(Bloomberg) -- Europe’s tumultuous political backdrop loomed over the monetary policy decision taken by officials in Frankfurt on Thursday, according to Christine Lagarde.
While the European Central Bank president didn’t refer directly to the collapse of governments in both France and Germany in recent weeks, she observed that suspense about fiscal plans and electoral results aren’t helping her colleagues as they also wait for Donald Trump to take power in the US.
“A lot is going to be clarified, we hope, in the next few months,” Lagarde told reporters. “If there is one thing that we discussed in the last two days, it’s the level of uncertainty that we are facing, and whether it’s uncertainty resulting from political situations in some of the member states, whether it’s uncertainty resulting from the outcome in terms of policies of the US.”
The ECB decision on Thursday was the first since governments in both Paris and Berlin crumbled over budget talks. France is now awaiting the appointment of a new prime minister, and Germany is poised to go to the polls in February. The previous monetary meeting also took place before the US election.
Lagarde refused to refer to any European country in particular, while lamenting the clouded situation confronting policymakers.
“That is self inflicted uncertainty that we have nothing to do with, but which is caused by the current political situations,” she said. “Clearly there are elections coming up in the first quarter of ‘25 and hopefully decisions being made much earlier than that for other member states.”
At least four European countries haven’t submitted usable budget plans to the European Commission — a list that includes France — and then there are other political situations that remain unresolved, Lagarde complained. That made the ECB’s fiscal forecasts “a little bit complicated,” she added.
The ECB’s new economic forecasts also highlighted the difficulty in assessing the outlook for public finances.
“Fiscal plans in some of the large euro area countries are either not finalized or are outdated, given the current political risks,” the ECB said. “In many countries, risks to the baseline also stem from possible additional measures, to be further specified, in order to comply with the requirements of the revised EU fiscal framework.”
--With assistance from Alexander Weber, Jana Randow and Andrew Langley.
(Updates with EU forecasts starting in penultimate paragraph)
©2024 Bloomberg L.P.