Christine Lagarde: ECB to boost stimulus again if eurozone lockdowns are extended

Central bank chief describes early stages of vaccine distribution as 'laborious'

European Central Bank President Christine Lagarde said the eurozone faces new uncertainties centred on the success of the Covid-19 vaccination drive and the introduction of economic support. Reuters

European Central Bank president Christine Lagarde said the bank would adjust its monetary stimulus programme if lockdown measures extend beyond the end of the first quarter.

The ECB injected a further €500 billion ($609.46bn) into the Pandemic Emergency Purchase Programme last month, the second addition since the start of the Covid-19 crisis, taking its total stimulus to €1.85 trillion.

However, Ms Lagarde said they would extend it further if vaccination efforts are not successful, because the PEPP is flexible across assets and time.

“If more is needed, we will recalibrate,” Ms Lagarde said in a wide-ranging interview at the Reuters Next conference on Wednesday.

“There was no limit to our involvement in order to make sure that monetary policy transmission was re-established."

However, she said if the stimulus "is excessive, and we don't need the entire envelope, so be it".

The eurozone's gross domestic product increased 12.5 per cent in the third quarter of last year – the fastest rate since records began – with employment also rebounding in November to 8.3 per cent of the workforce from a record pandemic-induced contraction earlier in the year.

Ms Lagarde said although the uncertainty at the end of last year surrounding Brexit, the US presidential election and whether a vaccine would be ready has been removed, the economic bloc now faces new uncertainties.

These relate to the success of the vaccination drive and how well economic support programmes to help economies recover are introduced.

"We have to move fast," Ms Lagarde said, "because we clearly have a need for continued support, both from a fiscal point of view and from a monetary point of view, as we go into 2021."

Ms Lagarde said 11 member states submitted plans to draw down from the stimulus fund, adding that “hopefully” the borrowing will “start rapidly” to ensure the stimulus payments kick-start recovery efforts early on.

Ms Lagarde said the ECB’s December forecast of an economic rebound this year still stands – despite new lockdowns and heightened movement restrictions in several eurozone countries – as long as those measures are lifted by end-March.

Although eurozone gross domestic product is expected to have contracted 7.3 per cent in 2020, the ECB expects an expansion of 3.9 per cent this year, 4.2 per cent in 2022 and 2.1 per cent in 2023.

"I think our last projections in December are still very clearly plausible," Ms Lagarde said. "Our forecast is predicated on lockdown measures until the end of the first quarter."

However, she said she would be worried if curbs to economic activity continued in the second quarter, particularly as the early stages of the vaccination process have been “laborious”.

“What would be a concern would be that after the end of March those member states still need to have lockdown measures and if, for instance, vaccination programmes were slowed down,” she said.

The eurozone economy is set to shrink again in the first quarter, according to a number of economists who have downgraded their outlook in recent days. Bank of America, for example, cut its growth projection for the eurozone to an expansion of 2.9 per cent in 2021, a full percentage point below its previous outlook.

The ECB president also said policymakers are being “extremely attentive” to the rise of the euro against the dollar, which pushes down on inflation by cutting import costs.

“We know well that the appreciation of the euro or the depreciation of the dollar … does have an impact on price levels,” she said. “So we are very attentive; we will continue being extremely attentive to the impact on prices that the exchange rates have.”

On the subject of Bitcoin, whose valued soared past the $40,000 mark before dipping to current levels of about $34,800, Ms Lagarde said regulation is needed at a global level to address the challenges posed by the cryptocurrency.

“For those who assume that it might turn into a currency, sorry, but this is an asset and it's a highly speculative asset, which has seen some funny business and some interesting and totally reprehensible money-laundering activity," she said.

“I think that there are criminal investigations that have taken place that I'm sure will continue to take place that demonstrate it very clearly.”

She said global, multilateral action is “absolutely needed, whether it is initiated by the G7, moved into the G20, and then enlarged”.

When it comes to getting the vaccine herself, Ms Lagarde said she “does not want to jump the queue” and insisted she would have the shot and share the moment with the media if it encouraged others to follow her lead.

“I really want to be vaccinated. I don't really care [about] showing my arms to the world. If that's what it takes to convince people that yes, we must get vaccinated and yes, we must get to herd immunity, so be it, I'll show my vaccination," she said.