BANGKOK: France should solve its own debt woes through fiscal policy consolidation, European Central Bank President Christine Lagarde said on Wednesday, effectively playing down speculation about an ECB intervention in the bond market.
French government bonds have been among the worst hit by a global selloff, with investors concerned that political jostling ahead of next year’s presidential election may hinder the government’s efforts to reduce its high deficit.
Asked whether the ECB was about to help France, Lagarde said it was up to Paris to soothe investors’ nerves.
“There are particular circumstances that lead to some countries being more affected, France being a case in point,” she told a CNN event in Bangkok.
“And for that one, the primary and first solution lies at home in France. And it has to do with fiscal policies.”
Analysts have been speculating for weeks about whether the ECB might start buying French bonds via a crisis-fighting tool known as the Transmission Protection Instrument.
This can be activated if a country is under market pressure that the ECB deems “unwarranted”, “disorderly” and threatening the transmission of the central bank’s interest rates to all corners of the euro zone.
ECB looks for inflation ‘hints’, growth is ‘not bad’
Asked about monetary policy, Lagarde said the current, high rate of inflation in the euro zone had been driven “predominantly, but not exclusively” by a surge in energy prices caused by the Iran war. While there was no sign yet of “second-round effects” on other prices, the ECB would be looking for “hints”, such as trade unions’ demands in wage negotiations.
“We cannot wait until they’re there in full view, but we can anticipate,” she said at the event on the sidelines of the annual meetings of the International Monetary Fund and World Bank in the Thai capital.
“So we very carefully follow those entry points.”
The ECB has raised rates twice in the past four months and is expected to do so again in December.
Lagarde said the 1.1% increase in GDP expected by the IMF for the euro zone this year was “not brilliant” but “not a bad outcome” either and flagged continued support from German government spending on infrastructure and the military.