October 2, 2022

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Lagarde is ready to use the bazooka: what weapons does the European Central Bank have now

there European Central Bank (ECB) He announced the second tightening on interest rates in two months, but the president’s maneuver Christine Lagarde Announcing today and forecasting a cash price hike of 0.75% (75 basis points) to 1.25% isn’t the only major topic the former IMF governor announced at a press conference.

In fact, Lagarde said that European Central Bank He is ready to play across the board if inflation does not remain the only concern in the Eurozone. He also hinted that the transmission protection gear (Tpi) could be activated,”Anti-Proliferation Shield “Posted in July. European Central Bank ICBIt has been unanimously discussed and adopted and we are ready to use it‘ Lagarde stressed. We are ready, “in her own way, “Whatever it takes – whatever it costs” The French economist and lawyer who became Eurotower governor in 2019 to succeed Mario Draghi: Faced with Europe divided over the response to the energy crisis, in which yields on government bonds risk re-explosion and the recessive damage to the old continent’s economy always appears heavier, Eurotower aims to show compactness;

The European Central Bank Anti-Proliferation Shield Indeed, it seemed an outright attempt to respond to a genuine sense of vulnerability in Europe. The European Central Bank has finally ended the exit procedures for purchases already in place with 2020 Epidemic Emergency Purchase Plan (PEPP). He ended up announcing the TPI as a tool for reinvesting maturing bonds bought in the Draghi era and in the pandemic challenge of countries with greater debt stress, such as Italy, whose proceeds would be reinvested at maturity and would be able, for the target countries, to be reinvested in a key largely unlimited (which will attract financial markets and countries with high debt risk) in case of undesirable and turbulent market dynamics. Announcing your willingness to use it means directing ICTs to the role of a precautionary measure and calming speculative and unwanted moves in European markets by Leadership in market supervision Even before taking concrete action. Just as Draghi did in 2012 and 2015 to pave the way for quantitative easing.

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Second, the European Central Bank wants to act in this way to prevent the risks of a recession that the energy crisis could hasten. “In the base scenario we see a recession in the fourth quarter of 2022 and in the first quarter of 2023 but in the worst case scenario that includes a complete shutdown of Russian gas and oil exports, we see a recession.”, Lagarde stated at a press conference. The dynamics of limited wages and low supplies are considered by Lagarde to be a “ghost” on the economy, however, the European Central Bank, unable to finance the deficits of European countries directly, cannot overcome it. forward steeringthe government of expectations, is the movement with which Eurotower has moved strategically in recent days.

Finally, the currency data should be emphasized. Lagarde spoke about excluding the exact exchange rates of the euro for the European Central Bank, stressing that the exchange rate with currencies such as the dollar or the pound sterling has indirect effects on inflation, but there are no goals, “and we do not intend to set them.” A very specific reason, “unspoken” Lagarde: will Seeking a bank with the United States to coordinate with the Federal Reserve Stimulus maneuvers, price hikes and government speculation prevent Eurotower from imposing specific exchange rate targets which, at a point where the pivot with Jackson Hole is fundamental, can create misunderstandings across the Atlantic. The cooling in inflation is expected to strengthen the Euro and thus its purchasing power for raw materials, energy and production factors. This is a turning point compared to the era of quantitative easing in which stimuli were expressly intended to favor exports to global scale. Today, the focus is more on the internal market, which is at risk of recessive threats: the European Central Bank moves in data to be able to control and govern markets and not be crushed by unexpected trends. The success of this strategy is owed to Lagarde’s ability to align with these goals.

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