Lagarde promises “flexibility where needed and when needed” to avoid debt crisis

Christine Lagarde does not name details. But he promises. The president of the European Central Bank spoke this Monday at the European Parliament’s Economic Commission, where he was questioned by MPs of all colors about the timeliness of recent decisions, mainly about rising interest rates. But it also challenged a new tool it announced last week to include risk premiums for the most vulnerable countries – the South – and prevent debt crises in places like Greece, Spain, Italy and Portugal. Example.

Lagarde argued that he was “normalizing monetary policy,” refusing to use “interest rates” on “asset purchases.” And all this in order to try to stabilize prices by about 2%, by 0.25% in July and by at least the same amount of growth in September. “We need to know what is happening in the economy,” Lagarde acknowledged the possibility of an economic downturn due to a change in monetary policy. “The recession is not in our forecast.”

“In June, we decided to take further steps to normalize our monetary policy,” Lagarde said. Some increase in services is observed due to the cessation of pandemic restrictions and good tourism prospects. A labor market with more employment will boost income and consumption. Deteriorating energy costs and great uncertainty create a negative picture. Although prices have risen as there are delays in reopening the economy due to demand from the service sector.

Lagarde also confirmed: “Wages have started to rise, we expect wage growth in 2022, and then above expectations, due to the tight labor market, minimum wage growth and inflation. We are going to adjust monetary policy based on inflation. The pandemic has left insecurity in the eurozone.

The ECB President explained that on June 15 it was decided to “use more flexibility in reinvesting in PEPP. [programa pandémico de compra de activos] To maintain the role of monetary policy in the price stability mandate transmission mechanism. We decided to complete all the tools against market fragmentation. Russian aggression in Ukraine affects the Eurozone. We are in a moment of uncertainty. “Budget policy is what allows us to adapt to these outcomes, in addition to the NGEU and REPowerEU.”

“We’re experiencing a sequence of events,” Lagarde admitted. We want to increase tariffs by 0.25%. This is the beginning, the step on the road. The third component said that if medium-term inflation persists or deteriorates, we would like to have another instrument. After September, we increased the tariffs gradually and appropriately. This is the basis of the mandate to ensure price stability. It is our duty to use the tools with the necessary flexibility against this risk of fragmentation. ”

The ECB President explained: “After progressive normalization began in 2021, the ECB Governing Board called for a fight against fragmentation risks, and at a meeting last week, it decided to use flexibility in reinvesting in the portfolio. Because the pandemic revealed vulnerability. In order to improve our tools, we have commissioned the completion of this plan for consideration by the Governing Board. It is tempting to ask what kind of nails, differential, dimensions, criteria, frames … but I am not going to answer them, I understand that it bothers many, but the work goes on, suffice it to say that fragmentation will be solved if this risk arises, with appropriate tools and “With flexibility, effective measures, proportionate and within our mandate, and those who hesitate make mistakes.”

Lagarde acknowledged that the ECB was “the first central bank to launch an internal investigation into what led to the collapse of inflation forecasts.” It is not temporary and transient and we are investigating. Our forecasts for energy impacts and delays failed. We stop buying assets, we use interest rates, we are flexible where we need to be and when we need to be. We will see the balance later. ”

Source: El Diario

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