European Central Bank president Christine Lagarde has renewed her calls for government spending to help tackle the Eurozone’s slowdown and said the bloc has to “gear up on climate change”.
In a statement to the European Parliament as it looks at the ECB’s 2018 annual report, the new president also defended the central bank’s ultra-loose monetary policies, which have been controversial in some quarters.
Lagarde – who took over at the ECB from Mario Draghi in November last year – said the Bank’s policies were working, with unemployment at 7.4 per cent in the Eurozone, the lowest level since 2008.
Yet she said: “Monetary policy cannot, and should not, be the only game in town.”
“Other policy areas – notably fiscal and structural policies – also have to play their part. These policies can boost productivity growth and lift growth potential, thereby underpinning the effectiveness of our measures.”
She said record-low interest rates meant fiscal policy can be “highly effective”.
Many of the ECB’s policies have been deeply controversial, especially in the more fiscally conservative northern countries such as Germany.
German tabloid newspaper Bild last year portrayed Draghi as “Count Draghila”, a vampire whose negative interest rates were sucking the blood of German savers.
Today, Lagarde sought to reassure skeptics that the ECB was not being reckless. “We are fully aware that the low interest rate environment has a bearing on savings income, asset valuation, risk-taking and house prices,” she said.
But she said that negative interest rates, bond purchases and other super-cheap loans had “helped to preserve favourable lending conditions, support the resilience of the domestic economy and – most importantly in the recent period – shield the euro area economy from global headwinds”.
The ECB is currently undergoing a major policy review that could change its central aims.
Lagarde’s strategic review is the first since 2003 and will delve into a number of key issues ranging from the inflation target to tackling climate change.
In a sign that the environment would be a key issue in the review, Lagarde told MEPs: “We also have to gear up on climate change.”
She highlighted the ECB’s moves to “extend our knowledge about the economic impact of climate change” and to more seriously consider its financial risks.
She again said countries and other institutions in the bloc should do more: “Europe is uniquely positioned to master these challenges. Building on common safeguards and competitive incentives, the single market offers enormous potential for economic modernisation.”