European Central Bank (ECB) President Christine Lagarde, on Thursday 18 March, expressed concern that the EU’s €750 billion Next Generation EU Recovery Plan and the US’s $1.9 trillion plan would not have the same effect at the same time.
“Will that lead to a divergent and not synchronised recovery? Most likely“, Ms Lagarde said at a monetary dialogue with the European Parliament’s Committee on Economic and Monetary Affairs. The US stimulus package, recently approved by the Biden administration and already implemented, is having a “modest” effect on growth in the EU, she said.
Nevertheless, she considered, if one adds to Next Generation EU the national budgetary measures taken to counter the Covid-19 pandemic as well as the play of automatic stabilisers, “Europe is not that far away”, she said, pleading for the European Recovery Plan to be implemented “as soon as possible, without procrastination”.
Margarida Marques (S&D, Portugal), who presented a draft report on budgetary rules (see EUROPE 12677/11), referred to the Eurogroup statement calling for an expansionary fiscal stance in 2021 and 2022 (see EUROPE 12678/5). What timetable and methodology do you recommend for phasing out the emergency fiscal measures without halting the return of the recovery? - she asked.
Ms Lagarde described as “critical” the maintenance of an “ambitious and coordinated” fiscal stance, while stressing that public support measures should, as far as possible, remain “temporary and targeted”.
On the PEPP operation of massive repurchase of mainly public sector securities, which was decided just one year ago (see EUROPE 12450/6), she recalled that the primary objective was to preserve favourable financing conditions for economic actors. Last week, the ECB decided to increase the pace of repurchases under the PEPP in order to curb the rise in interest rates on sovereign securities observed in the markets (see EUROPE 12676/28).
“We want to prevent that yields step ahead of economic development”, Ms Lagarde said.
Furthermore, in response to José Gusmão (The Left, Portugal), who asked her about a possible cancellation of the euro area countries debt held by the ECB, Ms Lagarde was very direct: “It is illegal, period. (...) It is an economic illusion, it undermines the credibility of the ECB and it increases the financing costs of Member States”. (Original version in French by Mathieu Bion)