interview
The ECB has had to deal with many crises – and is one of the most powerful central banks in the world.inside tagesschau.deIn an interview, central bank governor Christine Lagarde responded to criticism that the task was too much.
tagesschau.de: Ms. Lagarde, the European Central Bank is celebrating its 25th anniversary. You have been chair of the agency for about three and a half years. From your perspective: what great successes has the ECB achieved and what went wrong?
Christine Lagarde: I look at the success and potential failure of the ECB from three perspectives: First, what was the original objective? Second: Who are the customers and are they satisfied? Third: Are we ready for the future?
When I look at the goals, I believe the Founding Fathers, who at the time were only 11 member states, wanted a monetary union that was stable according to our mandate, that made us stronger and that brought us together. These are the original goals.
Are we stable? We have had a very eventful history of devaluing the individual currencies of countries many times before the currency union was formed. If you look back over the last 25 years, with all the ups and downs, we’ve had an average inflation rate of 2.05%, which is pretty remarkable. I am not happy with the current high inflation. But 2.05% is average.
Have we become stronger? Yes. The euro is the second most important currency in the world after the dollar. During the last major crisis pandemic, the euro depreciated only slightly compared to the yen and sterling.
are we together Yes, 25 years contrary to many predictions made at the time. I think in accordance with these three criteria we provide.
The second aspect is the customer – are they satisfied? The customers are the 346 million Europeans who own Euros. This is their euro and we are just the custodians of the currency. In the last poll, 79% of respondents said they trusted the euro.
Finally, the third point, the future: I think we have shown that the ECB and the entire Eurosystem – including the Bundesbank – are crisis-proof. We have been through so many crises, found the necessary tools and managed to keep the currency stable. We also look into the future through digital eyes. Europeans can pay in all member states with the same cash, different payment methods, and probably soon a digital euro, because we need to prepare for the future.
Bottom line: We delivered and fulfilled our mission, served our owners and Europeans, and were well prepared for the future.
anti-inflation as the ultimate goal
tagesschau.de: Those were very difficult years. Essentially, the eurozone has gone from one crisis to the next over the past decade. This changed the role of the ECB – from an institution designed to ensure price stability to one that your predecessor had to save the currency union from. How does this change the basis of the ECB?
Lagarde: I think the basis for this institution is the EU Treaty, which is the legal basis on which we were founded. This is the basis of the euro and of course the basis of the European Central Bank. We must abide by these rules.
Going through crisis after crisis — from the Great Financial Crisis to the debt crisis to the pandemic to the energy crisis — I think it makes us stronger. We have had to develop tools to adapt to a world of very low inflation, to combat possible deflation, and are now battling high inflation that has persisted for far too long.
Nietzsche said: “What doesn’t destroy you makes you stronger”. I think the euro is much stronger today than after all the crises. He is like a child who has to grow up quickly because he has been through a lot of hardships.
More tasks for monetary authorities
tagesschau.de: Does this also change the structure of the institution? Do you and your staff feel differently about the ECB today?
Lagarde: The institution has grown thanks to the new mandate given to us in the aftermath of the financial crisis. This is the monitoring of the banking system, which we need in order to transfer our monetary policy to the real economy.
As a result, the ECB now has more responsibility. On the one hand, monetary policy is aimed at price stability. But it’s also about monitoring the health of banks and the banking system.
tagesschau.de: Some critics say the ECB has too much responsibility. Over the years, the job has evolved and changed, and some tasks have contradicted each other. How do you feel about this criticism?
Lagarde: I don’t think there is a conflict there. There is no compromise between monetary policy (i.e. the goal of price stability on the one hand) and financial stability on the other. We also have different tools to solve these two problems. The two must go together because there can be no price stability without financial stability. We will not accept compromise and will use whatever tool is most appropriate.
I also don’t think our mandate is too broad. Because our mission is price stability. To achieve this, we also have to consider where the economy is going, the risks that lie ahead, and how we respond to them.
For example, to the critics who say that climate change should not be on our agenda, I would say that it is now part of the economy as well, one of the risks that is on the horizon.
Critics will now say that the ECB need not worry about the outlook and that its job is to deal with short-term problems. Unfortunately, the horizon gets closer every year. We must also be careful not to stray from our mission of stabilizing prices.
strongly agree with the euro
tagesschau.de: You said — if we look at the entire 25-year period, the average inflation results are quite impressive. This is not the case if we only look at the past few years. Are you and the Council disappointed that this has happened?
Lagarde: The entire world experienced an unbelievably massive shock. Not long ago, in early 2020, the economy faltered. Sometimes it stops completely, and many people stay at home. This came as a huge shock to all of us. The supply and demand sides are completely disrupted, as are savings and investments.
Then on top of that was the horrific and unacceptable Russian invasion and war on Ukraine, followed by the Russian government-induced energy crisis. As a result, prices rose and inflation surged to levels not seen in decades. We have to adapt very quickly to this situation.
If you ask me if I’m happy with where we are: no, I’m not. I will only be satisfied when we achieve our target of 2% inflation over the medium term. We haven’t. But we will make it.
idea of a common europe
tagesschau.de: The ECB is a European institution and therefore very important to the idea of a common Europe. To what extent have the ECB and the euro advanced this project?
Lagarde: The European Monetary Union and the European Central Bank, and the entire Eurosystem working with them, have led to a unique identity among Europeans around the euro.
We speak different languages. My German is not very good and your French may not be perfect, but we have the same currency in our pockets. We have the same notes, the same coins, we process payments in the same currency.
In this sense, European unity was created and real. she won’t leave. When I ask my kids or grandkids what they have in their small savings account, they say: Euros, of course. You don’t know the difference. This is an element of our great solidarity as Europeans. This is very expensive. We have to protect them and take care of them.
“Paper money is here to stay”
tagesschau.de: Finally, let’s look ahead: how do you see the main challenges facing the ECB in the coming years?
Lagarde: I think we have to keep adapting. We don’t want to give away what we have created. So there will still be paper money. But we have to think carefully about what happens next. As we enter the digital age like so many other things, not to mention a society affected by artificial intelligence, I think it also has a threatening side, and the euro and central bank money must be prepared for this.
That is why we are working very hard to be able to deliver a digital euro when needed and to ensure that no other currency in the world can replace the euro, nor can any other institution. The European Central Bank occupies. Because it is an element of European sovereignty.
The interview was moderated by Mr. Klaus-Rainer Jackisch.