2023-04-16 17:58:04
Posted Apr 16, 2023, 7:58 PM
It is still premature to envisage a reduction in the key rates of the European Central Bank to offset the effects of the banking crisis. “We don’t have to cut (rates). We will see. Because we have to measure what will come out of these recent financial events,” said ECB President Christine Lagarde during an interview with the American channel CNN on Sunday.
“How will the banks react? How are they going to assess the risk”, and continue to lend money to businesses and households, wondered Christine Lagarde. “If they don’t over-lend and manage their risk, that might make our job of reducing inflation easier. But if they tighten credit too much, it will weigh excessively on growth,” she explained.
“There is a recovery”
The President of the ECB was in Washington for the spring meetings of the IMF and the World Bank, which end this Sunday. Asked regarding the global economy, she was optimistic: “There is a recovery. This is, I think, a point that was not obvious just six months ago when we were all anticipating a recession, if only technically”. However, “the path is narrow, requiring governments and central banks around the world to adopt the right policies.”
She also warned of the risks of a fragmentation of the world economy into two blocks, one turned towards the United States, the other towards China: “decoupling and a bipolarisation of the world would lead to less growth economy, less prosperity in the world, more poverty. This is something that must absolutely be avoided”.
Debt ceiling
She also expressed alarm at the global consequences of a US default if the US Congress fails to raise the debt ceiling. “I just can’t believe they would let such a serious disaster happen. I understand politics, I was a politician myself. But there comes a time when the best interests of a nation must prevail,” explained former French economy minister Christine Lagarde.
The United States must regularly increase, via a vote of Congress, the capacity of indebtedness of the government, a vote increasingly politicized. Without an agreement between Republicans and Democrats, the United States might be placed in default of payment this summer, an unprecedented situation.
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