MNI POLICY: Lagarde Calls For Fiscal, Investment Spending

By Luke Heighton

     FRANKFURT (MNI) - Eurozone states need to boost fiscal and investment

spending to reinforce monetary policy as the economy copes with a persistent

global trade slowdown and geopolitical uncertainties, Christine Lagarde said in

her first speech as European Central Bank President Friday.

     "Uncertainty abounds and conventional wisdom is being challenged, in

politics, in diplomacy and in economics," Lagarde said, as she called on fiscal

authorities (including a coded reference to Germany) to support monetary

policymakers through higher, targeted spending that would in turn reduce the

negative side-effects of ECB monetary policy.

     Here are key points from the speech in Frankfurt:

     -- "It is clear that monetary policy could achieve its goal faster and with

fewer side effects if other policies were supporting growth alongside it.

     "One key element here is euro area fiscal policy, which is not just about

the aggregate stance of public spending, but also its composition. Investment is

a particularly important part of the response to today's challenges, because it

is both today's demand and tomorrow's supply.

     While investment needs are "of course country-specific," Lagarde said,

"there is today a cross-cutting case for investment in a common future that is

more productive, more digital and greener. Both national policies and European

programmes like InvestEU have a role to play. And the Budgetary Instrument for

Convergence and Competitiveness is also a good start."

     "A monetary union focused too much on risk sharing is likely to produce

moral hazard and too little saving, which harms the union as a whole. But on the

other hand, prioritising risk reduction alone is likely to lead to the opposite

problem: excess saving and fragile growth as countries are forced to self-insure

by running persistent surpluses."

     --Lagarde said the ECB will begin a "strategic review" of monetary policy

"in the near future."

     -- The effects of ongoing trade tensions and geopolitical uncertainties

have proven to be more persistent than expected for the euro area, Lagarde said.

     At the same time, "there are also changes of a more structural nature. We

are starting to see a global shift - driven mainly by emerging markets - from

external demand to domestic demand, from investment to consumption and from

manufacturing to services."

     "The high rates of trade growth that we are used to seeing are no longer an

absolute certainty," Lagarde said. "In my view, since our challenges are common

ones, we must meet them with a common response."

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

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

[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]