Lagarde 'not overly concerned' about new euro crisis

Frankfurt

EUROPEAN Central Bank (ECB) chief Christine Lagarde said on Wednesday that she was "not overly concerned" that the coronavirus pandemic could renew fears of the eurozone breaking up, after a report from the Frankfurt institution highlighted the danger a day earlier.

"I'm not overly concerned about it, (although) policymakers will have to continue watching mounting debt levels in the eurozone as governments borrow to cushion the coronavirus' effects, she said in a video stream addressed to the single currency bloc's young people.

In a twice-yearly financial stability report, the ECB had warned on Tuesday that rising debt could increase perceptions of "redenomination risk" - the danger of some countries quitting the euro or the single currency collapsing altogether.

While Mrs Lagarde acknowledged that "some countries will be more affected than others", she issued a firm "no" when asked if the pandemic could renew the danger of the eurozone breaking up.

"All countries around the world had to increase their debt" which was "the right thing to do," the former French finance minister and IMF chief said.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

She noted that historically low interest rates at present make the cost of servicing debt "remarkably low".

"What it will be spent on is what really matters," she said, arguing investments to "transform our economies" towards digitalisation, productivity and combatting climate change would pay off in the long run.

Mrs Lagarde also predicted that the eurozone economy would contract by between 8 and 12 per cent in 2020, saying that a "mild" five-percent scenario discussed at policymakers' April meeting was already "out of date".

"It's likely that we will be somewhere in between the medium and the severe scenario," she said.

The exact severity of this year's blow to activity "is obviously going to be a factor of how quickly the lockdown measures are lifted, how suddenly, gradually the economy picks up again, what sectors of the activities will be damaged particularly," she said. REUTERS