Christine Lagarde promised to continue the ECB' current loose monetary stance for a long period of time - Photo: Reuters

JAKARTA (TheInsiderStories)Christine Lagarde, the nominee to be the European Central Bank (ECB) next president, promised to continue the bank’ current loose monetary stance for a long period of time, as respond to the looming financial and economic turbulences.

Speaking before the European Parliament’s Committee of Economic and Monetary Affairs on Wednesday (09/4), the outgoing International Monetary Fund’s managing director stressed that price stability is the main anchor of the ECB.

“A clear mandate is vital for stability and welfare”, said the first woman elected to lead the ECB. But she hinted at the possibility of further unconventional measures to respond to the worsening economic climate, depending on the cost-analysis of these monetary tools.

“So, if confirmed as President, I will draw on the same sound principles: combining a firm commitment to the mandate with the agility to adapt as the world around us changes,” she said.

“The assessment has to be made in a collegial way,” she said referring to the ECB’s 25-member governing council that she will chair as of 1 November. In this context, she touched upon the ongoing discussion within the ECB to review its primary goal of inflation below but close to 2 percent.

She explained that what it is being debated within the institution is that the 2 percent target could be attained not only from below but also from above.

The challenges that warrant the ECB’s current policy stance have not disappeared. The euro area economy faces some near-term risks, mainly related to external factors, and inflation remains persistently below the ECB’s objective, she went on.

“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 percent,” she said.

Lagarde added that not only the ECB but central bankers across the world need to clarify their monetary mandates in a cost-benefit analysis, as the fight against “lowflation”, a concept coined by her, has become a priority since the financial crisis erupted in 2008.

This revision would give central bankers more leeway to fuel their economy in times of growing uncertainty because of the trade war, Brexit or the ailing multilateral cooperation.

And while the net benefits of the expansionary monetary measures are on the positive side, she said she will be “mindful” of the negative consequences, in response to the criticism coming from savers and pensioners in some countries, especially in Germany.

In addition, Lagarde pledged a more inclusive ECB by fostering a “strong and vibrant dialogue” with the civil society to improve its deliberations.

But she warned that the all-powerful ECB leadership will be insufficient to cope with the challenges ahead, from Brexit to the trade war.

Her predecessor Mario Draghi’s “whatever it takes” in 2012 is regarded as the turning point in efforts to overcome the euro crisis. Lagarde hoped she would not have to be in that situation. But she already told national governments they must bear their responsibility to avert the next crisis.

Fiscal Stimulus

Lagarde said that more countries among the eurozone members can now use their fiscal space to build broadband networks and other infrastructure that could help avoid an economic downturn.

Germany, the Netherlands, Austria, Ireland, Finland, Slovakia, Slovenia, and the Baltic States are among the countries with fiscal space to spur their economies.

In regards to deepening the economic and monetary union, she followed Draghi’s past remarks as she called for completing the banking union with a European Deposit Insurance Scheme to protect savers across Europe and adding a fiscal cushion to shield the national economics against sudden economic shocks.

She welcomed the member states’ agreement to create a budgetary instrument to support the euro area’s competitiveness and convergence as an “embryo” of the fiscal capacity. But she added that it would be “extremely helpful” if it also helps to protect the euro members against shocks and liquidity issues, provided the conditions are met.

Northern countries, primarily the Netherlands, are against further fiscal transfers as they blame some members, particularly Italy, for breaching the fiscal rules.

Lagarde also noted the importance digital technologies would have during her mandate. In this context, she distinguished Facebook’s controversial digital asset Libra from other highly volatile cryptocurrencies.

While she said that the so-called “stable coins”, including Libra, are a “different animal” compared with crypto assets, she stressed that they still must be “in full compliance” with all the regulations and that regulators must ensure they are not used for money laundering.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com