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ECB Rate Cut: Lagarde ‘Not Sure’ Would Be Best Move

The European Central Bank may “have room” to cut interest rates on Thursday’s meeting, but this is not necessarily the best way to deal with the euro zone debt crisis at the moment, Christine Lagarde, managing director of the International Monetary Fund, told CNBC.

European Central Bank
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European Central Bank

European shares have risen to a two-month high this week on renewed hopes that the ECB would cut interest rates even lower than their current historic low of 0.75 percent.

Lagarde pointed out that more solid countries like Germany did not need rate cuts – although vulnerable Italy and Spain might.

She also argued that the euro zone needed to speed up the process of fiscal union.

“We would like more to happen more quickly because that’s the spirit of the time,” she said. Fiscal union should lead to a common fiscal policy and objectives, and potentially a joint finance minister or debt agency, which would be “terrific,” Lagarde argued.

The proposed joint euro zone banking regulator “has to be put in place rapidly” and “have binding authority over the national supervisors,” she said.

Lagarde also signalled that she is not looking to re-negotiate the terms of Greece’s bailout. There has been plenty of speculation about whether the IMF’s attitude to Greece will soften following the election of a pro-bailout coalition last month. The IMF is part of the troika which has bailed out the country, and enforced strict austerity measures which have been criticized for not doing enough to promote growth.

“I’m not in a negotiations or renegotiations mood at all. We are in a fact-finding mood. I’m sure they will have excellent numbers to show in various directions,” she said.

Lagarde also warned that regulators will have to be a “little bit more intrusive and more inquisitive” after the Libor scandal which has already seen the chief executive and chief operating officer of Barclays leave the bank.

“There are things happening that should not happen…despite the good will and despite the efforts and despite the quality of supervisors,” she warned.

Written by Catherine Boyle, CNBC.com. Twitter: @catboyle01

Contact Europe: Economy

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