Euro zone economy still ‘on crutches’, says Lagarde
European Central Bank President Christine Lagarde

The euro zone economy is still standing on the “two crutches” of monetary and fiscal stimulus and these cannot be taken away until there is a full recovery, European Central Bank President Christine Lagarde said on Wednesday.

“Think of a patient which is out of a deep crisis but still on two crutches,” Lagarde told a Reuters Breakingviews event.

“You don’t want to remove either crutch, the fiscal or the monetary, until the patient can actually walk fine and to do that means support well into the recovery.”

Lagarde’s deputy Luis de Guindos had struck a similar tone earlier on Wednesday, saying “the risks from the early withdrawal of policies are higher than the risks associated with keeping support measures in place”.

De Guindos said the ECB was closely following conditions, as the vaccine rollout is fraught with potential peril.

“If we notice…that there is a detrimental tightening of financing conditions, we will react,” the ECB’s vice-president told members of the European Parliament on Wednesday.

“This is part of our commitment in the short term, until the pandemic is over.”

In March, the ECB upped the pace of its Pandemic Emergency Purchase Programme to stem a rise in bond yields and keep credit cheap for governments, companies and households impacted by the Covid-19.

The ECB Monetary Policy Committee is due to meet again next week and, while no policy change is expected, governors are likely to begin discussing the future of PEPP.

Dutch central bank governor Klaas Knot urged a reduction in the pace of bond purchases from the third quarter in a Reuters interview last week, a call later echoed by his Austrian counterpart Robert Holzmann.

But Lagarde said the euro zone was still “swamped with uncertainty”, citing doubts among health authorities about Covid-19 vaccines produced by AstraZeneca and Johnson & Johnson.


REUTERS
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