Christine Lagarde said today that the European Central Bank (ECB) is “resolutely focused” on price stability in the eurozone and will use “all the tools in the toolbox” to reach its medium-term inflation target of 2%.
In Latvia, ECB President Christine Lagarde warned that “a moderate recession at the end of this year and into 2023 will not be enough to contain inflation” and that any fiscal stimulus by governments should be temporary, targeted and tailored to selected vulnerable sectors. Economy.
Such measures should target the most vulnerable and include incentives to save energy and direct costs to reduce energy consumption, Lagarde said.
Lagarde also said that the 0.75 percentage point increase in interest rates by the US Federal Reserve (Fed) on Wednesday should not be seen as a sign that the ECB will act in a similar way.
“The US and the eurozone are not the same, there are different sources of inflation,” Lagarde said, explaining that US inflation was driven by strong demand in the economy and an adjusted labor market.
In the U.S. there were 1.7 vacancies per unemployed person, and in Europe, job seekers outnumbered vacancies.
Lagarde was joined in the panel discussion by Executive Vice-President and European Trade Commissioner Valdis Dombrovskis, who stressed the need for a coherent policy mix across the European Union (EU), where “monetary and fiscal policy should not depend on cross-targets.”.
Dombrovskis acknowledged that “the escape clause (allowing the budget ceiling to be exceeded) remains active” given the great uncertainty countries face, but the fiscal policy situation is changing, with the European Commission not recommending fiscal stimulus, especially in highly indebted countries.
The EC Vice-President said that the EU continues to move towards a closer coordination of fiscal policies with regard to public expenditure, using the European Biennial Framework for Integrated Supervision and Coordination of Economic and Employment Policies.
Both Lagarde and Dombrovskis agree that climate change is a fundamental factor in inflation and that EU economies should experience a temporary rise in energy prices as part of the transition to sustainable, renewable and “green” energy sources.
The ECB president urged EU countries to accelerate the planned energy transition to a mix of climate-friendly alternative sources and renewable energy, including nuclear power, which is being discussed across the EU.
Lagarde said trade and supply chains will be affected, prices will rise as part of the transition and reliance on reliable partners will also affect inflation.
He cited the impact of climate change on Germany, a major economy, with low water levels on the Rhine River, which has caused cargoes to be carried at half their capacity, affecting the country’s trade and gross domestic product (GDP).
Dombrovskis said the EC’s “primary principle” is the European Green Deal, and that the EU’s response to the war against Ukraine is accelerating it, as well as moving towards phasing out fossil fuels in general.
As for Ukraine, the commissioner said EU institutions are working on a plan to rebuild the country, which is thought to have cost the country around 400 billion euros in damage. The program follows the principle of “guilty pays” and uses confiscated Russian assets to finance reconstruction and recovery, Dombrovskis said.
Dombrovskis and Lagarde attended a conference marking 100 years of Latvia’s central bank, Latvijas Banka, organized by central bank governor Martins Kazaks.
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