Christine Lagarde, Director of the ECB: “Our primary objective is price stability”


Faced with a crisis that is pushing inflation in the eurozone to record highs, European Central Bank (ECB) President Christine Lagarde set a decisive tone on Wednesday at the Atlantic Council and Frankfurt Forum of Atlantic-Brücke on US-European geoeconomics, pledging to rein in prices through deliberate and deliberate policy.

“We will do what we have to do, which is to continue raising interest rates in future meetings,” she told moderator Maria Demertzis, deputy director of Belgian think tank Bruegel. .

While acknowledging that such measures could slow economic growth, Lagarde said failing to act would “damage the economy much more.”

Here are the key takeaways from the Frankfurt Forum fireside chat with Europe’s biggest banker, which kicked off the one-day event:

Inflation has two faces

  • Lagarde said the persistent price increases had taken many economic officials by surprise, as they assumed inflation during the post-pandemic economic recovery was only “transient”. She added: “In the playbook, supply bottlenecks eventually go away; energy prices eventually come back. Well, that didn’t happen.
  • Accelerated by Russia’s invasion of Ukraine, today’s crisis, Lagarde said, has been “more persistent and on a scale that no one expected.”
  • She also distinguished the causes of inflation in the United States, where it is demand-driven, and in Europe, where it is supply-driven (and caused more by energy). The latter, Lagarde added, is “much more complicated because monetary policy alone cannot reduce the price of gas.” [and] can’t stop the war.

meet the moment

  • By steadily raising interest rates in regular meetings, Lagarde said the goal would be to bring inflation, which hit a record 9.1% in August, down to 2% over the medium term.
  • But she added that an overreliance on such goals in these uncertain times “would be a strain and not good communication”. Therefore, Lagarde said, all decisions will ultimately be made based on what is known at the moment. “It’s probably a lot safer and a lot more accountable to our mission to be data-driven and decide on a meeting-by-meeting basis.”
  • The ECB chief also presented the new Transmission Protection Instrument (TPI), unveiled this summer, as a tool to streamline banking policy in the eurozone to avoid financial fragmentation. “We believe that not only do we have to implement monetary policy, but we also have to ensure that monetary policy is applied in all member states.”

Can the euro become king?

  • Asked whether the euro can play a greater global role as a reserve currency, Lagarde said that while the size of the eurozone economy and the stability of its institutions are major advantages, it remains insufficient in terms of the “depth of its capital market”. ”
  • Continental leaders have pushed for the idea, she said, but few “are actually moving forward with the project of actually realizing a European capital market that would be a union capital market.”
  • So far, Lagarde said, rivalries between authorities overseeing these markets have hampered that goal. “We are not helping our cause to be stronger and more powerful as a currency if we continue to deal with a fragmented market.”

The future is digital

  • As the ECB continues its transition to a digital euro – you can follow its development with all central bank digital currencies (CBDCs) around the world with the Council’s CBDC tracker – Lagarde (who praised the Council’s tracker ) said privacy remains a top concern. Consumers are concerned about scandals involving companies that have collected payment data and then “monetized that data by selling databases.”
  • Lagarde said that kind of data is “none of our business as central banks” and argued that the ECB will not preempt the public’s desire for a CBDC. “If Europeans don’t want it, then we shouldn’t go,” she said. “But we have to be ready if they want it, because we offer the guarantee that this data will never be exploited for commercial purposes.”
  • Any progress towards a digital euro, Lagarde added, will need to be done in close coordination with the US Federal Reserve and others. “We have to compare notes,” she said. “We have to check what the requirements are. We need to understand what are the ideal supervisory and regulatory mechanisms so that we have…systems and currencies in digital form that can talk to each other.

Dan Peleschuk is the editor of The New Atlanticist at the Atlantic Council.

Further reading

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Dan Peleschuk

Image: European Central Bank President Christine Lagarde speaks at the Atlantic Council Frankfurt Forum on September 28, 2022. Photo by Stefan Krutsch


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