MEPs focus on inflation and economic divergence with ECB President Lagarde

Inflation and the new anti-fragmentation mechanism soon to be launched by the European Central Bank were the two main topics raised by MEPs with ECB President Lagarde.

Attending the first Monetary Dialogue in Parliament’s Economic and Monetary Affairs Committee since the attack by Russia on Ukraine and a significant uptick of inflation across the Eurozone, European Central Bank (ECB) Christine Lagarde acknowledged that pressures on Eurozone economies had increased significantly and outlined the next steps the ECB would be taking to counter these pressures. She said that the negative effects on the economies were expected to gradually fade away but also that inflation would remain unusually high for a while, with increased risks to the financial systems’ stability. She also provided some more details of what the ECB envisions doing with its new anti-fragmentation mechanism, aimed at addressing economic dislocations within the Eurozone.

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The committee’s Chair, Irene Tinagli (S&D, IT), said the meeting was particularly appropriate to “hear what the ECB can do and cannot do to deal with the economic consequences of the war in Ukraine and see if the toolbox currently available to the ECB is indeed the most effective one to counter this particular supply driven inflation or if other types of interventions would be more decisive or have fewer side effects”.

MEPs were particularly interested in better understanding the precise purpose for the new anti-fragmentation mechanism and how it would be used, as well as questioning Ms Lagarde on how best to tackle not only high inflation but also simultaneously low economic growth.

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Notably, numerous MEPs underlined the particular characteristics of this phase of inflation, which was mostly import driven, came right after the COVID-19 pandemic that had led to considerable borrowing by numerous countries, and was compounded by the war in Ukraine. These peculiarities would need a more refined approach to fighting the inflation rate than standard measures, many MEPs argued, although a few argued differently, saying that the ECB should be cutting its accommodative stance more aggressively.

More information: European Parliament – Press release