MNI POLICY: EU Rescue Deal 'Reasonable', Not Ideal - Lagarde

By Luke Heighton

     FRANKFURT (MNI) - The proportion of loans to grants agreed as part of the

European Union's Covid-19 crisis rescue package is "reasonable," European

Central Bank president Christine Lagarde said Wednesday, though she admitted the

level of allocations fell some way short of what she had hoped for.

     "The proportion is reasonable," Lagarde told the Washington Post in a live

online interview. "It's a good balance. It could have been better, but it's a

very ambitious project."

     Lagarde said she currently expects annual real euro area GDP to fall by

8.7% in 2020 before rebounding in 2021 and 2022, in line with the ECB's June

baseline scenario projections.

     Asked what course she expected the recovery to take, Lagarde said she was

"not sure what letter of the alphabet our forecast would correspond to," given

its uneven and uncertain nature. "Based on what we know - and barring a massive

second wave - we certainly don't see a W."

     Europe's post-pandemic economy will likely see an acceleration of

transformations already taking place, Lagarde said, leading to an economy that

is "more green, more digital, and that will value proximity more than it did

before.

     "Will that entail industrial sunset and the rise of new supply chains that

will be more partner based? It would seem like it, but it's difficult to predict

what will happen."

     "Multilateralism is not dead," she continued, "but I believe that those

natural re-framings of our economies are going to have to be mindful of what

happens in other corners of the world to make sure it is sustainable."

     In contrast to the Fed, Lagarde noted, the ECB has only one mandate: price

stability. "But price stability can be significantly affected by climate change.

The two are intrinsically related and bound."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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