Digital Euro a priority for ECB to boost financial autonomy: Christine Lagarde

BRUSSELS: Christine Lagarde, President of the European Central Bank (ECB), addressed the European Parliament, indicating that while inflation is subsiding and the effects of recent rate cuts are becoming apparent, uncertainties persist, particularly concerning trade risks and geopolitical tensions.

“The most indicators show inflation moving closer to the ECB’s target, with Eurozone inflation having decreased to 2.5 percent in January from 5.5 percent a year prior,” she noted.

However, despite the progress. Lagarde stressed the ECB’s cautious stance, stating, “We are not pre-committing to any particular rate path,” and highlighted that disruptions in global trade could still impact inflation trends.

Her remarks followed the ECB’s decision to lower interest rates by 125 basis points since June 2024, bringing the deposit facility rate down to 2.75 percent.

In her speech, Lagarde also emphasised the urgency of developing a digital euro, arguing that a regional payment system would enhance Europe’s financial independence and resilience, reducing reliance on foreign providers.

The Eurozone’s economic growth has been modest, with GDP rising only 0.9 percent year-on-year in 2024, and the last quarter showed particular weakness due to stagnant industrial production and subdued consumer spending despite rising real incomes.

Lagarde acknowledged the mixed economic outlook, stating, “Manufacturing remains under pressure, but services are holding up.”

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She pointed to resilient labour markets and increasing real incomes as potential boosts to consumer confidence, but noted that households were reluctant to increase spending, and business investment remained low. She expressed optimism that lower borrowing costs would gradually enhance access to credit for both businesses and consumers, though she warned that global trade frictions might pose a threat to this outlook.

Lagarde highlighted the importance of strengthening Europe’s financial autonomy, particularly in the area of digital payments, stating, “Payments are the backbone of our economy, and Europe cannot afford to be overly dependent on external providers.” The ECB is pushing forward with plans for a digital euro that would reinforce the region’s payment system alongside traditional cash.

Additionally, Lagarde urged progress in capital market integration to dismantle financial barriers, which could unleash investment and drive technological advancement. “With the right framework, Europe can mobilise its vast savings pool to finance its own innovation and technological progress,” she said.

Lagarde’s comments also encouraged patience regarding future rate cuts, stating that the ECB would employ a data-driven, meeting-by-meeting strategy to determine its monetary policy stance. She indicated that the ECB is fine-tuning its economic models to better adapt to a shifting environment and remains vigilant about managing risk and uncertainty.

Concluding her address, Lagarde made a clarion call for European unity, stating, “European unity was the dream of a few. It became the hope for many. Today it is a necessity for all of us,” highlighting the importance of cooperation in tackling economic challenges.