Lagarde: the world economy is dividing into rival blocs

The president of the European Central Bank (ECB), Christine Lagarde, stated that there are increasing signs that the world economy is dividing into rival blocs.

“Europe now finds itself at a critical juncture and faces a number of common challenges, such as deglobalization, demography and decarbonization,” Lagarde said, adding: “Addressing these challenges simultaneously requires a generation-long effort and large investments. soon”. .”

In her speech at the European Banking Congress, Lagarde stated that Europe has emerged strongly from a series of economic shocks and that real Gross Domestic Product (GDP) is today only 2 percent lower than what was expected at the end of 2019 .

DEMOGRAPHIC INDICATION POINT WARNING

However, noting that Europe now faces a series of new challenges, Lagarde continued:

“There are increasing signs that the global economy is splitting into rival blocs. Europe is currently at a critical juncture and faces a number of common challenges such as deglobalization, demography and decarbonization.

We are approaching a long-awaited demographic tipping point. In the eurozone, there appears to be a steady decline in the working-age population between 15 and 64 from 2025.

The impact of climate disasters and the need for climate action increases every year.

As new trade barriers emerge, we will need to re-evaluate supply chains and invest in safer, more efficient and geographically closer ones. Addressing these challenges simultaneously requires generational effort and large investments in a short period of time.”

‘AN ADDITIONAL INVESTMENT OF 125 BILLION EUROS IS REQUIRED’

To give an idea of ​​the necessary investments, Lagarde recalled that the European Commission determined that an average of 620 billion euros of additional investment is required each year until 2030 only for the green transformation and 125 billion euros for the digital transformation.

Noting that the current financial framework cannot be relied upon to finance these investments, Lagarde said: “Governments have the highest debt levels since World War II. Recovery financing in Europe will end in 2026. Banks have a key role to play at this time, but we cannot expect them to take on as much risk on their balance sheets. This brings me to the Capital Markets Union (CMU). “Despite the two action plans of the European Commission, the European capital market remains fragmented and financial integration is lower than before the financial crisis.” he made the assessment of it.

Lagarde stated that European bond markets are three times smaller than US bond markets and that European Union (EU) venture capital is far behind that of the US, stating: “If we cannot get the UMC back on track, we will not be able to succeed in the transformations I mentioned.” he said.

Stating that companies that want to digitalize and decarbonize in Europe cannot access all the financing they need, Lagarde stated that European startups also have difficulty accessing the quality financing they need due to underdeveloped capital markets.

Lagarde stated that European startups attracted less than half the funding of their American counterparts and continued:

“In the increasingly challenging and changing conditions we face, integrated capital markets are an integral part of our success. We must work on many other areas that are necessary for CMU to become a reality. “In the face of such an enormous financial challenge, now is the time to act.” (AA)