Lagarde: Governments to become more involved in supporting the eurozone economy

European Central Bank President Christine Lagarde  has urged EU member states to become more involved in supporting the  eurozone economy through targeted spending and business-friendly reforms.

Addressing the European Parliment plenary session for the first time to discuss the Eurozone’s economy and the ECB’s activities, Lagarde called on governments to do more to boost the economy.

Lagarde said that “"other policy areas... have to play their part” in helping the economy. She warned that monetary policy “cannot, and should not be, the only game in town.”

"The longer our accommodative measures remain in place, the greater the risk that side effects will become more pronounced”, she said, adding that “when interest rates are low, fiscal policy can be highly effective. It can support euro area growth momentum, which in turn intensifies price pressures and eventually leads to higher interest rates."

“A more resilient economic and monetary union with these elements would not just help to protect our living standards from adverse domestic and global developments,” she said. “It would also support Europe’s influence in the world, including by making the euro more attractive worldwide.”

On Wednesday, MEPs will vote on a resolution setting out their priorities on the ECB’s role in assisting the EU’s economy, and the green transition, among others.

In the resolution, the EP welcomes, among other,  the role of the ECB in safeguarding euro stability.

They express concern that after a short economic recovery, growth has slowed down to 1.1 % of GDP in the euro area. The EP is, furthermore, concerned by the decrease in growth in industrial production and world trade and notes, as underlined by Mario Draghi, the need for maintaining both appropriate liquidity conditions and a degree of monetary accommodation.

The resolution stresses that the ECB has improved its communication; believes, however, that it should continue its efforts to make its decisions available and understandable to all citizens, as well as its actions undertaken to maintain price stability in the euro area and therefore to preserve the purchasing power of the common currency.

It also invites the ECB, without prejudice to the Member States’ prerogatives, to create a system for better monitoring large transactions with a view to combating money laundering, tax evasion and the financing of terrorism and organised crime.