ECB’s Lagarde Acknowledges Growing Risks to Recovery from Wave 2

19 October 2020

By David Barwick – FRANKFURT (EconoStream) – European Central Bank President Christine Lagarde on Monday acknowledged the growing risks to the economic recovery from the resurgence of the pandemic.

In an interview with French daily Le Monde, Lagarde, according to a text provided by the ECB, said that the ECB could and would do more if necessary.

The growing number of new Covid-19 cases and the public health measures taken in reaction ‘are adding to the uncertainty and weighing on the recovery’, she said. Already ‘uneven, uncertain and incomplete’, the recovery now also ‘risks losing momentum’, she said.

The ECB’s baseline scenario ‘assumes partial and localised containment measures’, she reminded. ‘If the situation deteriorates, our projections, which we will revise in December, will obviously be gloomier.’

Asked what else the ECB could do, Lagarde assured that the ECB still had alternatives available to it. ‘If more has to be done, we will do more’, she said.

Citing her predecessor at the helm of the ECB, Mario Draghi, Lagarde called the euro ‘irreversible’. Moreover, she said, the €750 billion Next Generation EU recovery fund ‘is a major turning point for Europe’ that ‘has changed things completely.’ The possibility of making it permanent should be discussed, she said.

The debt incurred by Eurozone governments to finance the response to the pandemic, much of which is now on the balance sheet of the ECB, cannot simply be cancelled, she said, as that would amount to a violation of the prohibition on monetary financing. ‘Breaking European Treaties is not on my road map’, she said.