Mubasher: New European Central Bank (ECB) Christine Lagarde urged governments to boost domestic demand, including through ramping up public spending, in order to weather weakness abroad.

“The answer lies in converting the world’s second largest economy into one that is open to the world but confident in itself – an economy that makes full use of Europe’s potential to unleash higher rates of domestic demand and long-term growth,” Lagarde said.

The former managing director of the International Monetary Fund (IMF) said the ECB’s ultra-loose monetary policy has “been a key driver of domestic demand during the recovery, and that stance remains in place.”

However, she added that the monetary policy could attain its goal faster, with less side effects, if other policies were supportive of economic expansion alongside it.

“One key element here is euro area fiscal policy, which is not just about the aggregate stance of public spending, but also its composition,” Lagarde said, noting that “public investment in the [Eurozone] remains some way below its pre-crisis levels.”

Despite calls from a variety of institutions and bodies, European governments, including Germany, have been hesitant to relax their tough spending rules and boost growth themselves.