Lagarde warns against virus support ‘cliff edge’

File photo. Eurogroup President and Minister for Finance of Ireland Paschal Donohoe (L) and President of the European Central Bank Christine Lagarde (R) attend a press conference during the Informal Meeting of European Union (EU) Ministers for Economic and Financial Affairs at the InterContinental Hotel Berlin, in Berlin, Germany, 11 September 2020. [Pool/EPA/EFE]

European Central Bank president Christine Lagarde warned governments on Monday (12 October) against pulling pandemic support schemes too quickly as eurozone economies struggle to recover from the coronavirus crisis.

Speaking at a virtual International Monetary Fund conference, Lagarde said her greatest concern was that fiscal policies put in place during the pandemic, including furlough or short-time work schemes, be “stopped suddenly”.

Instead, government policies should be “tailored in such a way that we can avoid the cliff effect”.

Economic support must be “continued for a period of time… even as the pandemic gradually fazes out so that there is a smooth transition into a full-fledged recovery,” argued former IMF chief Lagarde.

New measures will also have to be put in place as new companies set up and the job market rebounds, she said.

“Policies have to be launched in parallel with the phasing out of support,” she said, focused around public investment, eduction and an efficient regulatory environment.

Last month, Lagarde said there could be “no complacency” in the battle against the pandemic-induced downturn, and she has repeatedly urged eurozone governments to support the ECB’s stimulus efforts with fiscal spending.

Lagarde in July welcomed a historic agreement by European Union leaders to launch a 750-billion-euro coronavirus rescue package.

The ECB itself has taken unprecedented action to cushion the blow from the Covid-19 fallout, rolling out a €1.35-trillion pandemic emergency bond-buying programme known as PEPP.

With rising coronavirus numbers threatening the fragile recovery, many observers expect the ECB to unveil fresh stimulus before the year is over.

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