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Lagarde Takes Up Draghi’s Plea for Fiscal Support in Europe

Lagarde also said there “isn’t enough solidarity” in the single currency area and there needs to be a shared budget.

Lagarde Takes Up Draghi’s Plea for Fiscal Support in Europe
Christine Lagarde, managing director of the International Monetary Fund (Photographer: James MacDonald/Bloomberg)

(Bloomberg) --

Incoming European Central Bank President Christine Lagarde said Germany and other countries with healthy budget positions should look at ramping up investment to help their economies.

The comments continue a plea long made by Mario Draghi that governments need to step in to back up monetary support for the euro-area economy. Lagarde, who takes over from Draghi this week, said growth globally is “precarious” and “fragile.”

Countries with fiscal space “haven’t really made the necessary efforts,” she told French radio RTL. “We are of course thinking of countries that have chronic budget surpluses like the Netherlands and Germany and a few others in the world.”

Lagarde Takes Up Draghi’s Plea for Fiscal Support in Europe

“Why not use this fiscal surplus and invest in infrastructure,” she said. “Why not invest in education, in innovation to have a better re-balancing in the face of current imbalances.”

Asked about negative interest rates, Lagarde said people must consider that growth could have been slower and unemployment higher without the ECB’s monetary stimulus. She declined to comment on the outlook for monetary policy just yet.

Lagarde also said there “isn’t enough solidarity” in the single currency area and there needs to be a shared budget.

Draghi made a similar point at a speech at a farewell event in Frankfurt on Monday.

“We need a euro-area fiscal capacity of adequate size and design: large enough to stabilize the monetary union, but designed not to create excessive moral hazard,” he said. “National policies cannot always guarantee the right fiscal stance for the euro area as a whole.”

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Catherine Bosley

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