Lagarde defends ECB stimulus at hearing
‘The crisis would have been a lot worse’
FRANKFURT, Germany, Sept 4, (AP): Christine Lagarde, the nominee to succeed Mario Draghi as head of the European Central Bank, has defended the bank’s record low interest rates and extraordinary stimulus measures deployed in the wake of the Great Recession and eurozone debt crisis.
Lagarde, who is leaving the International Monetary Fund to take the ECB job in November, said during a hearing in the European parliament on Wednesday that she agrees “a highly accommodative policy is required for an extended period of time.”
She also defended the bank’s new tools such as bond purchases and negative interest rates, which have drawn criticism, especially in Germany, for reducing savers’ returns, among other things. Lagarde said the tools had helped create 11 million new jobs since 2013 and eased financial turmoil.
Without the measures “the crisis would have been a lot worse,” Lagarde told the hearing in Brussels.
Lagarde said she would aim to communicate clearly with the public to explain the bank’s decisions. She said that while “financial market operators” were likely to understand the ECB’s message on monetary issues “I want the people of the euro area to understand why decisions are being made.”
Lagarde herself trained as a lawyer, not an economist, although she is versed in finance after serving as French finance minister and head of the IMF. She said that at the IMF she had asked staff not to use confusing acronyms.
She praised the “agility” that led the bank under Draghi to come up with new tools to confront the crisis over heavily indebted governments and then a period of worrisome low inflation that threatened to lead to chronic economic stagnation. Those unusual tools have included a negative interest rate for deposits from banks – to push them to lend the money instead of leaving it at the ECB – and a promise to purchase the bonds of countries facing excessive borrowing costs.
Some of those tools have faced criticism, in particular from Germany news media and politicians. Some critics say they have led to low returns for savers and that stimulus has reduced the incentive to reform for financially shaky governments. Draghi’s announcement of the bond-purchase promise in 2012 is regarded as having defused the debt crisis, so much so that the backstop was never actually used.
Lagarde, 63, resigned from the IMF effective Sept 12 after European leaders nominated her for an eightyear, non-renewable term at the ECB beginning Nov 1. The ECB sets interest rate benchmarks and supervises banks for the 19 EU member countries that use the euro as a currency.