Despite the gradual recovery of the economy and the reopening of summer tourism in many parts of the euro zone, it is not yet time to end the emergency measures, Italian central bank governor Ignazio Visco told CNBC on Sunday at the G-20.

“This is an emergency program that had to do with the effects of the pandemic,” Visco, who is also a member of the Governing Council, told CNBC’s Annette Weisbach in Venice, Italy.

Visco was referring specifically to the Pandemic Emergency Bond Purchases (PEPP), which were used to prop up the economy in Spring 2020 as the pandemic-induced economic crisis hit Europe and much of the world.

When asked whether he considered the demands of some European officials to reduce bond purchases to be premature, Visco replied: “We have not talked about it.” However, he added, “The impact of the pandemic will not only affect the volatility of the markets, but also the ability to return to the 2% target,” referring to the eurozone inflation target.

“So I think we have to keep all of our tools until we somehow get closer to this goal, and we will discuss them in our meetings,” said Visco, stressing the ECB’s dependence on incoming economic data.

The Fed’s sentiment was in line with the ECB’s decision in June to maintain its higher rate of bond purchases in the third quarter, despite the recovering prospects.

“Of course, this is something that is both data-driven and not path-dependent, but state-dependent, so we really have to do that – observe, understand, and then decide,” added Visco.

Inflation target not an “upper limit”, but a “target”

Inflation in the euro area remains worrying as monetary and fiscal stimulus coupled with a recovery fueled by vaccination campaigns boost activity and prices. However, Visco said he believes the rising costs will be temporary.

“There are certain items that have been priced up because of the abolition of VAT cuts in Germany, because of the increase in energy prices … and so we will have a higher inflation rate this year, but we don’t think it will be permanent,” said he.

The European Central Bank decided on Thursday to revise its inflation target to 2%, with overruns allowed. “It’s no longer a cap, it’s a goal, it’s a goal … there has been some unanchoring in inflation expectations,” he added.

The previous target of the ECB was “below, but close to 2%”.

“There is still a significant weakness in the European economy; this weakness is not evenly distributed across the countries,” said Visco, stressing that the Governing Council must take into account the inflation rate of the entire euro area, not that of the individual countries.

“We are now expecting inflation of around 1.4 to 1.5% in the medium term. So this has to be 2% in the medium term, and if it is 2% in the medium term, we will be glad that we achieved this result. “

“A good pace of recovery”

The EU has faced enormous economic losses during the pandemic, as has much of the rest of the world. But the latest data shows a recovery, Visco said.

“We had a 9% drop in production last year,” he said, describing the first quarter of this year as “basically stationary,” followed by a significantly improved second quarter.

“We are progressing at a good pace of recovery in the second half of the year, with I would say that more than half of what we lost last year has been restored this year. This means production is going well,” said he added that the service sector is also recovering.

View of Ponte dei Sospiri, taken during the G20 meeting of finance ministers and central bankers in Venice on July 10, 2021.

ANDREAS SOLARO | AFP | Getty Images

However, several areas of concern remain, particularly travel, tourism and leisure, which are being affected by persistent travel restrictions around the world. The rapidly spreading delta variant of the coronavirus is also worrying health and economic officials.

Still, Visco said he believes the vaccination campaign shows promise for further recovery.

“The vaccination campaign has had great success, which has increased confidence,” he said. Referring to Venice, he said, “There is now a lot of tourism and mobility in this city that can be accompanied by something that we still do not see – this is the new wave,” he said.

“So this is the biggest risk we have to face,” he said. “The measures taken by the government to curb mobility and distancing etc have been successful I would say and the death toll is now significantly reduced. So this is a country with really positive results.”