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The biggest challenge facing the recovering European economy, according to European Central Bank President Christine Lagarde, is whether authorities can implement the changes needed to transform its potential.

Unprecedented monetary and fiscal assistance and more vaccinations have brought the region to a point where it is “recovering faster than we expected,” she said in “The David Rubenstein Show: Peer-to -Peer Conversations â€on Bloomberg Television. The euro zone is now expected to reach pre-pandemic production levels before the end of this year.

A key test now depends on how Europe acts to bridge the long-standing divide between countries to the north and south, reduce inequalities exacerbated by the pandemic and help the transition to a more environmentally sustainable economy , observed Lagarde.

“The biggest challenge is always to deliver,†she said. “It’s about directing funding to the right investment, ensuring that economies will bounce back in the right shape, with the right structural reforms that will improve the productivity of those economies, position them to be more digital and be greener.

The president’s remarks revisit the problems plaguing the European economy even before the pandemic in a decade when low inflationary pressures forced the ECB to keep monetary policy ultra-loose. Lagarde, whose term began in late 2019, then unveiled his biggest stimulus to date with a crisis bond purchase program of € 1.85 trillion ($ 2.2 trillion).

Crisis coordination

Praising the “good coordination†of European governments at the height of the emergency, Lagarde expressed the hope that they will learn from this experience. She highlighted the region’s unprecedented 750 billion euro stimulus package, comprising a mix of loans and grants to boost growth.

The fund “will help to better converge countries and reduce the gap that existed between some countries in southern Europe and countries in northern Europe,” she said. “That is certainly the intention.”

The story continues

A major challenge will also be to undo the damage done to parts of the labor market, where women and young people were among the most vulnerable to the loss of their jobs, she said. This echoes concerns from other central banks, including the Federal Reserve, that the global economic rebound will take time to reach those most affected by the crisis.

Last week, ECB officials slowed the pace of pandemic bond purchases, believing the recovery could be sustained with slightly less support. Lagarde has warned that it is still too early to discuss further measures to reduce support as the economy continues to face uncertainty due to variants of the coronavirus and global supply shocks.

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