— Lagarde Passes Baton to European Leaders Ahead of EU Relief Package Negotiations due on Friday
By Laurie Laird
LONDON (MaceNews) – The Eurozone economy bottomed out in April, the European Central Bank said Thursday, after leaving policy unchanged at its latest rate-setting meeting, while urging European governments to quickly agree a new fiscal package to support the bloc.
The Eurozone showed a “partial recovery” in May and June, although activity remains “well below” pre-pandemic levels, ECB President Christine Lagarde told reporters by telephone following a governing council meeting. Lagarde admitted that consumer prices, which rose to an annual rate of 0.3% in June, are likely to remain under downward pressure through the end of the year, leaving inflation significantly below the ECB’s target of close to but below 2%.
Lagarde, long a forceful advocate for enhanced fiscal measures from Eurozone economies, expressed optimism that European leaders will sign off on a €750 billion Recovery and Resilience Facility at a meeting that begins on Friday. “My sense is that a very large number of leaders” realise the importance of striking an immediate deal, she said.
However, a number of European countries, notably the Netherlands, Sweden, Denmark and Austria, have balked at the package, which includes grants, as well as loans, to the nations most stricken by Covid-19. Dutch Prime Minister Mark Rutte has also asked that recipients embark on more rapid structural reform in return for further EU funding.
Given the strife at the top level of EU leadership, sell-side analysts are less hopeful of agreement than Lagarde. That raises questions of downside risk to the ECB’s economic forecasts should leaders fail to sign off on a rescue package. The ECB forecasts an 8.7% decline in eurozone GDP this year under its baseline scenario.
The ECB president also stressed that previous monetary policy accommodation has been effective “in supporting the flow of credit through the economy” and will continue to do so. “Monetary policy measures don’t work overnight,” she told reporters.
The governing council left its main interest rates unchanged, with the deposit facility remaining at -0.5%. Purchases under the Pandemic Emergency Purchase Program will continue until at least the end of 2021, with the total envelope remaining unchanged at €1.35 trillion. The ECB will also continue to purchase €20 billion per month under its existing quantitative easing scheme “for as long as necessary … and to end shortly before” key interest rates begin to rise.