Euro zone governments must keep spending heavily to aid the bloc’s recovery from its historic pandemic-induced recession, complementing already super-easy monetary policy, European Central Bank president Christine Lagarde said on Sunday.
With debt levels blowing past 100 per cent of GDP this year, concerns are rising that politicians will struggle to push through more support and some subsidies, raising the risk that employment and income schemes could abruptly end.
“Confidence in the private sector rests to a very large extent on confidence in fiscal policies,” Ms. Lagarde said in a speech. “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”
Employment subsidy schemes have already been extended in several countries but some are advocating longer, one- or two-year extensions to bolster confidence while the bloc recovers from recession that could slash 8 per cent from output this year.
“Keeping job support schemes in place is critical to avoid a sharp increase in unemployment later in the year,” she added in a speech to the Annual Meeting of the Council of Governors of the Arab Central Banks and Monetary Authorities.
Ms. Lagarde also urged a final deal on the European Union’s €750-billion ($1.2-trillion) recovery fund, which is still under negotiation and subject to political bickering.
For its part, the ECB is ready to adjust all of its instruments as needed since there is no place for complacency, Ms. Lagarde said, largely repeating the bank’s standing message.
The ECB has eased policy several times this year and now estimates that its measures will add 1.3 percentage points to growth and 0.8 percentage point to inflation through 2022.
Ms. Lagarde also repeated her comments from Thursday that the ECB would “carefully” assess incoming data, including the euro’s strengthening, which risked dampening both growth and inflation.