The European Central Bank (ECB) remains “strongly focused” on price stability in the eurozone and will use “all tools in the toolbox” to achieve a medium-term inflation target of 2%, Christine Lagarde said today.
In Latvia, ECB President Christine Lagarde warned that “a moderate recession by the end of the year and by 2023 will not be enough to contain inflation” and said that any fiscal stimulus from governments must be temporary, targeted and tailored to individual vulnerable sectors. economy.
Such measures should target the most vulnerable and include incentives to save energy as well as direct spending to reduce energy consumption, Lagarde said.
Lagarde also said Wednesday’s 0.75 percentage point hike in interest rates by the US Federal Reserve (Fed) should not be seen as a sign that the ECB will act in a similar manner.
“The US and the eurozone are not similar, there are different sources of inflation,” Lagarde said, explaining that the rise in prices in the US was driven by strong demand in the economy and an adjusted labor market.
In the US, there were 1.7 vacancies per unemployed person, while in Europe there were more job seekers than vacancies.
In the panel discussion, Lagarde was joined by EU Executive Vice President and Commissioner for Trade Valdis Dombrovskis, who stressed the need for a coherent policy mix in the European Union (EU), where “monetary and fiscal policy should not depend on cross-cutting objectives.” “.
Dombrovskis acknowledged that “the release clause (allowing the budget constraint to be broken) remains active” given the great uncertainty countries are facing, but the fiscal policy stance is changing as the European Commission discourages fiscal stimulus, especially in high-income countries. debt level. .
The EC Vice-President said that the EU continues to move towards closer coordination of fiscal policy in relation to public spending, using the so-called European biennial framework for comprehensive oversight and coordination of economic and employment policies across the EU.
Both Lagarde and Dombrovskis agreed that climate change is a major driver of inflation and that EU economies will have to deal with temporary energy price spikes as part of the transition to sustainable, renewable and “greener” energy sources.
The ECB President stressed that the EU countries should accelerate the planned energy transition towards a combination of climate-friendly alternative sources, renewable energy sources, including nuclear energy, which is being discussed in the EU.
Lagarde said this will affect trade as well as supply chains, 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 a major economy, Germany, noting that the low water level in the Rhine River resulted in barges carrying goods at half their capacity, which affected the country’s trade and gross domestic product (GDP).
Dombrovskis said the EU’s “policy flagship” is the European Green Deal, and that the EU’s response to the war against Ukraine has been to speed it up, as well as to phase out fossil fuels altogether.
Regarding Ukraine, the commissioner said that the EU institutions are working on a plan for the reconstruction of the country, which assumes that the country has suffered damage in the amount of about 400 billion euros. Dombrovskis said the plan would follow the “perpetrator pays” principle and use confiscated Russian assets to fund reconstruction and restoration.
Dombrovskis and Lagarde spoke at a conference dedicated to the 100th anniversary of the central bank of Latvia, Latvijas banka, organized by the governor of the central bank, Mārtiņš Kazaks.
