Answering the questions, Lagarde explained that given the difficulty of making predictions on the economic impact of the coronavirus pandemic, the ECB “worked on scenarios, hypotheses. We came up with three different options – he said – the ‘light’ one, which in my opinion is already outdated and which foresaw a 5% drop in the GDP of the Eurozone in 2020, the average one (-8%) and the severe one (-12 %) “. For the president of the ECB “it is very probable that the light scenario is overcome, and it is possible, even if we do not yet know for sure, but it is probable that we will stand between the medium and the severe scenario”.
The shock caused by the Covid-19 pandemic “has been symmetrical, has affected everyone, the virus knows no borders”, but its consequences are “asymmetrical”, given that countries with “a lot of fiscal space available” have been able to deal more easily the situation. “Our mandate is price stability – continued Lagarde – but we must also support the economy”.
Finally, the prospects for the euro. “No. My answer is no, ”Lagarde replied to those who asked her if the increase in public debt in many countries to deal with the coronavirus pandemic will lead to a new euro crisis. “In the first place – he explained – all the countries in the world have had to respond and therefore increase the debt, it is not a European phenomenon”. Also, according to Lagarde, “it was the right thing to do. Tax measures had to be taken, and the use of debt is not recommended, but it is the thing to do “, given also that” due to the current circumstances and the low level of inflation, interest rates are very low “, and therefore the cost of debt “is very low”, and “some countries can borrow at negative rates”.
The important thing, therefore, is how the new debt is spent. “If it is spent to transform our economies, to invest in technology, to make them more efficient, more productive, more in line with people’s needs and to make sustainable growth and our economies responsible, then it is a particularly positive use” Lagarde said. “I’m not very worried” about the debt increase, she concluded. “It is something that we will keep under observation, but right now my answer to the initial question is definitely not.”