June 9, 2020 / 8:29 AM / 2 months ago

Europe's spending surge must be temporary, ECB's Rehn says

FILE PHOTO: Finland's central bank governor Olli Rehn speaks during an interview in Helsinki, Finland July 17, 2018. REUTERS/Ints Kalnins/File Photo

HELSINKI (Reuters) - Europe’s spending surge is necessary but must be a one-off as some euro zone members are already struggling to sustain their debt, European Central Bank policymaker Olli Rehn said on Tuesday.

With much of Europe shut down this spring by the coronavirus pandemic, governments are running record deficits to maintain jobs and production capacity until their countries can re-open.

“The general government finances of some EU countries have become so weakened by the crisis that their ability to support output and employment risks becoming entirely compromised, simply fuelling long-term challenges to the public finances,” Rehn, Finland’s central bank chief, said in a statement.

“The corona crisis should not be used to introduce permanent increases in public expenditure that will further exacerbate an already substantial sustainability gap,” Rehn said.

Italy’s debt is expected to approach 160% of GDP by the end of this year, raising doubts among investors over its longer- term sustainability.

Reporting by Anne Kauranen, writing by Balazs Koranyi, editing by Larry King

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