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Europe's spending surge will not make debt unsustainable - ECB

FILE PHOTO: The headquarters of the European Central Bank (ECB) are pictured in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - A surge in public spending across Europe to contain a pandemic-induced recession will not make debt levels unsustainable, even if some euro zone members are sitting on excessively large debt piles, European Central Bank chief economist Philip Lane said.

Governments are running up record deficits this year to keep their economies going amid partial lockdowns and public debt will exceed 100% of GDP this year, with further small rises seen next year and in 2022.

“Yes, there will be more public debt, but in the context of very low interest rates, in the context of the macroeconomic environment, the assessment should be that this is something that is sustainable,” Lane told Portuguese broadcaster RTP.

“There is no reason to believe that this has some kind of intrinsic dynamic that will lead us to a return of the conditions of ten years ago,” Lane said, referring to the bloc’s debt crisis. “The cost of making the payments on this debt in the years to come will be quite contained.”

The ECB has kept borrowing costs record-low but has long argued that governments, not the central bank, need to do the heavy lifting in sustaining the economy until a vaccine is deployed and restrictions are lifted.

But the European Union’s plans to deploy 750 billion euros (£673 billion) in a recovery fund were dealt a setback on Monday when Hungary and Poland blocked the scheme, raising the risk that funding will be delayed.

Reporting by Balazs Koranyi in Frankfurt; Editing by Matthew Lewis

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