ECB’s Lagarde Sees Summer Recovery, Tricky Post-Pandemic Phase

(Bloomberg) -- European Central Bank President Christine Lagarde predicted the euro-area recovery will pick up in the summer, while stressing that public authorities will have a difficult job weaning the economy off of emergency support.

In an interview with French newspaper Le Journal du Dimanche, Lagarde expressed confidence in the region’s ability to emerge from the coronavirus crisis stronger, with a more digital and greener future. She also urged governments to speed up work on their spending plans, so the European Commission can start issuing joint debt.

“We remain convinced that 2021 will be a recovery year,” she said. “The economic recovery has been delayed, but not derailed. People are obviously waiting impatiently for it.”

The ECB currently predicts an economic expansion of close to 4% this year, after a contraction of nearly 7% in 2020, and Lagarde said that’s still likely if support isn’t ended too soon -- though much depends on the rollout of vaccines.

The European Union’s vaccination program has got off to a slow start so far, with only 3.6% of the population getting a dose. The U.K. has delivered more than 17 shots per 100 people, and the U.S. is on almost 12.

Resurgent infections have forced many euro-area countries into renewed lockdowns, causing an economic contraction in the fourth quarter and making a double-dip recession practically inevitable.

Output is running at about 12 billion euros ($14 billion) a week below pre-pandemic levels, and the botched start to vaccinations means restrictions will only gradually be lifted. That makes the timely arrival of European Union recovery funds all the more urgent.

Lagarde described the ECB’s 1.85 trillion-euro emergency bond-buying progam as “appropriate” in size and “reasonable” in duration, promising policy makers “will act for as long as the pandemic is causing a crisis situation in the euro area.”

But she also warned that “once the pandemic is over and the immediate economic crisis is behind us, we will have a tricky situation on our hands.”

We must “not repeat the mistakes of the past by cutting off fiscal and monetary stimulus at once,” she said. Instead, authorities must offer flexible support that is reduced gradually.

“Economies will then have to learn how to function again without the help of any of the exceptional measures that had to be introduced as a result of the crisis,” she said. “I am not worried about this, because the capacity for recovery is strong.”

Asked about her predecessor Mario Draghi’s potential future as Italian Prime Minister, she said the country and the continent are “fortunate” he accepted the challenge.

“He has all the requisite qualities,” she said “He has the knowledge, courage and humility needed to complete his new task, i.e. to restart the Italian economy with help from Europe.”

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