Members of the Economic and Monetary Affairs Committee discuss with European Central Bank President Christine Lagarde the current situation in the Eurozone, particularly inflation as a global challenge and the consequences for EU monetary policy. This Monetary Dialogue will take place in a particularly challenging environment, still marked by high uncertainty and strong inflationary pressures: in October, headline inflation in the euro area reached its highest level since the introduction of the euro, with HICP inflation standing at 10.6%.

exchange of views

meeting

European Central Bank

monetary dialogue with the ECB (T)

Committee on Economic and Monetary Affairs

LAGARDE, Christine

TINAGLI, Irene (S&D, IT)

Monetary Dialogue with Christine LAGARDE, President of the European Central Bank: extracts from the meeting

SOUNDBITE (English), Irene TINAGLI (S&amp;D, IT), Chair, In October, headline inflation in the euro area reached its highest level since the introduction of the euro, with the ECB inflation standing at 10.6%. And according to the ECB, November Financial Stability Review, the probability of recession in the euro area for 23 is close to 80%.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, The different shocks over the past year have also had an impact on real economic activity. And while the reopening of the economy after the pandemic resulted in surprisingly strong activity at the beginning of the year, growth is now slowing down rapidly as a consequence of the war.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, High uncertainty tied to financial conditions and weakening global demand are also weighing on economic growth, which is expected to continue weakening for the remainder of this year, fourth quarter and the beginning of next year, your first quarter of 23.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, Interest rates are and remain and will remain the key tool for fighting inflation. Higher interest rates reduce demand pressures by making it more expensive to borrow money and by influencing how much people and businesses spend, save, borrow and invest. And this in turn puts downward pressure on prices.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, Strong labour markets. With the unemployment rate still at the historically low level of 6.6% in September are likely to support higher wages. Incoming data suggests that wages are picking up and will continue to and we will continue to assess the implications for the medium term inflation outlook.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, Fiscal supports should therefore be targeted, temporary and tailored. It should be targeted so that the size of the fiscal impulse is limited and benefits those who needed most. It must be tailored so that it does not weaken incentives to cut energy demand and temporary so that the fiscal impulse is not maintained longer than strictly necessary. At the same time, government should pursue fiscal policies that show they are committed to gradually bringing down the public debt ratio.

SOUNDBITE (English), Christine LAGARDE, President of the European Central Bank, We are committed to bringing inflation down to our medium term target, and we are determined to take all the necessary measures to that effect. We expect to raise rates further to the levels needed to ensure that inflation returns to our 2% medium term target in a timely manner.

Question from MEP: Would you say that it is likely that the rhythm of this increase is now reduced, taking into account these indications and also the fact that we are heading to a technical recession in the eurozone?

Answer: I would like to see inflation having peaked in October, but I'm afraid that I would not go as far as that. I think that there is too much uncertainty, particularly in one component, which is the pass through of high energy cost at wholesale level into retail level.

Question: Would you agree that investments in energy efficiency and renewable energies are deflationary in the current context?

Answer: I would like to start with the fact that it is not green energies that are inflationary at the moment. It is the fossil energies, clearly. But to use a specific question of whether or not investment in green energies are inflationary or deflationary, I think I would say it depends over the course of time.

Monetary Dialogue with Christine LAGARDE, President of the European Central Bank: extracts from the meeting

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ECON - Committee on Economic and Monetary Affairs