Lagarde: 'Worsening economic risks for wars'. And she agrees with Nagel on German debt

Eventhe OECD in its latest outlook published earlier today highlighted the risks for global growth and cut its growth estimates for Italy to 0.5 per cent for this year, from the 0.8 per cent expected in September.

"Turning to the elections that took place across the Atlantic, first of all, I would like to be cautious because we have to see what is actually being done, what is being delivered, what is being legislated, what is being implemented. And while words count, you know, there is something: that they don't create deeds. Well, I think we have to see the facts to understand exactly. But we have to prepare for that."

The non-banking finance sector in the European Union is set to grow, but at the same time its vulnerabilities are also likely to increase. This was stated by Lagarde in her capacity as chairman of the European systemic risk board. That is why one of the measures demanded by the ESRB is to close regulatory gaps in the non banking sector. According to Lagarde, it is also necessary to improve the availability and sharing of data on these entities.

ECB President Christine Lagarde shares Bundesbank President Joachim Nagel's view that Germany must 'do more' to support its investments: 'Yes,' she replied sharply to a question on the subject from an MEP. Nagel in an interview with the Ft today argued in favour of reforming the so-called debt brake, the constitutional rule that prevents exceeding 0.35 per cent. Nagel called on the German government to relax the strict spending rules, warning that Europe's largest economy has 'complicated' and 'weak' prospects ahead. According to Nagel, the future government should reform the 'debt brake', which limits the annual deficit to 0.35 per cent of GDP, to address structural challenges such as increasing defence spending and modernising infrastructure. Expanding the fiscal space for these investments,' he said in an interview with the Financial Times, 'would be a 'very smart' approach. Germany's current economic conditions,' the Bundesbank president added, 'are more complex than at the turn of the century: although unemployment was higher then, there was no geopolitical fragmentation and global trade was growing. The German economy has not experienced significant real growth since the second half of 2021, with the manufacturing sector under pressure due to high energy costs and declining competitiveness. Donald Trump's return to the White House could exacerbate the difficulties for the German economy as the president-elect has threatened to impose a uniform tariff of up to 20 per cent on all imports to the US. The Bundesbank will officially update its growth forecast by the end of the month, but Nagel anticipated that 2025 is likely to be "another year of weak growth" for the German economy, with the estimate hovering around 0.4 per cent. The economic situation promises to weigh on the elections that will most likely be held in February with the end of the tripartite coalition that has supported Chancellor Olaf Scholz so far. The opposition leader and most likely candidate for the chancellery, Christian Democratic Union party leader Friedrich Merz, has signalled that he may be open to limited debt brake reforms.

Finally, Lagarde was cautious about boundaries between frugal and non-frugal: things change. "I am very cautious about geographical boundaries, about distinctions of South from North, frugal versus non-frugal countries, because things change over time. There were countries that ten years ago were considered the most vulnerable and the least performing. And the situation has changed over time. Getting to a fiscal union would be an improvement. The issue really has to do with the completion of the monetary union: We have a monetary union, but we don't have a fiscal union. And there are different ways to get there: Eurobonds are one option. Otherwise, a stronger fiscal capacity, a joint financing of common goods. It is really up to the Europeans, represented by the MEPs, the Council and the Commission, to decide in which direction to go. But it is obvious that from a monetary union perspective, which is my field, to have a fiscal union, if you like, would certainly be an improvement.