Photo taken on May 8, 2020 in Germany's Frankfurt shows President of the European Central Bank (ECB) Christine Lagarde gesturing during her opening speech to an online event organized by the Italy-based European University Institute. Lagarde on Friday stressed the importance of a common European fiscal response as Europe moves to the next phase of combating COVID-19 crisis. (Xinhua/Lu Yang)
FRANKFURT, May 8 (Xinhua) -- President of the European Central Bank (ECB) Christine Lagarde on Friday stressed the importance of a common European fiscal response as Europe moves to the next phase of combating coronavirus crisis.
The success of the European Union's single market means supply chain integration is three times tighter within the euro area than with the rest of the world, Lagarde said in her opening speech to an online event organized by the Italy-based European University Institute.
She cited an ECB analysis which finds a common shock is amplified by about 30 percent in the euro area, "meaning all countries have to act together to mitigate large crises effectively," she said.
Meanwhile, various measures were taken to ensure sufficient liquidity for firms. "Europe will have to move to the next phase of its crisis response. The focus will need to shift from providing backstop support to enabling the recovery," Lagarde noted.
ECB staff recently estimated that euro area GDP could fall by between 5 percent and 12 percent this year, depending on the duration of containment measures and the effectiveness of policies to mitigate the shock.
In the medium scenario of an 8-percent drop in GDP, additional government financing needs resulting from the recession and the required fiscal measures, may exceed 10 percent of euro area GDP, Lagarde said.
This means additional debt issuance due to the pandemic could stand between 1 trillion euros (1.08 trillion U.S. dollars) and 1.5 trillion euros in 2020 alone, she said. "We need, as a union, to be prepared for this future."
So far, fiscal measures adopted in the euro area have been diverse, ranging from around 2 percent of GDP to more than 40 percent.
Lagarde said a common European fiscal response that is "swift, sizeable and symmetrical" would help to counter the risk of widening asymmetries among member states and exiting this crisis with greater economic divergence.
It will also provide an opportunity to reconsider and redefine what is Europe's common interest, she said.
As for the ECB, Lagarde reiterated that the central bank will "play its full part" in line with its mandate.
"We will do everything necessary within our mandate to support the recovery and we remain undeterred in delivering on our price stability objective," Lagarde said. Enditem