs to Act On All Fronts, Says Panel

Europe’s economic outlook revised down

Public infrastructure investment a key lever to boost growth

Changing political situation, external risks pose challenges

German finance minister Wolfgang Schäuble and his Italian counterpart Pier Carlo Padoan assessed progress made since the crisis emerged. First, the single currency had been secured. “We had to overcome doubts and we did it more successfully than anyone expected,” said Schäuble.

It is now time to emphasize new priorities, according to Padoan. “Europe needs to focus on growth and jobs, having rightly addressed fiscal consolidation and banking union,” he said. Labor market reforms, aiming to boost employment including for youth, were one example of action underway in his country.

The economic climate remains difficult, reflected in warnings of the “new mediocre” in the latest IMF forecasts, and panelists generally agreed that Europe faced both demand and supply challenges. “We think Europe could do better and we worry it may do worse”, said David Lipton, the IMF’s First Deputy Managing Director. “What’s happening in Europe is not working,” warned Larry Summers, Harvard University Professor, who drew parallels with low output and deflation in 1990s Japan.

‘Yes, yes, yes’ to investment

The latest IMF World Economic Outlook calls for a push for well managed investment in public infrastructure. Could this be a good move for Europe? “Yes, yes, yes,” affirmed Summers emphatically.

“It’s best to operate on all fronts: to be supportive of demand and to carry out structural reforms,” said Lipton. The two go hand in hand, according to Summers, who said, “Strengthening demand makes structural reform easier.”

Schäuble...