Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s a new chief in town at the European Central Bank, and she’s about to outline her strategy to drag the eurozone out of its rut.
Christine Lagarde is chairing her first monetary policy meeting in Frankfurt, where the ECB’s governing council will set interest rates and discuss its stimulus programme. President Lagarde will then face the press, taking on the baton from Mario Draghi.
Will Lagarde have the same powers over the markets as the man who saved the euro? She may take a similar approach as Draghi; keeping monetary policy loose while urging politicians to do more.
If so, she’ll face a similar tussle with hawkish members of the Council who weren’t happy that the ECB launched a new bond-buying stimulus programme in September.
We’re not expecting any changes to policy today, but Lagarde’s comments will be closely scrutinised. Her new vision for the ECB easily move the markets.
Lagarde has a good understanding of the eurozone’s problems, from her time running the International Monetary Fund. Back in September, she threw her support behind the Bank’s bond-buying programme and record low interest rates, telling MEPS:
The challenges that warrant the ECB’s current policy stance have not disappeared . The euro area economy faces some near-term risks, mainly related to external factors, and inflation remains persistently below the ECB’s objective.
I therefore agree with the view of the Governing Council that a highly accommodative policy stance is warranted for a prolonged period of time in order to bring inflation back to “below but close to 2%”.
The former French finance minister also supports closer fiscal integration within the eurozone, to shore up the currency union. And it can’t simply wait until the next crisis. As she put it:
In my experience as Finance Minister, I have witnessed the difficulties in coordinating fiscal policies, which are inherently focused on national issues and not the euro area perspective. That is why I am convinced that we need both effective and simplified rules and a meaningful euro area fiscal instrument as a complement.
In other words, we need to further institutionalise cooperation rather than trust it will emerge in crisis times.
But that accommodative stance is unpopular with some in the eurozone, such as German savers, so Lagarde may face pressure to end the days of ultra-loose policy and negative interest rates.
Lagarde is planning a wide-ranging review of the ECB, that could lead to a revamp of its activities.
She is also keen to put the climate emergency at the heart of the Bank’s plans, so we may learn today what that means in practice.
Green MEPs have already questioned how the Bank can take environmental issues seriously while buying debt issued by oil giants and car makers.
The agenda
- 10am GMT: Eurozone industrial production data for October
- 12.45pm GMT: ECB decision on interest rates
- 1.30pm GMT: Christine Lagarde’s press conference
