European Central Bank President Christine Lagarde said on Thursday (19 November) that the institution will act “with determination” against the second wave of the pandemic, ahead of the new monetary stimulus she is expected to announce in December.
Speaking to the European Parliament’s Economic and Monetary Affairs committee, Lagarde said the European response to the fallout of the COVID-19 “has not only been impressive, it has also been highly effective”.
The ECB’s €1.35 trillion bond-buying programme has played a major role in the strategy, in particular to keep the financial markets stable in spite of the booming public debt levels in the euro area.
“We responded promptly and forcefully to the first wave that hit the euro area economies”, Lagarde said.
As the eurozone economy is being “severely affected” once again by the second wave of the pandemic and the reintroduction of containment measures, Lagarde pledged to act “with the same approach and determination” in the current phase.
The ECB announced that it will bolster its monetary stimulus during the next Governing Council meeting in December.
Lagarde told MEPs that the Pandemic Emergency Purchase Programme (PEPP), the corona bond-buying programme, and the Targeted Longer-Term Refinancing Operations (TLTROs), the ultra-cheap financing offered to banks to spur loans to the real economy, will be the main tools the ECB will use once again, given their effectiveness in addressing the negative impact of the virus.
But the monetary engine cannot do the trick alone, Lagarde warned, stressing the primary role of the fiscal policy to boost demand, reinforce confidence and improve the growth potential of the European economies.
For that reason, she stressed that ‘Next Generation EU’, the bloc’s €750 billion fiscal stimulus against the pandemic, “must become operational without delay.”
The approval process of the European recovery fund and the EU’s seven-year budget was blocked by Hungary and Poland on Monday, in response to the addition of the rule of law mechanism that could lead to the suspension of EU funds.
EU leaders are expected to discuss the Hungarian and Polish veto on Thursday evening, during a videoconference to take stock of the efforts made against the second wave.
The recovery funds are badly needed in hard-hit countries like Spain or Italy, where the high level of public debt is limiting their governments’ capacity to stimulate the economy.
Lagarde highlighted in particular the beneficial role that public investments can play in this phase of the crisis, as they have “the strongest short-term demand effects”, benefiting also neighbouring member states.
She added that in times of high uncertainty, public investment also raises confidence, helping to mobilise private sector investment too.
Eurozone governments have so far implemented a fiscal stimulus of more than 4% (around €480 billion) of the euro area’s GDP this year, excluding the extraordinary liquidity measures approved to support the private sector.
[Edited by Zoran Radosavljevic]