New European Central Bank (ECB) president Christine Lagarde has encouraged governments to use fiscal policy to boost the Eurozone’s lacklustre growth, continuing the message of her predecessor Mario Draghi.
In her first speech as ECB president, the former French finance minister said there is “a cross-cutting case for investment in a common future” as growth and investment slow.
Lagarde’s speech comes as Eurozone governments are divided on the response to the slowdown in the single-currency area. Growth is predicted to be its worst since the financial crisis in the zone this year.
Despite encouragement from various institutions and bodies, governments such as Germany have been reluctant to loosen their strict spending rules and stimulate growth themselves.
Speaking in Frankfurt, Lagarde began by addressing a number of problems the Eurozone faces. She highlighted “ongoing trade tensions and geopolitical uncertainties” as well as a shift “from external demand to domestic demand, from investment to consumption and from manufacturing to services”.
She also pointed to a reordering of global trade “as new technologies disrupt conventional supply chains and workplace organisation, and as potential new risks emerge from climate change”.
Lagarde said the ECB’s ultra-loose monetary policy has “been a key driver of domestic demand during the recovery, and that stance remains in place”.
Yet she added: “It is clear that monetary policy could achieve its goal faster and with fewer side effects if other policies were supporting growth alongside it.”
“One key element here is euro area fiscal policy, which is not just about the aggregate stance of public spending, but also its composition.” Lagarde pointed out that “public investment in the euro area remains some way below its pre-crisis levels”.
“While investment needs are of course country-specific, there is today a cross-cutting case for investment in a common future that is more productive, more digital and greener.”
She also said breaking down internal barriers in a number of areas was a crucial step to higher growth.
She highlighted “the digital single market, the capital markets union and the single market in services” as key areas. She said they “can provide the impetus Europe needs to launch new and innovative firms and to spread new technologies faster around the union”.