ECB View: Lagarde supports stimulus, signals framework review – Christine Lagarde, the next president of the ECB, testified before the Economic and Monetary Affairs Committee of the European Parliament today. She signalled that she has similar views to those of Mr. Draghi and majority of the Governing Council. She noted that the ‘euro area economy faces some near-term risks, mainly related to external factors, while inflation remains persistently below the ECB’s objective…I therefore agree with the view of the Governing Council that a highly accommodative policy stance is warranted for a prolonged period of time in order to bring inflation back to below but close to 2%’. She also reiterated her support for the ECB’s unconventional policies over the last few years, saying that ‘the ECB’s non-standard monetary policy measures have provided substantial support to the euro area economy. These measures have thus far proved to be powerful, and can be extended and adjusted depending on the needs.’ As such, it is unlikely that the current ECB policy stance would change much when Ms. Lagarde start her new job.
In addition, she also expressed her support for a review of the ECB’s policy framework, something that the current President has said should be on the agenda. She asserted that ‘as quite some time has passed since the last strategy review in 2003, it would be worth collecting lessons from the financial crisis as regards changes in the macroeconomic environment and inflation process. It could also consider how the ECB’s monetary policy can best support the general policies in the European Union, such as sustainable and inclusive growth, without prejudice to its primary objective of maintaining price stability’. We judge that such a review will not be concluded until the second half of next year. (Nick Kounis)