The President of the European Central Bank, Christine Lagarde, said that the health crisis caused a huge economic crisis due to the paralysis of the economy.
The president of the European central bank, Christine Lagarde, warned that the economy of the euro area will contract this year between a 8 and 12 percent, more than I had predicted before, and that the countries that most depend on tourism will be the most affected.
In a meeting with young Europeans, broadcast on the ECB’s website, Lagarde said that the health crisis caused a huge crisis due to the paralysis of the economy.
Lagarde had predicted after the Governing Council meeting in late April that the euro area could shrink by 5 to 8 percent.
The President of the ECB explained that the ECB plans various scenarios to measure the impact of the crisis caused by the pandemic.
The milder scenario predicts a 5 percent contraction, the median 8 percent and the harsher 12 percent in 2020.
Lagarde warned that the “soft scenario is outdated” forecast and the contraction is likely to be between medium and severe, between 8 and 12 percent.
The euro area economy is going to contract in a year twice as much as it did in the Great Financial Crisis in 2008 and 2009, according to the ECB President.
The Governing Council of the ECB meets again on Thursday next week to analyze the economic situation in countries that share the euro and it is expected that it will increase monetary stimuli by increasing the volume of purchases of emergency debt due to the pandemic.
It will also have the new macroeconomic forecasts, for growth and inflation, for the ECB staff, Lagarde recalled.
For the time being, the ECB implemented a 750 billion euro pandemic emergency debt purchase program until the end of the year.
It also decided to buy another 120 billion euros until the end of this year and since November last year it has acquired bonds worth 20 billion euros per month.
The peculiarity of the emergency purchasing program is that it is flexible and the ECB can buy more debt from a country a month if necessary if its risk premium has skyrocketed.
The countries that depend most on tourism will be the most affected by the crisis due to travel restrictions and other measures that have paralyzed this sector.
Lagarde said the recovery will depend on how confinement measures are relaxed and how the economy is reactivated again.
“Some countries will be more affected than others,” according to the president of the ECB. “We will see different consequences depending on the situation in the country before the crisis arose.”
Furthermore, “an economy that has more tourism than another is going to be more affected and an economy that has more fiscal space is going to come out of the crisis more easily,” according to Lagarde.
However, Lagarde does not foresee a new debt crisis in the euro area like ten years ago, despite the fact that many countries have had to increase their debt to face the health costs of the pandemic, offering financial aid to companies. and social benefits to affected workers.
“It is not a phenomenon of the euro. Other countries have also done so “in other regions and” it is the right thing to do, it is the way to go, “said the president of the ECB.
Lagarde explained that the important thing in the face of debt is the cost of repaying the debt, which now “is extremely low” because interest rates and inflation are very low, in fact, he recalled, some countries can borrow money at rates of negative interest.
With information from .