ECB’s Lagarde Renews Fiscal Plea Amid EU Rift on Crisis

(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 their differences as they prepare for a second round of talks on Thursday.

Her comments, in an op-ed published in newspapers across Europe, came 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.

Germany is a key critic of so-called joint coronabonds, though Economy Minister Peter Altmaier said Thursday that he disagrees with the suggestion that the nation’s opposition is damaging the euro zone.

“It must be the case that in the end the euro remains a stable, reliable and successful currency,” he told DLF radio. “‘We are ready to contribute to making sure that not only is the crisis successfully dealt with, but also that the economy -- in the whole of Europe, not just in Germany -- gets going again afterward.”

Lagarde spoke on on France’s Inter Radio on Thursday morning, when she called the concept of a European Union recovery fund -- floated by French Finance Minister Bruno Le Maire -- a great idea. While finance ministers are struggling to reach an agreement, she said she remains hopeful.

“Even if some points are laborious and the debate is long and finance ministers spend nights at it, which is not surprising, there is progress that is being made bit by bit in this debate,” Lagarde said. “France is playing a decisive role in this and I think this coordination and this effort that is temporary and very targeted, it will have to apply when the crisis is over too.”

“If we exit each for their own, it won’t be optimal,” she added.

Lagarde said that each month of lockdown is costing the euro-area economy 2% to 3% of economic output. There are “troubling signs” in recent economic indicators, she wrote in her opinion piece, 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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