ECB's Lagarde says euro zone economy still on crutches

[FRANKFURT] The euro zone economy is still standing on the "two crutches" of monetary and fiscal stimulus and these cannot be taken away until it makes a full recovery, European Central Bank President Christine Lagarde said on Wednesday.

The comments, at a Reuters Newsmaker event, marked a rare intervention by Ms Lagarde in the policy debate and signalled a pushback on suggestions, expressed by some euro zone central bank governors last week, that the ECB start dialling back its emergency bond purchases as soon as July.

"Think of a patient which is out of a deep crisis but still on two crutches," Ms Lagarde said.

"You don't want to remove either crutch, the fiscal or the monetary, until the patient can actually walk fine, and to do that means support well into the recovery." In March, the ECB upped the pace of its Pandemic Emergency Purchase Programme to stem a rise in bond yields and keep credit cheap for governments, companies and households impacted by the Covid-19.

The euro zone's rate-setters are due to meet again next week and, while no policy change is expected, governors are likely to begin discussing the future of PEPP.

Dutch central bank governor Klaas Knot urged a reduction in the pace of bond purchases from the third quarter in a Reuters interview last week, a call later echoed by his Austrian counterpart Robert Holzmann.

Ms Lagarde's tone on Wednesday appeared more cautious than at the March ECB meeting. She cited doubts among health authorities about Covid-19 vaccines produced by AstraZeneca and Johnson & Johnson.

"We are still swamped with uncertainty," Ms Lagarde said.

Europe's choppy vaccine rollout hit more trouble on Wednesday after J&J delayed its Covid-19 shot and Denmark said it would drop AstraZeneca's vaccine altogether over the risk of blood clotting.

REUTERS