Lagarde: "European Economic Activity Will Decline Significantly... Monetary Policy Focuses on Liquidity Supply"

[Image source=Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Christine Lagarde, President of the European Central Bank (ECB), emphasized that economic activity in Europe will inevitably decrease significantly due to the spread of the novel coronavirus infection (COVID-19), and that public policy cannot prevent this. She stated that the ECB will strive to maintain liquidity in the financial sector through monetary policy.

President Lagarde published an article titled "The ECB will do whatever it takes to stop the virus" in a media outlet on the same day, explaining this stance. She said, "Unlike in 2008-2009, this shock is universal, affecting not only the entire world but also all sectors of society," adding, "Everyone inevitably has to reduce their activities in daily life, which in turn reduces consumption." She continued, "Basically, many parts of the economy will stop functioning for a certain period," and forecasted, "Economic activity across the entire European region will decline significantly."

However, President Lagarde noted, "Public policy cannot prevent this (decline in economic activity). What policy can do is to provide assurance so that the economic downturn does not last longer or deepen unnecessarily." She emphasized the need to help companies and workers avoid cash flow blockages in the current situation. She added, "Monetary policy continuously injects liquidity into the financial sector and supports the financial conditions of all economic agents. This must be done equally for individuals, households, companies, banks, and governments."

President Lagarde explained that last week she observed the worsening COVID-19 situation in the European region, which caused financial conditions to deteriorate and long-term bond yields to rise, among other impacts. She pointed out, "This situation made it difficult for monetary policy to be smoothly transmitted to the European region." She also reiterated that the 750 billion euro emergency asset purchase program (PEPP) implemented the day before is a beneficial measure considering the characteristics of the current COVID-19 crisis, and that the ECB is prepared to increase the scale of asset purchases and adjust their composition.

Lagarde, who took office last November, is regarded as facing her first real test with the COVID-19 response. After the outbreak, at the first monetary policy meeting on the 12th, she unexpectedly kept interest rates unchanged, and has since been responding with asset purchase measures while strongly calling for fiscal policy support.

This content was produced with the assistance of AI translation services.