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MNI POLICY: Fiscal Agreement, ECB Policy Review Needed-Lagarde

By Luke Heighton
     FRANKFURT (MNI) - Christine Lagarde today called for greater coordination
between European fiscal authorities to stimulate the eurozone economy, and
committed herself to conducting an in-depth review of the European Central
Bank's monetary policy strategy.
     Lagarde, who appeared before the European Parliament's Econ Committee in
her capacity as ECB president-elect, said: "There is clearly cooperation to be
had if all the institutions in Europe, and the eurozone in particular, want to
respond to the threats of populism and nationalism."
     Among euro area governments, many "have the capacity to use the fiscal
space available to them ... it's a majority of countries in the euro area," she
     Lagarde said she agreed that a highly expansionary policy "is warranted for
a prolonged period of time," but she stressed that it was necessary to be
"mindful of negative and potential side effects of unconventional monetary
     Global low interest rates pose questions for central banks globally, not
just the ECB, Lagarde continued, adding that there is a need to reflect on
monetary policy frameworks.
     "This is a task I intend to embark upon," she said, "In consultation with
other central banks around the world."
     Asked what monetary tools the ECB has at its disposal, Lagarde admitted
there was a need for "new, innovative instruments," but gave no further details,
and insisted that she did not want to anticipate decisions the Governing Council
might take on Sept. 12.
     On the subject of the ECB's medium-term inflation target of close-to but
under 2%, Lagarde said: "The clarification of the aim is something that has been
a little bit explored."
     "What is the meaning of close to, but below 2 per cent ... are we talking
about 1.6 or 1.9 [per cent]? There is clearly flexibility in between."
     That objective, as with the future direction of monetary policy more
generally, and negative rates in particular, should be subject to a rigorous
cost-benefit analysis, Lagarde said, adding: "Any institution has to have
climate control risks at the core of its mission.
     "The ECB cannot exclusively invest its [EUR] 2.6 trillion on green bonds,"
but it can signal that it will look at that increasingly, she said, "and that's
a signal for the market."
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$X$$$,MT$$$$,M$$EC$]

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