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Europe's recovery must focus on investment, says ECB chief

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Europe's recovery must focus on investment, says ECB chief
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Europe's recovery from the COVID-19 pandemic should be focussed on investment, according to the President of the European Central Bank (ECB).

Christine Lagarde told members of the European Parliament on Monday that fiscal support for member states was important to come back from the devastation of the coronavirus, but investing wisely will be more significant.

"Whilst fiscal support is crucial at this stage, it should be targeted and focussed on the measures that are most conducive to economic growth," the ECB Chief said.

"Against this backdrop, the groundbreaking Next Generation EU package should be implemented in such a way that the EU and all its member states emerge from the crisis with stronger economic structures and high cohesion."

Her words come after a group of over 100 economists, including the French economist Thomas Piketty, signed a letter last week calling on the ECB to forgo all eurozone government debt that the central bank currently owns.

The letter, which was published in several leading European newspapers, noted that a quarter of the public debt of countries that use the euro, which amounts to €2.5 trillion, was currently being held by the ECB.

"In other words, we owe ourselves 25 per cent of our debt and, if we are to reimburse that amount, we must find it elsewhere, either by borrowing it again to 'roll the debt' instead of borrowing to invest, or by raising taxes, or by cutting expenses," the economists wrote.

They are suggesting instead that the central bank cancel the current debts in exchange for the eurozone member states committing to spend the same amount on making their economies greener, as well as on social projects.

But Philippe Lamberts, the Co-President of the Greens/EFA Group in the European Parliament, is concerned about the divisions it would create.

"I understand that there is a lot of criticism of the statutes of the ECB and some treaty limitations. Frankly speaking, I do not believe this is the right debate to have," the Belgian MEP told Euronews.

"Mind you, we have recently had breakthroughs on borrowing money to fund the European recovery plan, and not agitating the red flag of cancelling debt is maybe not the right idea to foster unity of minds across European leaders in order to move to the next step."

Whilst cancelling eurozone debt is technically feasible, it remains legally and politically tricky due to the EU treaties prohibiting monetary financing.