The European Central Bank and the skyline with its financial district are photographed during sunset as the spread of the coronavirus disease continues in Frankfurt, Germany, April 13, 2021. REUTERS/Kai Pfaffenbach
LONDON - UPHILL BATTLE. European Central Bank President Christine Lagarde is nursing a pretty weak invalid. In a Reuters Breakingviews interview on Wednesday, she likened the euro zone economy to a patient that is still on two crutches and in need of support for some time. That’s consistent with economists’ expectations that U.S. GDP will regain its pre-pandemic level this year whereas the euro region will take longer.
The ECB has thrown a lot of monetary stimulus at the problem. Yet Lagarde reckons it will take quite a while for inflation to converge sustainably on the ECB’s just-under-2% target. She’s receiving more help from the bloc governments’ fiscal policy than her predecessor, Mario Draghi, ever did. Yet some things don’t change. For example, German wage settlements are restrained. A temporary increase in inflation of the sort seen this week in the United States won’t be enough to relieve Lagarde’s burden. And while the ECB has been creative during crisis times, she may struggle to persuade some rate-setters to act as forcefully once the patient is on the mend.