ECB's Lagarde: Time to step up investment
November 22, 2019
The eurozone must create more of its economic growth within the 19-member bloc to counteract weakening global growth, new European Central Bank chief Christine Lagarde said on Friday.
In her first major policy address in the role, she said it was vital that eurozone governments boost domestic demand as export-driven growth had stalled as a result of global trade tensions and geopolitical issues.
Lagarde told a major banking conference in Frankfurt that the eurozone economy is expected to grow just 1.1% this year — "much lower than previously forecast."
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The ECB's ultraloose monetary policy would "achieve its goal faster and with fewer side effects" if euro area governments supported it with fiscal policy, she added.
The president's speech was particularly aimed at Germany, Europe's largest economy, which has resisted calls to spend more of its huge budget surpluses.
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The main points of Lagarde's speech:
- Annual domestic demand growth is 2% lower than before the eurozone debt crisis.
- Public investment remains lower than its precrisis level — infrastructure, research and development and education spending has dropped in nearly all eurozone countries.
- The eurozone debt crisis would have been much worse if not for the strong export demand for European goods and services.
- The high rate of trade growth that the bloc has grown used to can no longer be relied upon going forward.
- Eurozone countries should, therefore, "innovate and invest" more to support growth within the bloc.
- Public investment will help rebalance the bloc's economy toward less reliance on exports.
- Pan-European funds should be created to target spending on digital and green projects.
On monetary policy:
- The ECB's ultraloose monetary policy stance, which has been a key driver of domestic demand during the recovery, remains in place.
- The central bank's monetary policy measures would be more effective and would have fewer side effects if they were backed up by the suggested spending policies.
- Unlike her predecessor, Mario Draghi, who used speeches to give clues about monetary policy, Lagarde offered no hints about possible future stimulus measures to counterbalance an expected downturn.
- She said the ECB would carry out a strategic review of monetary policy for the 19-member bloc.
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While Lagarde's speech focused on fiscal policy rather than specifics about monetary policy, she has previously said the ECB plans to continue its accommodative stance of cheap credit, record-low interest rates and massive bond purchases to stimulate the economy and drive up stubbornly low inflation.
Her remarks about investment echoed those by the Organisation for Economic Co-operation and Development (OECD) which on Thursday also urged governments to loosen the purse strings.
The OECD warned that governments had not invested enough to improve their long-term infrastructure, advance new technologies or combat climate change, and that the global economy was headed for its weakest period of growth "since the global financial crisis."
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Lagarde became the ECB's first female chief at the beginning of November and the fourth since it was founded in 1988, having previously served two terms as the head of the International Monetary Fund (IMF).
The former French finance minister will preside over her first meeting of the ECB's rate-setting council next month.
The ECB's governing council, however, remains divided over Draghi's final stimulus package in September, where the bank restarted its bond-buying program and cut a key interest rate deeper into negative territory.
Several council members protested that the measures were too strong and would leave eurozone banks, which were already struggling to make profits, weaker still.
mm/hg (AFP, AP, dpa, Reuters)