ECB’s Lagarde Renews Fiscal Plea Amid EU Rift on Crisis Spending
(Bloomberg) — European Central Bank President Christine Lagarde renewed her plea for a strong fiscal response to the economic impact of the coronavirus, urging governments to get over differences as they prepare for a second round of talks on Thursday.
Her comments, in an op-ed published in newspapers across Europe, come less than a day after European finance ministers failed to agree on a 500 billion-euro ($543 billion) package to mitigate the consequences of the pandemic. Italy, which may need support, saw its bonds fall for a second day on Wednesday.
Lagarde said governments must support each other, pointing out that economic and financial linkages mean that no country can avoid damage just because it happens somewhere else in the bloc.
“If not all countries are cured, the others will suffer,” she said. “Solidarity is in fact self-interest.”
Issues among governments include conditions attached to the potential use of credit lines from the euro area’s bailout fund, as well as the wording of a joint statement hinting at the possible issuance of joint debt to finance the response.
“It is vital that the fiscal response to this crisis is undertaken with sufficient force in all parts of the euro area,” Lagarde said.
She also said there are “troubling signs” in recent economic indicators, noting a sharp deterioration of the labor market.
She said the ECB’s liquidity measures are powerful, and noted that its new emergency bond-buying program has inbuilt flexibility to be able to target stressed areas of the economy.
“These actions show that we will not tolerate a procyclical tightening of financing conditions amid one of the greatest macroeconomic cataclysms of modern times,” Lagarde said. “But our response will be made more powerful if all policies reinforce each other.”
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