Despite quite decent indicators, Europe’s economic model has been increasingly questioned lately. It does not take into account some global headwinds, which means there is cause for its modernization.
According to ECB President Christine Lagarde, the current economic models used in Europe are poorly adapted to global crises, including the coronavirus pandemic, the war in Ukraine, galloping inflation, and an energy crisis in Europe.
“For several years now the world has been facing a 'permacrisis'. <...> Our models were not perfectly suited to the nature of these crises,” Lagarde said.
The head of the ECB criticized the bloc’s top central banks for failing to predict the possible onset of global crises and assess their consequences when drawing up forecasts.
“We have worked on these issues, and we are continuing to do so, in order to make the projections more robust,” she added.
Notably, the European Central Bank unexpectedly raised interest rates by 25 basis points to a record 4.5% in September, continuing its tightening cycle. As a result, analysts sharply lowered their economic growth forecasts due to the growing impact of tougher monetary conditions on domestic demand as well as a global trade downturn amid compounding supply constraints.