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ECB's Lagarde Seeks New Policy Mix

ECB's Lagarde Seeks New Policy Mix

Eurozone needs a new European policy mix that focuses on boosting public investment to create a sustainable future, and a review of the European Central Bank’s monetary policy will start soon, the new ECB President Christine Lagarde said Friday.

“Investment is a particularly important part of the response to today’s challenges, because it is both today’s demand and tomorrow’s supply,” Lagarde said in a speech at the Frankfurt European Banking Congress.

“While investment needs are of course country-specific, there is today a cross-cutting case for investment in a common future that is more productive, more digital and greener.”

In her first major speech as ECB Chief, Lagarde pointed out that new investment needs are emerging.

The central bank’s accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place, Lagarde said.

“As laid out in the ECB’s forward guidance, monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate,” she added.

The ECB will continuously monitor the side effects of its policies, the ECB Chief said.

The former IMF Managing Director also said that the ECB monetary policy is set to “undergo a strategic review” that will begin “in the near future.”

She will chair her first rate-setting session of the Governing Council on December 12.

“It is clear that monetary policy could achieve its goal faster and with fewer side effects if other policies were supporting growth alongside it,” Lagarde said.

The ECB Chief, who is also a former French finance minister, was referring mainly to euro area fiscal policy. In his final policy speech, her predecessor Mario Draghi had also sought support from fiscal policy to boost Eurozone growth.

Lagarde listed two main challenges to Eurozone growth, going forward. The first is the changing nature of world trade that remains marred by trade wars and geopolitical uncertainties.

The second challenge is the long-term slowdown in growth in advanced economies and the below-average growth of domestic demand in the euro area.

“These twin external and domestic challenges call on us to consider – as Europeans – how we should respond to the new environment,” Lagarde said.

“The answer lies in converting the world’s second largest economy into one that is open to the world but confident in itself – an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth.”

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