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Addressing MEPs of the Economic and Monetary affairs committee, Christine Lagarde painted a gloomy outlook for the Eurozone with the medium term dominated by downside risks and slowing growth “amid a rapidly shifting geo-political landscape” and “major structural challenges to our economic model”. She told MEPs the EU must “focus on spurring investment, fostering innovation and raising productivity” which would “require bold policy action”.
MEPs focussed a number of their questions on the ECB’s forecasting capabilities, notably in view of its wish to base its decisions more on future focused risks than on collected data. They also asked how the ECB could envision activating its TPI tool to deal with a crisis in France, how climate change could be better factored in as a risk to price stability, and, more generally on the geo-political instability. Other questions concerned asset bubbles in the AI technology sector, possible ways to support the automotive sector and use Eurobonds for military expenditure, and the regional disparities in the Eurozone.
Ms Lagarde said that it was essential to move to a more forward looking thinking to guide its projections but that such models were not infallible, notably due to massive unpredictable events and even “madness”. On France, she refused to be drawn into the situations of specific countries. On climate change, Ms Lagarde argued that climate change was indissociable from the ECB’s primary objective of price stability. She also cautioned MEPs however on not relying on the ECB or other central banks as the primary authority to fight climate change, arguing that this was the job of executive authorities. The geo-political instability required the EU to be more competitive, Ms Lagarde said, adding more specifically on possible trade tensions that the EU needed to be “strong, strategic and sitting at the table”.
Ms Lagarde was subsequently quizzed by the committee's MEPs in her capacity as Chair of the European Systemic Risk Board.