10 February 2022

ECON: Inflation and continuing the economic recovery at forefront of MEP concerns in meeting with Lagarde

The ECB President briefed MEPs on the recent decisions of the ECB and fielded questions which mostly concerned how best to react to rising inflation despite a still faltering recovery.

Meeting MEPs of the economic and monetary affairs committee on Monday, ECB President Christine Lagarde said that dampened economic activity coupled with continued increasing inflation were on the cards for the near future. However she also said the forecast was for a strong pick up of the economy later in the year as well as a stabilising of inflation rates at close to 2% in 2023. With the rising inflation rate mostly down to high energy prices and bottlenecks and still stuttering economies, Ms Lagarde justified the decision of the ECB not to rush into any rate hikes for the moment, arguing that such hikes would not affect the main drivers of inflation. However Ms Lagarde confirmed the decisions to continue to cut the pace of asset purchases and end purchases under the special pandemic programme by the end of March.

Many MEPs directed their questions to Ms Lagarde around the issue of how to tackle rising inflation, with a marked divide along the political spectrum regarding the best approach. Most MEPs on the right argued for a rate hike sooner rather than later because the economic realities had changed and the ECB needed to react to therm. Those on the left however broadly approved the ECB’s cautious approach so as to not repeat the rate hike mistake of 2011 and ensure that green shoots in the economic recovery were not killed. A couple of MEPs also said that they found the ECB’s half-open door approach to a rate hike as risky, arguing that announcing this possibility was going too far at this point in time.

Some MEPs also asked Ms Lagarde about how the ECB planned to react to rising spreads, and some others asked about how comparable the situation in the US and the EU was and whether there were any lessons for the ECB to take from the US Federal Reserve.

Questions were also asked to Ms Lagarde about how the ECB planned to deal with the rising debt piles in some countries while at the same time continuing to encourage an economic recovery, the role for the ECB in greening the economy, the over-heating of some housing markets.

Full speech

ECON

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