European Central Bank
Europe’s response to the crisis
Christine Lagarde

Moving forward in the European Union: The 'Next Generation EU' fund

Christine Lagarde, President of the European Central Bank, provides a general overview on the Europe’s response to the crisis, not just from the European Central Bank and member state´s governments actions, in which the reliance on banking lending has been crucial, but also focusing in the EU Commission agreement on the Next Generation EU fund, which in her view is already a powerful change to the structure of the Union and a new tool with the potential to be activated in future crises.

Christine Lagarde considers that Europe´s response to the coronavirus (covid-19) pandemic has been effective and based on the necessary solidarity to successfully overcome these unexpected circumstances.

The article describes many of the actions carried out by EU institutions and governments, although in her view two key features of the euro area economy have become the cornerstones of the Europe´s crisis response: reliance on bank-based financing and preference to protect jobs.

“From March to May, the increase in bank lending to euro area firms was almost €250 billion, the largest rise on record in a three-month period”. This loan growth has been correlated with the public loan guarantee programs approved by Member States of the UE and has been “critical in keeping viable firms’ liquidity and encouraging employers to halt layoffs”.

The different starting points (fiscal positions and severity of the pandemic impact) of the countries posed the threat of an asymmetric and uneven fiscal response. In response to this threat, the Next Generation EU (NGEU) fund will ensure that all member states can react appropriately to the crisis.

According to Christine Lagarde, the NGEU also represents a major change in the structure of the European Union and a new tool with the potential to be activated in future crises. But even more relevant will be its role in transforming the economy, ensuring the transition to a greener and more digital economy.

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