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Interview with Che Tempo Che Fa

Interview with Christine Lagarde, President of the ECB, conducted by Fabio Fazio on 28 November and published on 7 December 2021

7 December 2021

Thank you very much for accepting our invitation. It is a real privilege. You were the first woman to lead the International Monetary Fund. Before that, you were at the head of a very large international law firm, then the first female finance minister of a G7 country. According to Forbes, you are one of the most powerful and influential women in the world. But I have found out that your life was already full of records and success when you were young: you were in the French national synchronised swimming team. Is there a connection between what sport taught you and your life?

First of all, let me say that I am delighted to be here with you and to be on this programme that is so renowned in Italy, and that I am quite simply happy to be in Italy.

The connection between sport and the different jobs I’ve done is very clear to me: I think that sport, especially when practised at an international competition level, teaches you to work, because you have to train a lot, you have to do a lot of lengths in the swimming pool to be at a good level. It teaches you about competition, it teaches you injustice, because when you do synchronised swimming sometimes the marks are very unfair, and you rebel. But you have to accept the injustice and overcome it. And then it also teaches you a lot about teamwork. Because synchronised swimming is a team sport and you have to “pull” for yourself but also for the others. When you are performing a routine and the whole team is underwater and you are helping them, there is no other answer. The team has to win.

Yes, absolutely. Sport and teamwork are a metaphor, really a typical example. Now I’d like to talk about today, the present time. We have understood more than ever, during this pandemic, and as popular wisdom says, that health is more important than the economy and finance. What has this global shock taught us, all of us and people in positions such as yours? And how is this economic crisis different from the one you already faced in 2008?

The pandemic taught us first that we are all interdependent. That is, if we are not all protected, all vaccinated, we will all be in danger. The collective imperative is therefore clear. I think the second lesson we learned from the COVID-19 crisis was that we had to put people before the economy, before the financial situation. And these are choices that were made deliberately by politicians, by those who took the decisions at the time. It consisted of saying “We must maintain wages, preserve income, protect firms during this terrible epidemiological crisis”. That was the real difference compared with the 2008 financial crisis, which I also experienced: in 2008, we started by trying to save the financial system to avoid losing deposits.

Yes, but in Europe inflation rose in October, if I am not mistaken, to a little more than 4%. In Germany, it exceeded 5%. In Italy, it is 3% and, in the United States, inflation was even over 6%. So there is quite a bit of anxiety, but you have always said that it is a passing phenomenon. Do you still think so? Can you reassure us?

Yes, I think that the inflation we are experiencing today comes essentially from passing phenomena. The first and most important one, which Italy in particular is experiencing, is a phenomenon linked to energy prices. Today the increase in prices in Italy can be explained at around 69% by energy prices. And the energy prices are determined of course by significant demand, but also by geopolitical problems, climatological problems, and very specific problems linked to the maintenance of wind turbine farms, a drop in sales during a certain period, and the substitution of wind energy by gas, which was suddenly in very high demand. It can seem a bit complicated, but all these phenomena show that it is not in fact a question of long-term structural factors. So we are fairly certain that these phenomena will disappear.

Can I ask you when? When do you think these phenomena will go away?

We will see significant changes in 2022 because of base effects, since we are comparing the prices in one year with the prices in the year before. So, when these base effects disappear, inflation will slow down. The second element is the meeting of demand and supply. What have we seen so far? We have seen that after the pandemic period when people stayed at home, and couldn’t consume, there was what we call “catch-up” demand. All of a sudden, people wanted to buy things, to have access to services, to take holidays that they hadn’t been able to take previously. And, in the face of this catch-up demand, the offer hadn’t grown in the same proportions. And that’s why today we don’t have enough containers, ships, unloading capacity in ports, trucks and truck drivers to transport the goods. But this economic phenomenon will also fade away because demand and supply will readjust. We won’t forever be making up for the opportunities that we didn’t have during the pandemic period.

Madame Lagarde, the European Central Bank has fixed the inflation target at 2%. Can you explain to us why 2%?

I’m going to try to tell you this simply because it’s not easy. First of all, it should be noted that all the central banks in the world have defined price stability as being inflation at around 2%. In Europe, we decided that we had to be clear, precise, and we said that the inflation target was 2%. It’s not around 2%, it’s 2%. So why 2%? First, because the different countries in the European Union move forward at different rates. As you mentioned, Germany has a higher rate of inflation than Italy at the moment. Having an average rate like that allows us to rebalance things a bit. Second, in times of crisis, we need to have some room for manoeuvre to be able to respond. Well, if the increase in prices was always at 0%, we would have no room for manoeuvre at all. And we central bankers would have no tools to respond to the crisis and to help economies recover. And third, we know very well that price observation is not perfect, and that in order to correct this imperfection we need room for manoeuvre. The fourth reason is one that was often invoked by Alan Greenspan, the great American central banker, who is no longer in office, but who used to say “Up to 2%, in fact we don’t really notice that prices are rising”. And lastly, this 2% level also gives the unions a bit of leeway to negotiate wage increases. These are all the reasons why, worldwide, price stability is defined as an increase in prices of 2%.

Still on this point, as regards the European Central Bank’s policy. At the time you became President of the ECB, economists were certain that its expansionary monetary policy had already reached its limits. You said, by contrast, that such a policy has no limits. Can you confirm this? Is this still the case today?

In March 2020, when the COVID-19 pandemic shook us all and really damaged economies, we decided that we had to act decisively and reaffirm our unlimited commitment to the euro. Why? Because, first of all, it is the mission of the European Central Bank to be the guardian of the euro and to ensure that monetary policy is well transmitted throughout the euro area. It is the ECB’s responsibility to guarantee price stability and therefore to support the economy when it collapses. That’s how, at that time, we put in place an exceptional programme, our pandemic emergency purchase programme, or PEPP, which was effectively unlimited. And so far we have pledged €1,500 billion to support the economy, in order to enable the transmission of monetary policy throughout the whole euro area and to maintain price stability.

Madame Lagarde, I’d like to know your thoughts on the following question. Western countries have spent around USD 6,000 billion of fiscal support. But why is the international community unable to bring together USD 50 billion to ensure vaccination in low income countries, where only 2% of the population is vaccinated? Why can we find USD 6,000 billion of fiscal support, but not 50 billion to fight against a virus that is today returning from Africa in a new form? Isn’t it a sin of naivety on one side, as well as pride and selfishness?

I think that we understood during this crisis that a variant that develops in Botswana and that is discovered in South Africa can reach the Netherlands, France, Italy, Belgium and Hong Kong in the space of a few hours. This virus has no borders, which confirms the principle that I mentioned earlier: we will not be protected until we are all vaccinated. Vaccination is a battle I know you are fighting in Italy, and I admire you greatly for that. Fortunately, the G20 held in Rome under the Italian presidency, about a month ago, agreed on the principle of vaccinating, in all the countries of the world, 30% of the population by the end of 2021 and 70% by mid-2022. These are commitments that we will have to monitor very closely to ensure that they are followed through. It is not enough to say that “We’ll do it”, the €50 billion, which are a drop in the ocean compared with the fiscal and budget support that has been put in place, need to be allocated. We have to ensure the logistics, the implementation. We have to ensure that, once the vaccines have been delivered to their destination, in each country, the vaccinations are done. And we have to go further. In some of these countries, we need to set up analysis centres to be able detect changes in the virus as quickly as possible and respond with vaccines.

Of course, there really is this physical problem of the last kilometre. We have to reach the most remote places.

We can transport packages with large distribution companies up to the last kilometre, perhaps we can do it with the vaccine.

Yes, absolutely. It is good to hear you say that. It’s reassuring. And the good news is that the EU’s response to the pandemic was immediate and unified from the outset. But the EU has been very strict over the years on exceeding parameters: 0.1% was already the end of the world, even after the Greek crisis. So what happened? Who suddenly allowed this change of course?

You know, I think there was a collective realisation that we were all in this boat called Europe together. And that we could not respond to such a tragedy in a national, selfish and rigid way. It pains me to say it, but I think that what happened in the north of Italy at the end of February and the beginning of March 2020, which we saw on our screens across Europe, was a determining factor in raising public awareness, which had previously been limited. The images of the tragedy in the Bergamo region, for example, in northern Italy, were an almost immediate wake-up call. And I believe that there was then the wisdom of certain European leaders – I am thinking of Angela Merkel in particular – who also understood that all the countries of Europe, not only those who were suffering, had to respond together.

Do you expect that Germany’s stance on your expansive monetary policy will become slightly more critical once Chancellor Merkel’s term in office comes to an end?

I don't want to prejudge what the next German Government will be, but one thing I can see is that German leaders – and I'm not talking about the press or about public opinion, I'm talking about German leaders – have always been very respectful of the ECB’s independence. It was the same during the time of my renowned predecessor Mario Draghi. There was a working relationship between him and the leaders, including the German leaders, which I have had the honour of being able to continue, and this independence has been preserved.

Are you concerned about the increase in infections, in relation to the economic recovery in Europe?

I don’t think that 2021 will be affected by the measures that we are starting to see here and there. It is obviously a risk for the conditions of next year's recovery, however. Today I think that we have still learned a lot and that we know our enemy better. We know what tools we need and we know what precautions we need to take. A large majority of our populations have been vaccinated and treatments are starting to emerge. People know that they need to take precautions and that the responsibility lies with each and every one of us. And I think we are better equipped to respond to the risk of a fifth wave or the Omicron variant.

In your opinion, is it science fiction to consider, beyond European monetary policy, a common fiscal policy?

I’d like to tell you what happened with the "Next Generation EU" package. When it was agreed in July 2020, it was an incredible signal of a collective response, of a European determination and of the will to compensate the sacrifices and the suffering experienced by certain countries through collective generosity. That’s why I think that we all have a very strong responsibility – Italians, French, all Europeans – to implement this plan properly. To carry out reforms, to invest in greening the economy and in the digital economy, to prove to those who might be a little cynical, a little sceptical, that Europeans can not only decide together, but deliver together. And I am very hopeful that this message will be received and that it will be implemented.

And yet, Madame Lagarde, Europe cannot be reduced to a simple common market. It also represents shared values and shared rights, the most important of which originated in France. But what we are currently witnessing between Poland and Belarus appears to be a total denial of the fundamental rights on which the EU is founded.

It is obvious that the foundations of Europe, which are based on the rule of law and the fundamental principles of democracy and human rights, must prevail over egoism and the stratagems adopted by some to impose their political positions. And I hope that together, Europeans will be able to provide a response, and in particular to show solidarity with Poland in order to respond to the tragedy unfolding at the border in a humanitarian way.

Pope Francis, who I would say is a great and compassionate intellectual, called for a profound change in how the economic system works. He said that it is time to put people, their dignity and their needs back at the centre and the economy at the service of the people, not the other way around. What changes do you think would be possible, and not just desirable? Are there things that we can concretely change?

I am very receptive to the Pope’s message, because I have a lot of admiration for the intellectual force of Pope Francis and I have had the opportunity to discuss with him, during several conversations, the need to put people back at the heart of the system, to put finance at the service of the economy and to centre the economy around people. It's through action that we can demonstrate our desire for change. I believe that if all countries develop a joint response to the pandemic in the poorest countries, in the countries of Africa, to ensure that everyone has access to vaccination and treatments, as we fought to do with AIDS in particular, if we manage to demonstrate this collectively and generously, it will be a small act that will show that we are more concerned about the fate of mankind than about the royalties that go into the patent owners’ coffers. I say this intentionally, because I know that today the debate is raging at the WTO, where facilitating vaccination through patent waivers is currently under much discussion and fraught with difficulty, and I hope that it will succeed.

President Biden has expressed similar views, which is a major encouragement. Turning to Italy: we were surprised when Standard & Poor’s raised the country’s outlook from stable to positive. What reasons do you see for this decision to increase the rating?

But there can be some good news! I think the economic results we are seeing now speak for themselves. Italy suffered deeply from the pandemic. It was one of the most affected countries in Europe, with its economy contracting by 9%. Today it is on course for growth of over 6%, with figures quoted at 6.5% or even 6.6%. This is very clearly a strong response to the crisis. And now, reforms have been agreed in the form of legislative texts that will have to be developed, implemented and enforced. I believe these reforms are of a kind to convince the rating agencies that Italy is on the right track.

Madame Lagarde, last Thursday was the International Day for the Elimination of Violence Against Women. You have always been committed to fighting gender inequality, but for every successful woman, there are countless others who, while deserving of success, will never achieve it. In banks and across the world, only 3% of CEOs are women. Things are slightly better in Europe, but women still account for less than 9%. What can we do concretely? Are legally binding quotas like those set in some countries a good solution? Is a different approach needed, or does the cultural crisis come first?

This is one of the solutions, but there must be multiple lines of action. We need to put in place systems that allow families to have children and enable women to do their work and continue working if they can. Men must support women who want to engage in working life and family tasks must be borne equally by fathers and mothers, by men and women. Maternity leave and parental leave must be made available and on equal terms for men and women. Of course, school and university support for women must be put in place. At the ECB we have set up scholarships to enable young women who wish to pursue economic studies to do so under good financial conditions. Firms and banks can also do this. They must do this. And these things have to be measured, because if we don't measure them, either with quotas or with targets, we won't achieve the result we want. It is well known that what is not measured is not done. So we have to be committed, carry out checks and go into the details of the figures. You can't just say “we'll have 50% women”, because invariably we have 80% of women in the lower-ranking jobs and 3% in the top jobs. You always have to make sure, at every stage, that actions are measured.

Before we finish I would like to remind viewers that you will be in Turin tomorrow evening to speak at a conference organised by the Collegio Carlo Alberto, the Fondazione Agnelli and the Accademia dei Lincei. On this topic, our President, Sergio Mattarella, called on people to fight against anti-science. That is why you will be there tomorrow. But I would like to ask you one last question, out of curiosity. You were once asked what had helped you most in your professional rise, and you said “love”. In what way? What type of love?

First of all, it's love in the broadest sense. That is to say, it's the love of the family, the love of a partner, the love of one's children, the love of one's friends. It's this current of affection, tenderness and trust which is given to you, and I think that when you have this love, as I was lucky enough to have, you gain in confidence. You are more prepared to take risks, you have fewer doubts. Because you know that if you take a risk, if you fall, if you fail, there will always be someone who loves you enough, who will take you by the hand and help you to go to the next step. So that's why I think you need a little ambition and a lot of work, energy and confidence to succeed. But confidence can only be built on love. So that's why I think that love is very important. It’s been important for me.

Thank you for joining us, Madame Lagarde.


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