Interview with Bloomberg
Interview with Christine Lagarde, President of the ECB, conducted by David Rubenstein, Bloomberg, on 13 September
16 September 2021
Today we're in conversation with Christine Lagarde, who is the President of the European Central Bank.
As we now look at the post-COVID environment, what would you say is the situation in Europe? Is Europe recovering more rapidly, or not quite as rapidly as you'd thought, from the COVID pandemic?
Actually, Europe is recovering more rapidly than we had anticipated. We have, as a result of that, significantly upgraded our projections. Our projection for this year is plus 5%, so it's a significant upgrade, plus 4.6% next year and back to pre-COVID type of growth subsequently. But this year it’s certainly going faster than we had thought – to the point where we will have recovered to pre-COVID-19 levels before the end of the year, 2021. We had anticipated earlier on that it would be early 2022 at best; it's now going to be in 2021.
Well, are you worried about the Delta variant impacting what you've just said, or the so-called Mu variant, which is now something that's on the horizon?
It's very closely related. We used to say that the best economic policy was an accelerated vaccination roll-out. Well, we are still in that situation where vaccination matters enormously. But on that front, Europe has done quite well. We have more than 70% of the adult population that is completely vaccinated in the euro area, and some countries are doing actually better than that, in excess of 80%. That has been a significant boost for growth and it has helped governments not go back to the stringent containment measures that we had seen previously.
In the United States, as you probably know from your time in the United States and the IMF – as you were the Head of the IMF – there are some people who are resisting getting vaccinations. There's a political divide in the United States. Some people just think it's not a good thing to do for whatever reason, and there doesn't seem to be a lot of progress getting those people to change. Is there a similar problem in Europe or does everybody want to get vaccinated and it's just a question of taking time to do it?
It varies from country to country and you do have a marginal portion of the population that has the same sentiment about vaccines and about the dangers of vaccines. But I would say that it's probably less so in Europe than in the United States. I understand that the US is 64% into adult vaccination. Europe is now at 70% and going towards higher numbers. So we'll see, but there is a very strong campaign to support vaccination and to really understand the correlation between vaccination and economic recovery.
Do you see many Americans coming now to Europe for tourism purposes or business? Or is it not yet where it was before COVID?
You know, we have seen over the summer quite a few Americans coming back to Europe, doing their regular luxury shopping. I know that the luxury business and the tourism business has been enjoying a renewed boost of activity as a result of tourists visiting European countries and cities in particular. But we're not there yet.
During COVID, were you working remotely? Were you running the European Central Bank from one of your homes, or from a home somewhere? Or were you really going into the office?
I spent quite a few weeks stuck in my Frankfurt apartment during the first wave of COVID, and actually the very sizeable package that we put together for monetary policy purposes was engineered around my kitchen table. Subsequently, when travelling was more flexible and we could move out, then I went to the office a bit but in the main, the by default solution is remote working, still, today – and probably until the end of January. Then we will see.
Well, you should take that kitchen table and move it to your office! Obviously it was very productive, right? Let me ask you: post-COVID do you expect Europeans will go back to work at the same levels as before in terms of going to work five days a week? Or will people work four days a week, one day remotely, or just four days a week of work?
First of all we should all acknowledge that there are people who do not have the luxury of choice, that have to go to work because their physical presence is required. You think about hospital staff, you think about construction workers, you think about some people working in shops. They don't have the choice, they have to be on-site and at work and showing up. In offices, I think we are heading towards a hybrid movement, where parts of the week will be spent in the office so that people can meet, can see each other, can hold regular meetings and have face-to-face contact. But the rest of the week will likely be working from home, so whether it's 50%/50%, whether it's 40%/60% is up for debate and is going to be handled at company levels, I suppose, because most of the legal constraints have been lifted at this point in time. But people have learned during the pandemic, and those learnings will be used for future ways of working.
In the United States – not just to cite the United States all the time, but it's the country I'm most familiar with – we've had some challenges during COVID that people who were minorities, often women, people of lower income strata, they couldn't get access to broadband. They didn't have that, and they had childcare problems and so forth, and it's thought that they fell further and further behind. Did you find the same phenomenon in Europe where minorities, women, people who don't have education fell further and further behind the general population?
Yes, this has been the case in Europe as well, where inequalities in terms of opportunities, in terms of facilities have been aggravated and probably exacerbated by COVID-19 for the reasons that you've mentioned. Those people worst hit by the pandemic were women, were young people, were people on fixed-term and temp contracts, and those were more remote from work than the others. If you look at those who lost their jobs, it's predominantly those women and young people in particular in disproportionate amounts relative to the others.
Around the kitchen table that we just made famous, that you were talking about, you put together a package that was designed to make Europe solve its economic problems as it dealt with COVID. The United States had a similar package. In hindsight, would you say the package worked as well as you thought, not as well, or better than you thought?
When we put it together, we were hopeful that it would work, but the proof of the pudding is in the eating and it was a matter of days before we really appreciated that the message was received, fiscal authorities began to act in tandem and in good coordination as well. I think the impacts of Next Generation EU, when all the Europeans decided to go and borrow together jointly, this entire package actually responded well and fast and big to the unbelievable crisis situation that we faced. So all in all, I think it worked well and certainly we responded, I think, faster and better than we had in 2008 and then in 2011 in the European sovereign debt crisis.
Now, the European Central Bank – like the Federal Reserve and like central banks everywhere – they were set up, among other things, to make sure that people don't have too much inflation; that you have a solid currency and you don't have too much inflation. As it turns out, for the last decade or so, many central banks have had to worry about getting inflation because inflation has been so low. Recently, you said that you would like to have a goal, a target of getting 2% inflation. Why has it been so difficult to get to that level for the last five, six, seven years or so in Europe? How confident are you that you can get to 2%?
I think there are multiple reasons for that, but certainly what we decided to do was to have a target which was simple, which was easy to understand, that was symmetric and that also was focused on the medium term. Those were the three attributes. So instead of having that complicated “below, but close to, 2%”, which was a bit uncertain and fuzzy, and which included somehow an implied bias, we decided that we would go for something straightforward, simple; 2% symmetric. So, deviations up or down from 2% are equally undesirable; that's the definition that we have agreed upon. We are also on this medium term, which matters most because we are particularly concerned about inflation expectations. I think that that decision, plus the forward guidance that we also decided a few weeks after the strategy review of the European Central Bank was released, was convincing enough so that markets and analysts and observers have appreciated that we are serious, we mean business, we want 2%.
There are lots of subtleties around the 2% and the lower bound, which leads us to having a more forceful response in some instances, but yes, we mean business and we mean 2%, for sure.
Now, the European Central Bank is unique in one respect: it's a central bank but it doesn't really control the fiscal policies of the various countries that make up Europe. In the United States, obviously we have one government and while the government is often fighting with different parts of the government, you do have one fiscal policy eventually for a country, and you have one monetary policy. How difficult is it to create monetary policy when you can't control the fiscal policy?
You know, what we've learned from this crisis is that when monetary policy and fiscal policy work hand in hand, as they did during the post-COVID response, it's incredibly efficient. I hope that fiscal authorities in this part of the world will also learn from that moment to appreciate how important it is to coordinate well and to join their efforts at the national and at the regional European level in order to respond, and to work. We are not dependent on each other; we complement each other, monetary and fiscal. That has worked incredibly well in this instance.
Before, as I mentioned, you were the Head of the IMF. You served two terms as the Head of the IMF and you could've served another term if you'd wanted to do so. How do you compare the pleasure of running the IMF with the pleasure of running the European Central Bank? Is one more enjoyable than the other, or is one less enjoyable than the other? Or basically, they're both great jobs and you're happy you've had both of them?
I'm extremely privileged to have had the role that I had as Head of the IMF. We saw each other quite often in those days and you know how much I put my heart, my brain and my whole energy into the job, and I've enjoyed it tremendously. I'm doing the same thing with the ECB and I'm doing the same thing on the European scene. In times when you see dual political opposition, in times when you see some energy withdrawn behind borders, it's important to have this desire to unite and to bring consensus to the table and to convince people that what we are doing together, united, is going to be stronger than what we will do individually in our little corners. So, I’m enjoying what I'm doing as well. It's hard, let's face it, but I'm enjoying it.
Now, when you were the Head of the IMF, you were the first woman to hold that position. Now you're the first woman to hold the position of the Head of the European Central Bank. So you've obviously broken through in many cases. You're also the head of your law firm and you're the first woman to head your law firm, a large international law firm. At this point in your life, do you feel discrimination against you in your professional life as a woman? Or do you think discrimination generally has receded against women in the professional workplace?
I think discrimination has not receded, and I don't want to take my personal situation because when you've travelled the journey I have travelled, it's difficult to hold open discrimination against me, let's face it. But I am very, very much aware of discrimination against many women, many young women, many women in all parts of the world. I'm sorry to say, I'm particularly thinking of the Afghan women at the moment, who clearly are suffering the worst possible nightmare and setback in their history and in their life. So it's a constant struggle. It should be a constant fight for all of us to make sure that everybody has a chance to accomplish their talent and to develop their activity in the way they want. This is certainly not the case yet. When I sit at my Governing Council table and I look around, I see 23 men and one woman, in addition to me.
Two to 23 is not a very good ratio, and in the finance world – I don't know whether you would call it discrimination – but there is certainly disparity between men and women. If you look at the venture capital world, it's the same. If you look at CEOs of large international banks, it's the same. If you look at parliaments, you have a much lower representation of women than there are women in society, so something is not working.
Well, I certainly understand your point of view, but some people might say it takes 23 men to equal you!
Flattery will get you nowhere. But it's a nice try, thank you!
Let's talk about what central bankers are supposed to do, which is to have the currency be stable and so forth and have interest rates at affordable levels and those kinds of issues. In recent years, central banks have been worrying about something called climate change. The Federal Reserve is making comments about it and you are as well. Why should central bankers be worried about climate change? Is that something that's really within your purview?
The mandate of our central bank in Europe is price stability, and I think governments, parliaments, regulators have to be driving the bus of the fight against climate change. It's their main responsibility. But we are all on that bus and we all have to ask ourselves within the parameters of our respective mandates: should I be concerned? Is there something that I can do about it? This is what the Governing Council of the ECB decided to do, and included climate change as part of its strategy review key considerations. We decided that, yes, climate change actually mattered for price stability. Yes, climate change mattered for the right assessment of risks that we hold in our balance sheet; that disclosure of exposure mattered for proper pricing of risk relating to assets. For all these reasons, we believe that it's part of our primary mandate, price stability, and also of our secondary mandate, which includes other matters. To me, it's a no-brainer consideration. Climate change is part and parcel of our mandate. Think about it: drought, famine, pandemic, flood, massive fires. All of that is going to have an impact on prices, hence on inflation, hence on price stability. If you look at risks, not only do we talk about stranded assets but we also have to talk about the transition cost that many, many companies are going to face in order to move from the business they conduct today to how they should conduct their business tomorrow, let alone the new products that they will have to come up with.
For hundreds of years, governments and central banks have issued currency and the currency is used for things – to buy things, sell things and so forth, and to price assets. Now some people have come along and invented various things called cryptocurrencies. Central banks are trying to adjust to what that means for them, so do you think that cryptocurrencies are a plus for the global economy or is it too early to tell?
Cryptos are not currencies, full stop. Cryptos are highly speculative assets that claim their fame as currency, possibly, but they are not. I think we have to distinguish between cryptos that are those highly speculative, suspicious occasionally – and high intensity in terms of energy consumption – assets, but they are not a currency. On the other hand, you have those stablecoins that are beginning to proliferate, which some big techs are trying to promote and push along the way, which are a different animal and need to be regulated, where there has to be oversight that corresponds to the business that they are actually conducting, irrespective of how they named themselves. In all that, you have the central banks, who are prompted by customer demand to produce something that will make the central bank and central bank currencies fit for the century we are in, which is why we are now looking at CBDCs – central bank digital currencies. Instead of having banknotes and cash in our pockets or in our wallet, we can have exactly the same thing but in a digital form. All of us are working on this and I was certainly keen to push the CBDC issue on our agenda because I believe that we have to stand ready for that.
If the ECB – like the Federal Reserve which is also looking at it – were to have a digital currency, would that be to the exclusion of paper currencies, or would it be side by side?
Side by side, because we want customers to have their preference. If they still want to hold those banknotes and cash, fine, then it should continue to be available and around.
Now, some people talk about a cashless society, which is to say get rid of all paper currencies. In your view, is that just too far in the future or not desirable?
I think people should have options. There are countries that are very close to cashless situations. If you look at countries like Sweden, and to a lesser extent the Netherlands, a lot of transactions are conducted without cash. But it's not necessarily to the advantage, to the benefit of all people. You have some senior citizens in particular who have zero interest in having digital currencies and who still want to operate with cash. That's fine, it should be available. People should have the option.
As you look at the European economy today, what would you say its single biggest challenge is and what would you say its single biggest opportunity is?
I think the single biggest challenge always is to deliver; it's to implement. There are lots of good intentions, but implementation sometimes is hard. I think the second difficult area that will need to be tackled is this issue of inequality, because COVID-19 has aggravated inequalities. The third one is climate change, where we will have to transition probably faster than we think, which will imply a transition cost, which will imply a change in the overall structure of our economies. I would say those three: implementation, inequality and climate change.
The biggest impact on the European economy outside of Europe, is that the United States? Is it China or Asia? What parts of the world outside of Europe have the biggest impact on the European economy, in your view?
I think the biggest impact is the one that we experience with our biggest allies, and our biggest ally in this part of the world is the United States of America.
What has been the impact on the European Central Bank or the European economy, if any, of Brexit? Has it been as bad as some people predicted, or better than people thought? What would you say?
I think the conclusion varies depending on which side of the Channel you are on. From our perspective it's a sad development and we have certainly lost the benefit of excellent formal cooperation with the Bank of England. We try to continue to maintain a good relationship because we have lots of links between us, but in terms of trade it has certainly been a loss – for the UK more so than for Europe. We'll see how it goes. All I can say is that, at this point in time, Europe is coming out of the crisis not with flying colours yet, because a lot of work needs to be done, but more strongly than we had expected. I think the UK is having a more difficult time at the moment.
Part of the way you helped deal with the situation in Europe during COVID was that you had the package that you referred to, a very large financial stability package, but that package really involves countries borrowing money against their own abilities to pay it back. You are in effect not a guarantor but you are making certain that they probably won't default. Are you worried about too much debt among European countries, too much debt in France or Germany or Italy? Or is that not a big problem right now?
You know, I think all countries around the world increased and had to increase their debt relative to GDP, and when you have this high debt increase and a big fall in GDP, of course you end up with those ratios that look higher – and are higher – than what they experienced before. But there was no option and no choice but to do that. Had it not happened, I think the story of the pandemic would have been a lot worse than what we have seen. Now it's a question of directing the financing to the right investment, making sure that the economies are going to bounce back in the right shape, with the right structural reforms that will improve the productivity of those economies, that will position them to be more digital and to be greener. I believe that this Next Generation EU, which was voted on a year ago now, is going to help with making countries better converge and reduce the gap that existed between some of the southern European countries and the northern European countries. That is certainly the intention.
Central bankers are famous for not talking in language that the average person can understand generally; sometimes they've done that on purpose. You talk in a language that everybody seems to understand, it's very simple and so forth. Is that a conscious policy that you have, to make what you're doing understandable to the average person?
Yes. I think it's extremely important that people understand what we are doing. A lot has to do with trust. If somebody talks to you in a completely obscure and “jargonic” language, how are you going to trust that person? To me, it was critically important to agree with the Governing Council members that we would communicate in a more understandable, clearer and simpler way. So just to give you an example, after each Governing Council we issue a monetary policy statement. Well, we committed to keep sentences short, to have one idea per sentence, to make sure that the words that we use are understandable by – you, of course – but the normal person as well. We measure that and we try to stick to those principles and will be held accountable.
Do you think your ability to do that – and the Federal Reserve Chairman, J. Powell, is interested in that as well – both of you are trained as lawyers, so do you think that lawyers… I'm trained as a lawyer, too; do you think there is a greater future for central bankers to be headed by or to be lawyers, and there's some hope for me to be a central banker someday? Or not really?
Well, I'm sure you would thrive! I strongly believe in diversity, as you know, and diversity is not all to do with gender, with minority, with sexual orientation or whatever. It also has to do with the background, with the training, with the culture that you carry with you, and to bring it all together around a table with diversity, in my view, improves the quality of the decisions that we make. I learn a lot from my colleagues, brilliant economists, and I hope they can be patient with us poor lawyers!
I would like to know, what is the pleasure of being the Head of the Central Bank? You obviously have to work seven days a week; you did that for many years in your career with the IMF as well. What is the pleasure you get out of heading the European Central Bank?
It is the same kind of pleasure that I take in leading other organisations; it's making sure that people around me are doing the best they can for the organisation, are delivering on their mission, and that we form a team heading in the same direction. So that to me means an awful lot.
Do you believe that people in your position or senior government people or senior corporate executives should be making statements about public policy issues? Historically, CEOs have just worried about their shareholders. Increasingly, some CEOs are dealing with public policy issues. Are those things that you think CEOs should be doing? Should they be talking about climate change or gender discrimination, or should they just stick to worrying about stockholder returns?
I think they should worry about all these matters that you discussed. I believe in this stakeholder appreciation where you have to account for your shareholders, your employees, the environment in which you operate, the community to which you also return dividends. Corporates are not bodies: they don't have a soul, they are not physical persons but they are acting in people's lives and they are acting in the environment. CEOs should address those matters, yes – and more and more of them actually do, which is good.
My final question is really this: in your youth you were a synchronised swimmer, where you have to, I guess, work very closely with teammates and get everything working together quite nicely. Is it the case that when you're doing the central banking role, you have to have the same kind of skillset? You've got all these central bankers of each country. You have to get them to work together, so do you think your synchronised swimming skills actually come to help you as the Head of the European Central Bank?
Yes, they do actually because what you learn in synchronised swimming is that if each individual is brilliant, it's great, but if they don't work together you will not get the gold medal. Working together as a team actually matters enormously and I have tried, and I will try to continue doing so.