Interview with CNBC
Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Steve Liesman on 27 August 2020 and broadcast on 27 August 2020
27 August 2020
The eurozone fell a little bit less than the United States in the first quarter, fell a little bit more in the second quarter. I’m talking about GDP. Tell us where you think the eurozone is right now when it comes to recovery and where you think it’s going.
What we’ve seen over the summer is more or less in line with our baseline projections. So in our baseline – like everywhere – the second quarter was going to be the worst quarter. By the way, within the second quarter, the worst month would have been April. We’ve had a very big fall in output, but also week by week, the recovery is happening. But let me emphasise that there’s still a long way to go. In terms of growth rates, we think the third quarter is going to see quite a strong growth rate, but the growth rate doesn’t mean so much in this world where you follow two quarters of very negative performance, it’s going to take a number of quarters of positive performance to get back to where we were. Our baseline was built around that once the economy was unlocked there would be some recovery, but the reality is that while we still have to manage this virus in terms of social distancing and other restrictions, there’s not going to be a return to normal levels of economic activity for a considerable period.
There was a good spurt of growth that you had, with numbers actually outperforming earlier this summer. Now you’ve had a bit of a return of the virus. Are you starting to be more pessimistic about what’s going to happen in the fall?
I think our baseline was based on a concept of bumpiness; that we would have zigs and zags, that it was not going to be the case that the dynamic of managing the pandemic would be perfectly linear, where progress is made and maintained. The study of past pandemics shows that essentially you’re going to have localised outbreaks recurrently. The big challenge now is to make sure that these outbreaks are dealt with promptly, in as localised a manner as makes sense in order to avoid a generalised lockdown. You would think that this is what we expected, but of course the more the authorities can really make sure that the virus is contained as much as possible, that’s the most important policy objective for the economy.
Philip, just two more questions here. Is the European Central Bank prepared to do more? And if so, what more could it do? It’s already created a very large loan fund and already is at negative interest rates. Is there more in the ECB’s arsenal? Is it prepared to use it?
We signalled all along that we’re absolutely standing ready as needed, so we’ve made a lot of policy moves between March and June and we stand ready to do more as needed. I think what you may have come to learn in these months is that central banks have a lot of capability. Even in this world where interest rates are low or negative, there’s a lot that we central banks can do. This is not to say the central banks can solve all the problems. We have a very limited role compared to fiscal policy in this environment. But within our mandate, within our remit, I would not be concerned about the room for action. We can definitely step up as needed.
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