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ECB’s Lagarde Pledges No Premature Removal of Monetary Aid

ECB’s Lagarde Pledges No Premature Removal of Monetary Support

European Central Bank President Christine Lagarde pledged not to remove monetary support until the coronavirus crisis is over, reinforcing her message that central banks and fiscal authorities must work together.

“Macroeconomic policies in the euro area have acted forcefully, geared toward protecting productive capacity and jobs,” she said in an interview with the Harvard International Review published Wednesday. “We should guard against the premature withdrawal of these support measures.”

Most economists expect the central bank to increase stimulus by boosting its 1.35 trillion-euro ($1.6 trillion) bond-buying program before the end of the year. Lagarde spoke a day after she and ECB chief economist Philip Lane called on governments keep up their support, with the president warning against creating a “cliff edge” that undoes progress so far.

ECB’s Lagarde Pledges No Premature Removal of Monetary Aid

There are signs that the euro zone’s rebound since coronavirus lockdowns is petering out as virus infections pick up again, forcing governments to impose new restrictions.

Earlier on Wednesday, Germany reported a surprise drop in industrial production for August. France’s statistics agency said on Tuesday that it expects the nation’s economy -- the region’s second-largest -- to stagnate in the final three months of the year.

Southern European nations are faring worse as their tourism industries are battered by curbs on travel and hospitality.

What Bloomberg’s Economists Say

“The rapidly rising Covid-19 infection rate in Europe has prompted fresh measures to combat the virus. This has led us to lower our forecasts for the euro area through winter.”

-Jamie Rush, David Powell and Maeva Cousin. Read their EURO-AREA INSIGHT

Bundesbank President Jens Weidmann -- a frequent opponent of ultra-loose monetary stimulus -- countered that narrative in an interview with Germany’s Boersen-Zeitung. He said the economy is growing “somewhat more quickly than expected” and warned against presuming that the ECB will add stimulus. He also said he sees no immediate need for more fiscal action.

Weidmann played down concern over the euro’s appreciation this year, which the ECB has acknowledged is weighing on inflation by driving down import costs. The currency’s rise is at least partly due to loose U.S. monetary policy, a better economic performance and the European Union’s agreement on a joint recovery fund, he said.

Lagarde also spoke in a pre-recorded video for a Paris conference on Wednesday, praising the effectiveness of the ECB’s monetary response to the pandemic and calling on the EU to use this opportunity to make reforms.

That includes more bank consolidation, a capital-markets union -- for which she said Brexit should be a spur -- and a more-integrated European payments system that can guard against “protectionist policies such as sanctions, and even exclusion.”

“We cannot let a good crisis go to waste,” she said. “We have to use it to be stronger the day after.”

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