Investing.com — European Central Bank President Christine Lagarde urged governments to maintain sustainable public finances, warning that rising debt and energy-related inflation risks threaten economic stability.
Speaking at the International Monetary Fund’s annual meetings in Thailand, Lagarde described fiscal sustainability as a crucial foundation for broader economic stability.
She called on governments to adhere to fiscal rules, reduce excessive debt and improve public spending efficiency to rebuild financial buffers.
Lagarde also urged policymakers to ensure that measures addressing the ongoing energy shock remain temporary and targeted, rather than creating additional long-term fiscal pressures.
Her remarks followed discussions among global finance ministers and central bankers about mounting public debt, geopolitical tensions and the economic implications of artificial intelligence.
Lagarde emphasised that restoring an international economic framework based on openness, predictability and established rules would support global trade and investment.
ECB Governing Council member Olli Rehn echoed those concerns, stressing the importance of international cooperation amid increasing economic fragmentation.
Turning to the eurozone, Lagarde reiterated the ECB’s assessment that economic growth faces downside risks, while inflation risks remain tilted upward.
She warned that the energy shock was too significant to disregard, although a measured monetary policy response remained appropriate.
The ECB has raised interest rates twice this year, in June and September, as policymakers seek to contain inflationary pressures.
Markets widely expect another increase before year-end, reflecting concerns that elevated energy costs could keep inflation above the central bank’s target.
ECB Governing Council member Joachim Nagel suggested further monetary tightening might be necessary, while supporting the bank’s meeting-by-meeting approach.
Rehn said monetary policy would continue prioritising price stability to support sustainable economic growth.
Lagarde also revealed that more than 30 central banks had expressed interest in the Eurosystem’s enhanced repurchase agreement facility, designed to support monetary policy transmission and strengthen the euro’s international role.
The ECB’s upcoming decisions will be closely watched as policymakers balance inflation pressures against weakening economic prospects.
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