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Governments need to invest more money to support the economy. That's what Christine Lagarde said during her first major speech as the new President of the ECB. She argues for a new monetary strategy, in which governments also have a role to play. Only with appropriate fiscal measures can European economies reach their full potential, Lagarde argues.
"If countries stimulate growth by investing in productive parts of the economy, it doesn't just bolster demand in the short term. It also provides the ingredients to remain competitive in the long term, given the global challenges that exist. But how do we do that? These are common challenges, so we need to come up with joint solutions. As far as I'm concerned, this includes the transition to a new European policy mix."
In her speech, Lagarde announced a thorough review of monetary policy, which she plans to announce in the near term. Earlier this month, she gathered all 25 members of the Board of Directors of the central bank in a castle near Frankfurt to discuss monetary policy and the decision-making process within the central bank. This meeting took place behind closed doors, but Lagarde did post a photo opportunity on her twitter account. It also shows Klaas Knot, the president of the Dutch Central Bank.
I was pleased to invite my new Governing Council colleagues to join me at an off-site retreat yesterday. We discussed in an open and informal setting the running of the Governing Council. pic.twitter.com/ifMxiNh7uh
— Christine Lagarde (@Lagarde) November 14, 2019
After years of monetary easing, with asset purchase programmes, negative interest rates and long-term financing for banks, concerns about negative side effects are growing. These include rising house prices, speculative behaviour among investors and increasing pressure on banks' profit margins. Lagarde said in her speech that the central bank will keep a close eye on these negative effects.
"The ECB's accommodative policy has been a key driver of domestic demand during the economic recovery. And we stick to that policy. As described in the forward guidance, monetary policy will continue to support the economy. Monetary policy will also continue to respond to future risks, in line with our price stability mandate. We will continue to monitor the updates to our policy."
The new president of the ECB has been calling for governments to do more to protect the economy. support. For a central banker, Lagarde is particularly preoccupied with politics, much to the dismay of conservative colleagues. At the beginning of October, a number of former central bankers memorandum in which they distanced themselves from further easing of monetary policy.
It remains to be seen whether Lagarde will be able to address these concerns, given that she wants to continue Draghi's course. It also relies more on politics to achieve its goal, which puts pressure on the independence of the central bank.
This contribution comes from Geotrendlines
