christine lagarde : hearing at the committee on economic and monetary affairs of the european parliament introductionary speech by ms christine lagarde, president of the european central bank, at the econ committee of the european parliament ( by videoconference ), 19 november 2020. * * * madam chair, honourable members of the economic and monetary affairs committee, ladies and gentlemen, thank you very much for giving me the opportunity to speak to you today as part of our regular hearings. we continue to be confronted with serious circumstances, from both a health and an economic perspective. pandemics are highly infrequent and unpredictable events, and consequently the economic outlook is characterised by high uncertainty. the key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build its own momentum. in this situation, it is pivotal that public policies chart a clear way forward and inspire confidence in eu citizens. good public policies are what will allow us to persevere in these challenging times, and to do so, they need to be ambitious yet realistic. given the central role played by the european parliament in ensuring that eu policies work for eu citizens, i could hardly be in a better place to discuss the topics you have chosen for today ’ s hearing. first, i will comment on the evolving economic outlook and the impact of uncertainty on the economy. second, i will discuss the respective roles of the ecb ’ s monetary policy and of fiscal policy in the current environment. economic outlook, monetary policy and uncertainty while the latest news on the vaccine looks encouraging, the recent surge in coronavirus ( covid - 19 ) cases and the associated re - imposition of a number of containment measures are adding to the already heightened level of uncertainty and present a serious challenge to the euro area and the global economy. following a strong but partial and uneven rebound in real gdp growth in the third quarter, latest surveys and high - frequency indicators signal that euro area economic activity lost momentum going into the fourth quarter. the resurgence in covid - 19 infections is weighing on services sector activity in particular, which is especially vulnerable to the voluntary and mandatory social distancing measures introduced. the purchasing managers ’ index for the euro area shows that while manufacturing output continued to improve, services sector activity weakened further in october. this uneven impact is also evident across euro area countries, with those countries particularly dependent on tourism and travel affected the most. so far, government support measures, particularly short - time

also broadly reflected in the december 2017 eurosystem staff macroeconomic projections for the euro area, which foresee annual hicp inflation at 1. 5 % in 2017, 1. 4 % in 2018, 1. 5 % in 2019 and 1. 7 % in 2020. compared with the september 2017 ecb staff macroeconomic projections, the outlook for headline hicp inflation has been revised up, mainly reflecting higher oil and food prices. turning to the monetary analysis, broad money ( m3 ) continues to expand at a robust pace, with an annual rate of growth of 5. 0 % in october 2017, from 5. 2 % in september, reflecting the impact of the ecb ’ s monetary policy measures and the low opportunity cost of holding the most liquid deposits. accordingly, the narrow monetary aggregate m1 continued to be the main contributor to broad money growth, expanding at an annual rate of 9. 4 % in october, after 9. 8 % in september. the recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. the annual growth rate of loans to non - financial corporations increased to 2. 9 % in october 2017, after 2. 4 % in september, while the annual growth rate of loans to households remained stable at 2. 7 %. the pass - through of the monetary policy measures put in place since june 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium - sized enterprises ‒ and credit flows across the euro area. to sum up, a cross - check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2 %. in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to strengthening the longer - term growth potential and reducing vulnerabilities. the implementation of structural reforms in all euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. regarding fiscal policies, the increasingly solid and broad - based expansion strengthens the case for rebuilding fiscal buffers. this is particularly important in countries where government debt remains high. all countries would benefit from intensifying efforts towards achieving a more growth - friendly composition of public finances. a full, transparent and consistent implementation of the stability and growth pact and of the