First speech by Christine Lagarde as head of the ECB: highlights
The eurozone needs to create more of its economic growth in a 19-member bloc to counter the weakening of global growth, said new head of the European Central Bank Christine Lagarde on Friday.
In her first major political speech in this role, she stated that it was imperative that eurozone governments increase domestic demand, as export-driven growth stalled as a result of global trade tensions and geopolitical problems.
Lagarde said at a major banking conference in Frankfurt that the eurozone economy is expected to grow by only 1.1% this year - "much lower than previously projected."
The ECB's extra-large monetary policy “will achieve its goal faster and with fewer side effects,” if eurozone governments support it through fiscal policy, she added.
The president’s speech was especially aimed at Germany, Europe’s largest economy, which resisted calls to spend more of its huge budget surpluses.
Key highlights of Lagarde's performance:
• Annual growth in domestic demand is 2% lower than before the eurozone debt crisis.
• Public investment remains below the pre-crisis level - in almost all countries of the eurozone, spending on infrastructure, research and development, and education has declined.
• The eurozone debt crisis would be much worse if it were not for strong export demand for European goods and services.
• The high trade growth rates that the block is used to can no longer be relied on in the future.
• Therefore, Eurozone countries should more “innovate and invest” to support growth within the bloc.
• Public investments will help restore the balance of the bloc’s economy in the direction of less dependence on exports.
• Pan-European funds should be set up for earmarked spending on digital and green projects.
About monetary policy:
• The ECB's super-large monetary policy, which was a key driver of domestic demand during the recovery, remains in place.
• The Central Bank's monetary policy measures would be more effective and have fewer side effects if supported by the proposed spending policy.
• Unlike his predecessor, Mario Draghi, who used speeches to give clues about monetary policy, Lagarde did not offer any hints about possible future incentive measures to counterbalance the expected recession.
• She stated that the ECB will conduct a strategic review of monetary policy for 19 members of the bloc.
While Lagarde's speech focused on fiscal policy rather than specific monetary policy, she previously stated that the ECB plans to continue its accommodative position of cheap loans, record low interest rates and massive bond purchases to stimulate the economy and stimulate stubbornly low inflation.
Her comments on investments echo those of the Organization for Economic Co-operation and Development (OECD), which on Thursday also called on governments to ease funding restrictions.
The OECD has warned that governments have not invested enough to improve their long-term infrastructure, develop new technologies or combat climate change, and that the global economy is moving towards its weakest growth period “after the global financial crisis.”
Lagarde became the first female head of the ECB in early November and the fourth since its founding in 1988, previously holding two terms as head of the International Monetary Fund (IMF).
The former French finance minister will chair the first meeting of the ECB's rate-setting council next month.
However, the ECB's governing council is still divided regarding Draghi's final stimulus package in September, when the bank resumed its bond purchase program and lowered its key interest rate even deeper into the negative zone.
Some Council members objected that these measures were too strong and would leave the eurozone banks, which were already struggling for profit, even weaker. Download stickam videos here