ECB head says EU economy ‘on crutches’

ECB head says EU economy 'on crutches'

Brussels (Brussels Morning) European Central Bank (ECB) President Christine Lagarde warned on Thursday that the EU economy is “on crutches,” DW reported.

The ECB wants to keep interest rates low and coronavirus crisis measures unchanged, Lagarde said, stressing that the bloc’s economy needs the ECB’s support plus government spending in order to recover from the crisis.

Predicting that the economy would start recovering this year, she cautioned that it was still too early to start phasing out emergency measures.

The ECB head said the bloc could abandon the Pandemic Emergency Purchase Programme (PEPP) once financing conditions and the inflation outlook change.

Lagarde ruled out tightening ECB policies if inflation increases this year, given that any increase would be due to “idiosyncratic and temporary factors” and that underlying pressures remain subdued.

Coronavirus crisis causing uncertainty

While the ECB Governing Council is encouraged by the rollout of vaccination campaigns, “we still have this overall environment of uncertainty”, she said, adding that “we still see near-term risks tilted to the downside”.

“We still have a long way to go before we cross the bridge of the pandemic”, she said. “I have referred to the economy as being on crutches, one fiscal crutch and one monetary crutch.”

She pointed out how the ECB is keeping interest rate benchmarks at record-low levels.

Recovery fund should be tapped ASAP

Lagarde called on EU member states to put the bloc’s 750 billion euro coronavirus crisis recovery fund to work as soon as possible in order “to contribute to a faster, stronger and more uniform recovery”.

Thus far, 17 of the 27 EU member states have ratified the investment plan, with the emergency fund to provide grants and loans for recovering from the coronavirus crisis.

The German Constitutional Court dismissed an injunction on Wednesday that was blocking legislation to ratify the plan, opening doors to ratification in Germany.