Damage done: ECB under fire as Lagarde bungles virus 'response'

Christine Lagarde comments on coronavirus has been criticised as 'approaching her job with the mindset of a lawyer'.
Christine Lagarde comments on coronavirus has been criticised as 'approaching her job with the mindset of a lawyer'.

Frankfurt - Chief spooks markets by saying it was not ECB's job to help virus-stricken countries struggling in debt markets

By Reuters

Published: Fri 13 Mar 2020, 9:37 PM

Last updated: Sun 15 Mar 2020, 2:34 PM

The European Central Bank (ECB) was engaged in an unprecedented rearguard action on Friday after chief Christine Lagarde drew fire from investors and even heads of state for what they saw as a clumsy response to the coronavirus outbreak.
The ECB provided fresh stimulus on Thursday to support the eurozone economy as the pandemic hits activity, but Lagarde spooked markets by saying it was not the ECB's job to help virus-stricken countries struggling in the debt markets, such as Italy.
She took to the airwaves to row back on her comments after a sharp sell-off in Italian government bonds and ECB chief economist Philip Lane reinforced the more supportive message the following day.
"We will not tolerate any risks to the smooth transmission of our monetary policy in all jurisdictions of the euro area," Lane said in a surprise blog post on Friday. But the damage was done. The presidents of Italy and France, both staunchly pro-European, took the rare steps of publicly criticising the ECB for, respectively, failing to show solidarity and doing too little to support the economy.
One ECB policymaker said the slip-up was a reminder of Lagarde's background as a politician and lawyer, highlighted by critics when she was chosen last year for a role that is normally reserved for monetary policy experts. Lagarde took charge at the ECB in November.
"We knew this would happen eventually," the policymaker told Reuters on condition of anonymity. "This is completely different than discussing climate change or gender balance. The smallest nuances matter here. Saying the right thing at precisely the right time matters."
The ECB declined to comment.
Wolfgang Munchau, director of the Eurointelligence economic newsletter, concurred: "Lagarde's gaffe is not easily corrected because it reveals that she is approaching her job with the mindset of a lawyer."
Some investors and politicians drew comparisons on social media to Lagarde's predecessor, Mario Draghi, whose "whatever it takes pledge" at the height of the bloc's debt crisis in 2012 is credited with saving the euro.
As Lagarde did on Thursday, Draghi regularly called for governments to take action to resolve the euro zone's problems rather than relying on the ECB's largesse, to little effect.
"We miss Mario Draghi," the former president of the European Parliament Antonio Tajani, now a senior opposition politician in Italy, tweeted. "Lagarde proved inadequate to the gravity of the coronavirus emergency situation."
She also mistakenly referred during the news conference after Thursday's ECB meeting to 100 billion euros of additional purchases of bonds by the end of the year, later correcting herself. The ECB had earlier announced that the so-called envelope would be worth 20 billion euros more than that.
Lagarde also said the ECB's first consultation about its strategy review had been postponed by six months, which later turned out to be weeks.
The transcript of the Press conference did not reflect these errors.
"Christine Lagarde literally fluffed her lines," said Neil Wilson, an analyst at online trading platform Markets.com.
BoE has options to prop up UK economy
Meanwhile, the Bank of England has the option to cut interest rates further and ramp up asset purchases to help lessen the economic shock of the coronavirus outbreak, minutes from this week's emergency policy meeting showed on Friday.
On Wednesday, the BoE cut its main interest rate by half-a-percentage point to a joint-record low of 0.25 per cent, as Covid-19 spreads rapidly.
The minutes from the Monetary Policy Committee's (MPC) meeting stuck closely to the message given on Wednesday by BoE governor Mark Carney and his successor Andrew Bailey.
"Should the MPC need to provide further monetary stimulus, there were a number of options at its disposal, including cutting Bank Rate further, enlarging the TFSME [Term Funding scheme with additional incentives for Small and Medium-sized Enterprises], and expanding asset purchases," the minutes said.
Rate-setters said the effects on demand from the outbreak were likely to be significant.
"People who were isolated at home would probably spend less. Others might cut back on forms of consumption that could be delayed or involved social activities," it said.

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