Recalling the recent decisions of the European Central Bank leading to the gradual normalisation of its monetary policy (see EUROPE 12968/1), the president of the institution, Christine Lagarde, assured that the monetary institute will act to counter any risk of fragmentation within the euro area.
Such fragmentation would result in an excessive increase in the spread of interest rates on the sovereign debts of euro area countries, which would make it very difficult to manage the public debt of highly indebted countries such as Italy.
“Fragmentation will be addressed if the risk arises, with the appropriate instruments, with the adequate flexibility. It will be effective, proportionate and within our mandate. Doubting our commitment would be a serious mistake!”, Ms Lagarde said during a monetary dialogue with the European Parliament’s Committee on Economic and Monetary Affairs. She added that the fight against fragmentation is “a central element” of monetary policy and even a precondition for the successful transmission of monetary policy.
Under questioning from Lídia Pereira (EPP, Portugal) and Luis Garicano (Renew Europe, Spain), she refused to say more about the contours of this specific ‘anti-fragmentation’ instrument that the ECB services have been asked to elaborate urgently by Thursday 21 July, following an extraordinary meeting of the Governing Council convened in response to a resurgence of the risk of fragmentation observed in the markets (see EUROPE 12972/22).
Agreeing with Ms Lagarde on the need to act, Jónas Fernández (S&D, Spain) nevertheless said that the ECB was acting after the fact, rather than ahead of market perceptions.
Ernest Urtasun (Greens/EFA, Spain) and Dimítrios Papadimoúlis (The Left, Greece) asked the former IMF head about the consequences of the gradual increase in the ECB’s key interest rates for growth and employment. “Clearly, we have to be attentive to this as well”, admitted Ms Lagarde. She recalled that at this stage, the macroeconomic scenario retained anticipates a growth of 2.8% of the GDP of the euro area in 2022 and 2.1% in 2023 and 2024, even if downside risks prevail, notably those linked to shortages in the supply of hydrocarbons due to the Russian invasion of Ukraine.
Gunnar Beck (Identity and Democracy, Germany) urged the ECB to respect its mandate to ensure price stability before other macroeconomic considerations. He pointed to the fact that the Swiss National Bank had raised rates by 0.5% while inflation in Switzerland is lower than the 8.1% observed in the euro area in May.
Ms Lagarde said that she did not want to make comparisons, as the situations in an economic group are different according to the economic zones. However, she recognised the importance of keeping medium-term inflation expectations under control, which are currently “slightly above target” at 2.1% for 2024. (Original version in French by Mathieu Bion)