Lagarde says governments must get fiscal stimulus done

[FRANKFURT] European Central Bank President Christine Lagarde said governments must make sure to roll out their joint spending plan on time to ensure the region's recovery from the coronavirus pandemic.

The 750 billion-euro (S$1.2 trillion) recovery fund "should become operational without delay," Ms Lagarde told lawmakers in the European Parliament. "By brightening economic prospects for firms and households, fiscal policy would also strengthen the transmission of our monetary policy measures." The president urged the Eurpean Union member states to finalise their spending plans in the coming weeks. National governments are currently in talks with the European Commission on how to spend the joint fund, and some submissions have been judged inadequate so far. Plans are due by the end of next month with funds to be disbursed in the summer.

The euro-zone economy is already lagging behind the US because of its slow vaccine rollout, now complicated even more by the suspension of AstraZeneca's shot in several member states.

The ECB is stepping up the pace of its 1.85 trillion-euro pandemic bond-buying program for the next three months to prevent higher yields further undermining this year's recovery. Borrowing costs have increased globally in part because of spillovers from the strong US rebound and President Joe Biden's US$1.9 trillion stimulus bill.

"What we are responding to is a yield increase that could get ahead of the expected economic recovery," Ms Lagarde told lawmakers. "While we believe 2021 will be the year of the recovery, we don't see it happening until the second half of 2021, and any yield increase that could act as a bit of a brake would be undesirable." Also on Thursday, the ECB announced that it's handing out 330.5 billion euros to banks in its latest round of targeted long-term loans, at the higher end of analyst estimates. That programme to ensure plentiful liquidity is another key plank of the central bank's monetary support, along with negative interest rates.

Ms Lagarde cautioned against reading too much into weekly data on net purchases published by the central bank, saying they will be distorted by short-term factors such as "lumpy redemptions." The faster pace "will become visible when ascertained over longer time intervals." Her comments on the recovery fund come after Slovakia's member of the ECB's Governing Council, Peter Kazimir, voiced concern that the EU is rolling out its fiscal stimulus too slowly in comparison with the US.

Executive Board member Isabel Schnabel also warned this week that "we cannot afford a delay" in disbursing EU funds.

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