Christine Lagarde: Europe's economy will be dependent on aid for a long time

From the point of view of the ECB President, the economy in the euro area must Christine Lagarde be supported with monetary policy and fiscal aid for even longer. Think of a patient who has come out of a severe crisis but is still dependent on two crutches, said the central bank chief at an online event organized by the Reuters news agency. "You don't want to remove any of the crutches, fiscal or monetary, until the patient is really good," she said. And that means support right into the recovery phase.

The corona crisis is still going on, said the central bank chief. “Most of the countries in Europe are going through a third wave. We are still flooded with uncertainty. «The central bank will continue to ensure that favorable financing conditions for the economy are maintained. This is important so that the economy can recover and the ECB can also meet its price stability target. The goal of inflation of just under two percent has not been achieved for a long time, said Lagarde. In March, the inflation rate in the euro area was 1,3 percent.

Some council members of the European Central Bank (ECB) had recently already considered a possible shutdown of the central bank's extensive emergency bond purchases from the third quarter, should the economy turn on a robust recovery path in the second half of the year. The head of the Dutch central bank, Klaas Knot, had envisaged the possibility that the ECB could then slowly begin to phase out its bond purchases under the PEPP program from the third quarter onwards.

Lower growth forecast for Germany

In the meantime, leading research institutes have apparently lowered their forecast for the growth of the German economy significantly. They are only expecting an increase in gross domestic product (GDP) of 3,7 percent for the current year, insiders told the Reuters news agency. Last autumn, the experts had assumed 4,7 percent. But now Europe's largest economy is likely to have started the year weaker than expected due to the ongoing corona restrictions.

The pandemic is delaying the upswing, according to the report, quoted by Reuters. For 2022, however, the forecast has been raised from 2,7 to 3,9 percent. Private consumption should then drive growth. Last year, German GDP slumped by 4,9 percent due to the corona crisis.

The joint diagnosis is to be officially presented on Thursday. It serves the federal government as the basis for its own projections, which in turn form the basis for the tax estimate. The report is being prepared by the RWI in Essen, from DIW in Berlin, from the Ifo Institute in Munich, from the IfW in Kiel and from the IWH in Halle.