ECB’s Lagarde Pushes Back Against Taxes to Stop Capital Outflows

(Bloomberg) — European Central Bank President Christine Lagarde said creating incentives for investments in Europe is a better approach to prevent capital outflows to other regions than imposing taxes.

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Current market developments signal that investors are interested in allocating more capital in Europe, Lagarde said Sunday during a panel discussion at the Munich Security Conference.

“I’m more in favor of incentives than taxes,” Lagarde said. The overall sentiment is currently positive for Europe as “the money is coming in.”

Lagarde made the comments amid increasingly urgent calls from ECB officials, European governments and corporate leaders to improve the European Union’s competitiveness amid a growing challenge from the US and China. Some officials have discussed imposing so-called exit taxes on people or businesses that shift capital out of the EU into other jurisdictions as a way to boost investment in the bloc.

US President Donald Trump’s disruptive trade policy is “a kick in the butt” for Europe to speed up economic reforms. But apart from the economic challenge, “it also brings European leaders closer together,” Lagarde said. The EU’s €90 billion ($107 billion) support package for Ukraine shows the bloc can push through meaningful decisions even if not all member states support a deal, she said.

EU leaders held a special summit last week to address the issue of lagging competitiveness, building on comprehensive reports by former Italian Prime Ministers Mario Draghi and Enrico Letta. Lagarde said Sunday she expects some progress to be made this year toward the EU’s planned savings and investments union.

Lagarde spoke a day after the ECB announced that it’s prepared to offer euro liquidity to monetary authorities from around the world, an effort to prevent market tension and increase global use of the single currency.

–With assistance from Zoe Schneeweiss.

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