European Central Bank President Christine Lagarde has called on euro zone members to boost domestic demand to withstand disruptions in world trade and keep growth trajectories on course.
In her first major speech since becoming ECB chief at the start of this month, Lagarde singled out Germany, saying the world’s second largest economy should be “open to the world but confident in itself—an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth.”
But she also noted that public investment in the euro area remains some way below its pre-crisis levels and, while “all advanced economies are facing a growth challenge, the euro area has been slower to embrace innovation and capitalize on the digital age than others such as the United States.”
“To help us close this gap, we have a very potent tool at our disposal: empowering our internal market,” Lagarde said.
As Reuters reports, Lagarde’s predecessor Mario Draghi “also called for greater spending and investment by countries that run surpluses, such as Germany, but he was never so specific and his pleas fell on deaf ears in Berlin.”
Draghi also often used major speeches to foreshadow shifts in ECB monetary policy. But Lagarde indicated only that the bank’s accommodative stance “remains in place” and “monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate.”
“Lagarde meets the expectations that she could become the leading economic and political voice for Europe rather than quickly shaking up the ECB,” Carsten Brzeski, an economist at Dutch bank ING, told Reuters.
In focusing on domestic demand, Lagarde noted that over the past 10 years, it has been almost 2 percentage points lower on average in the euro zone than it was in the decade before the crisis, and “it has been slower than that of our main trading partners.”
“While investment needs are of course country-specific, there is today a cross-cutting case for investment in a common future that is more productive, more digital, and greener,” she said.