ECB Lagarde warns of fiscal policies supporting increased ‎demand

European Central Bank President Christine Lagarde warned today, Friday, that the fiscal policies adopted by some European governments may lead to an increase in demand, and indicated the need for fiscal and monetary policies to work simultaneously to achieve sustainable and balanced economic growth.

According to “Reuters”, Lagarde said at a conference hosted by the Central Bank of Thailand and the Bank for International Settlements in Bangkok, “Fiscal policies that lead to excess demand in an economy with tight supply may force (policy makers) to tighten monetary policy more than necessary.”

“Unfortunately, at the moment, at least some of the fiscal measures that we are analyzing from many European governments and especially eurozone governments point in the latter direction,” she added, referring to measures that could boost demand.

The European Commission expects the Eurozone economy to contract in the fourth quarter of 2022 and the first quarter of 2023 due to an increase in energy prices and high interest rates that undermine spending, borrowing strength and confidence.

The European Central raised interest rates at the fastest pace ever this year to curb inflation, which reached five times its target level of two percent, and there are still expectations of a series of lifting decisions in the coming months, as rising prices may take years to contain.

The Central Bank had raised the interest on bank deposits by two hundred basis points to 1.5 percent in three months.