According to insiders, ECB President Lagarde believes that the fight against inflation is progressing smoothly, but the lack of regional agreements on fiscal rules is becoming a headache. During a conference call on Monday, she told the chairpersons of the European Commission, the European Council, and the Eurogroup that the eurozone economy faces stagnation and downside risks in the coming quarters, but the risks to prices have become more balanced.
Lagarde's confidence in the progress of fighting inflation contrasts sharply with recent statements suggesting that core price growth remains "high". Regarding the economy itself, Lagarde said, "Although the employment situation is good, according to the people, there are currently signs of weakness
On October 14th, Lagarde stated that the underlying inflation in the Eurozone remains strong, with salary growth at" Historically high;. Lagarde said, "Core inflation is still at a relatively high level, reflecting the fact that the impact of past surge in input costs is fading, and the rise in labor costs is offsetting this impact. In fact, in a tight labor market, employees demand compensation for purchasing power losses, leading to the highest wage increase in history
She reiterated the collective prediction made by officials at the September 14th meeting that inflation should still slow to the target of 2% by 2025. At that meeting, the European Central Bank made the decision to raise interest rates for the 10th consecutive time and promised to keep them high, without ruling out the possibility of further rate hikes.
Lagarde previously emphasized that the European Central Bank has not yet reached the point where it can announce the completion of its mission. She said, "This is not a question of hawks or doves, but it requires us to be patient at this time, as supply shocks will reverse, new shocks will arrive, and attention should be paid to ensuring that inflation expectations remain stable while inflation is still too high
Insiders say that Lagarde has observed that markets often respond immediately to differences in Europe's stance on the Middle East issue or other similar positions, and said that if the eurozone does not further unite, interest rate differentials between different countries will be even greater. She complained that failing to reach an agreement on how to interpret the EU's Stability and Growth Pact before January next year is a problem, as it may put pressure on monetary policy to take more measures - in January next year, the regulation will restore the requirement to limit deficits to 3% of output.
Paschal Donohoe, the head of finance at the Eurogroup, responded that the risk of reaching an agreement this year is really high, and according to insiders, this is feasible but very difficult. At the same time, he promised to increase pressure on Italy to ratify the European Stability Mechanism treaty. They said that if a banking crisis occurs, this measure is likely not to be implemented, and other governments are currently unable to use this rescue tool. Donohoe stated that this issue will be raised at this week's EU summit. On this issue and financial negotiations, he believes that member countries need to make efforts.
Charles Michel, President of the European Council, stated that due to significant differences in positions among all parties, it is difficult to reach a compromise on fiscal rules. This statement provides a crucial perspective for discussions among senior officials. On October 26th, the European Central Bank will release its latest interest rate resolution, with officials expected to maintain interest rates unchanged after 10 consecutive rate hikes. EU leaders will also hold a summit.