Transcription
President Lagard, thank you so much for joining us on Euro News at this very pivotal time for Europe. This is a transformational moment in so many ways when you look at the economy, the geopolitics, a war that is still going on, uh, in this continent and then, of course, many other forces like the AI, which could have severe implications in the way that we live, that we work.
Ultimately, when you put all these factors together, where is this continent going? It's navigating all those changes and it's, um, doing it with, I think, an agenda of significant reforms that have to be implemented with a road map which has been designed a couple of years ago now by, uh, my predecessor Mario Draghi and Enria, and where we just have to implement collectively what will make Europe more competitive and more fit for the 21st century, which is, as you said, fragmented, different geopolitically, and obviously to be transformed significantly by artificial intelligence on steroids.
>> What do you mean by on steroids?
>> I think that artificial intelligence is going through accelerated phases of development. So people will talk to you about Gen AI.
>> They will now talk about, uh, ASI, super intelligence. And I think that we all have to adapt to it. But we also have to be mindful of the goods and the bads. By good, I mean improve productivity. By bad, what will be the consequences on us as a society, on the labor market in general, what impact will it have, and we have to prepare for that.
On the AI, very much reflects the conversation about the geopolitics. Many would say this is now a two-track competition. Is the United States and China, the EU will not be able to compete at that level? Is that a fair assessment? And I wonder, certainly in this town of Brussels, there's a lot of hype around Mistral. This is almost seen as a strategic asset. Is it wise to bet everything on a single company, or do we need an ecosystem around AI?
>> There are two very big champions in terms of AI development and hyperscalers. The United States and China. There are countries in the European Union which are regarded as third in the race. I think the question is how you define the race and how you make sure that you are not held hostage to certain developments that are critical and that you have some leverage on elements of the of the supply chain. Uh, Mistral is obviously a champion in its own way. And I think that if the Europeans decide that it's in their collective interest to focus on Mistral, for instance, but maybe a couple of others because you don't want to have just plan A and nothing else, but that you focus on, uh, having sovereignty over developments so that you can make sure that your clouds, for instance, is possibly of a European, uh, standing nature and sitting that some of your artificial intelligence devices, some of the tools, for instance, are critically made in Europe, invented in Europe. You, you, you bind all these components and you then have a good dialogue with those who are ahead of you in other areas. But I think it's a question of really linking, binding, and making sure that we protect some of our interests and leverage those in order to better negotiate.
>> And my impression is that you don't like to lose and you want Europe to win. So what is the recipe when you talk to finance ministers, uh, in Brussels? And, and I wonder, you mentioned Mario Draghi, I wonder if you speak, uh, frequently, if there's a regular communication with him. What is the recipe that you put on the table?
>> I think we share the same objective, um, that Europe wins, that Europe is competitive, that Europe leverages its incredible potential, the market, the talent, the capital, the savings. And I think that, you know, if I had two words for the finance ministers, whom I love, and I was one of them, it's, uh, action more than words, and it's accelerate more than procrastinate.
>> Do you have to do that at 27, or can you do it at six? As a head of the European Central Bank, I presume you would like to maintain unity at all levels. That is what guides Europe. But should that change now?
>> We, we all need to move together. That's the strength. Uh, it's, we are stronger all together. Now, if it takes a smaller number of them to actually move forward and bring the others with them a little later, because they will have experimented, so be it. It's, you know, the, it's, it's a principle that can be adopted that is anticipated by the treaty as well. So, why not?
>> So, move ahead. And to that extent, the Spanish just this week, they presented a plan before the Eurogroup of joint borrowing. The idea of joint debt is very political in essence in Europe. But just on the economic merit of it, they say it will create a more liquid market. It will save money and it will be more efficient. Just on economic terms, is that something that is ahead of the European Central Bank? You say, "Let's look at it."
>> You know, it's more than just economic terms. It's also financial terms because to have a strong, vibrant, and deep capital market, which is something that we all want, at least everybody says. So, we need to also have, we, we need to, well, I think everybody sings from the same hymn sheet, but when it comes to implementing it, it's difficult, and the devil is in the details. But it's pretty obvious that we also need to have a European asset which can, you know, parallel with the US, uh, treasury bonds, for instance. How we go about it, how the moral hazard is addressed, how it's allocated in terms of results to be decided. And I think it's great that a country like Spain, for instance, makes a proposal, puts it on the table for debate, and it's now for the others to say, okay, we like this part, we don't like this, we can address it. So, it's, it's good to actually move forward.
>> So, when you hear these numbers, 800 billion euros, Mario Draghi echoed that, the Spanish seem to be putting that on the table, the French president has said in his view, there are no taboos. That doesn't scare you when you hear 800 billion euros, this kind of money?
>> Look, remember what we did for COVID? That was the amount that was actually put on the table for joint borrowing in order to respond, fund, and to produce the recovery. And, uh, and what was it? RRF? The, uh,
>> Recovery and Resilience.
>> Yeah, Recovery and Resilience Fund. That was roughly the amount. And the Commission went to market. We helped in the process because we act as an agent in that respect. And it was widely, you know, broadly subscribed, oversubscribed. So, I'm not saying that this is the amount. I'm just saying that to go with a capital market, you need depth, you need liquidity, and you need to entice the savings of Europe onto that market. But we need an instrument as well. And that could be one or an elaboration or an iteration of that.
>> And what's it going to take to convince countries that would say absolutely not, because by the same token, we said the recovery fund legally was a one-off.
>> Yeah, that was said in certain circumstances. I think the circumstances have changed, and it should lead the, the leaders of the various member states to consider and to address what are their concerns. So, I think an ex ante no, over my dead body, is not the best way to deal with it. I think the best way to deal with it is to try to analyze what is too much of a risk and how that risk can be addressed. And the world has changed because of Vladimir Putin, because of President Trump. And we've heard the criticism. The Europeans are weak. They're decaying. Civilizational eraser. They say we are facing that prospect of Europe becoming a museum. Or is it also the Chinese? Is this a combination that has changed, uh, Europe now in the medium term? We got to wake up.
>> You know, first of all, there is nothing wrong with European culture. Uh, and whether it is tourism, whether it is museums, whether it is attracting people to a place which has a vibrant culture, that says museum and the Europores.
>> Well, I will tell you the algorithm I wanted.
>> I'll tell you something. If you visit a few industrial entrepreneurial centers, including in the field of artificial intelligence, including in the field of high-tech, you would be surprised that this is not a museum. This is a very, very active, um, and and rich with talent economy. But the key thing is to make sure that money goes in the right direction. Money should not necessarily leave Europe. It should stay in Europe to finance initiatives.
>> And ultimately, what is the biggest driving force? Is it President Trump? It seems to me when I look at NATO and the G7, the Europeans have now decided we are not going to publicize a divorce, but we understand the relationship is changing and we've got to do our own thing. And when it comes to China, is that also pushing these changes?
>> You, you know, there's a lot of criticism around concerning fragmentation and the change in the geopolitics. But if anything, it has certainly led the Europeans to look at their own forces, to look at their own weaknesses and try to address them. So I think that rather than criticizing the rest of the world or putting the blame on one or the other leaders, I think we have to really focus on us, see what strength we have, and we have a lot of those, leverage them and try to address the weaknesses. I think there are some low-hanging fruits. The capital market is one that is not such an easy one, but there are components that are low-hanging fruits. And I'm delighted to see that both the Commission and the Irish presidency want to move further and faster on this front.
>> And we've seen that this week with the digital euro. I have, and I have to ask you, it may seem a trivial question, but what is the digital euro? Because on the stance in Brussels, I've heard MEPs who say this is a way to kill cash, and the head of the European Central Bank wants to control our every move.
>> Oh my gosh.
>> What's the digital euro?
>> Absolutely not. Let me first, you know,
>> You're not Big Brother.
>> Celebrate the fact that the Parliament has endorsed massively the mandate for this tree discussion that will take place and hopefully will be concluded by December. But let me go back to that. This piece of legislation will actually produce two results. The first one is that it will make, uh, cash and the digital euro both legal tender, which means that nowhere in Europe can anybody say to anyone, sorry, I'm not taking your banknotes. I'm not taking your European coins, because now it has legal tender. It has to be honored. So cash is actually elevated to this legal tender level where nobody anywhere in Europe can say, I'm not taking your money because it is banknotes. No. So banknotes are secured and protected. And by the way, before the end of this year, in December, '26, we will have a set of proposals that will be the new design and the new face of our banknotes so that there is a close link between you, me, and the banknotes. So that's on the banknotes. So no, cash will not go away. Cash will be rejuvenated. Digital euro, we need to move into a digital world. You book your trips using digital. You buy your transportation ticket using, uh, digital. You buy, you buy digital means whether you do your grocery shopping or whether you buy your clothes. We need to have also central bank money. For the moment, it's only banknotes, but we need to have it in digital form. And if it is cheaper, if it is faster, and if you can use it throughout Europe, even better.
>> And, and the overall question, however, is how is that going to serve the euro competitiveness? Because there is a real competition now for who will be and who will run currencies in the future. Is it still a dollar story? Dollar is king. You also see the Chinese heavily pushing for their own currency.
>> The best thing I know is a European solution. At the moment, we do not have that. So if you pay, in most instances, 60% of the cases, you use payment infrastructure that is under foreign capital. So we depend on predominantly US, but also, uh, sometimes China networks to organize payments. We need to have a European solution because we want to be sovereign at home. So that's what the digital euro will do because you will have digital euro for retail, when you go to the shop, when you buy with a friend, when you want to share a bill. But we will also have what we call wholesale, uh, digital euro, which will enable the banks to organize their transactions in digital form as well.
>> And some expected, because of the major changes coming out of the US, that we would see a sort of move away from the dollar and that the euro could benefit from it. The numbers a year later, they show minimal pickup. It should have been, some would argue, a much stronger effect to cash in those inflows. Is this a root of concern that even with this uncertainty, the euro was not able to capitalize on it, or would you say, look, this is a 20-year story. I can promise you in 20 years, that share will be much higher.
>> I would never promise anything because there is so much uncertainty and those, those movements take time. What we have seen in history, when the sterling pound, you know, was gradually replaced by the US dollar, it took that long, if not a bit more. So what I'm saying today is that the, the euro is a solid currency. 25 years ago, soon 30 years ago, people were saying, ah, it's dead on arrival. It's not dead on arrival. It's solid and strong. Absolutely, absolutely. So it is solid and strong. The European Central Bank is well-established, credible, and highly respected. The monetary union is a force, but it is not enough. We have to go beyond that. We have to be credible from a security point of view. We have to be solid from an economic point of view with lots of trade agreements. This is in process, and we have to make sure that our institutions are solid and that the rule of law is respected. But I would contend that the euro has remained stable and slightly increasing in terms of support and attractiveness. I hear a lot of noises along those lines.
>> And to that extent, uh, I do have to ask you, going back to the question of, uh, China. There is a message that is legitimate, and that is Europeans are saying, want a fair deal. The numbers coming out of China, when you look at that trade deficit,
>> It's a deficit after a deficit. They sell a lot more than we do to them. When you look at the trade surplus last year from the Chinese, it's another record. There's no indication
>> that they're rebalancing in any way that is fair to Europeans. There's a deadline now in October. What happens if the Chinese do not respond to that deadline?
>> The easy cop-out answer would be, it's not my business. It's the business of the trade commissioner at large.
>> I care very much about Europe, and I care very much about keeping an international trade system in place that is sensible and that is propitious to the exchanges, uh, between, between nations and between enterprises as well. So I think we need to have areas that we know are critically important and that we will not let sort of, uh, fade away to any competition, including China, of course.
>> So your message that a fair deal needs to happen. It's not a fair deal what we have at this point.
>> It's a deal that is predominantly organized under WTO.
>> You still have about 75% of trade conducted under WTO rules. But as far as China is concerned, there has to be a, a, a discussion of adults in the room who are, you know, respecting each other's position and who are going to make sure that it's a good deal on both sides. The Chinese are very good at talking about it. We actually need to walk the talk and see on a sectoral basis what it means, you know, see on a pricing basis what it means, see on a, on a grants and subsidies basis what it means, and see on a financing basis what it means.
>> And will you be monitoring that October deadline? Because some say the Europeans have put themselves in a difficult situation. If they do not respond, they're going to look weak. If they respond, there's a chance of, at the bare minimum, real trade tensions, potentially a trade war.
>> You know, whenever there is a crisis, a deadline, or something really hard, the Europeans are up to it. So, I have full trust that this will happen
>> in October.
>> You know, who am I to say that? I'm not in charge of trade negotiations.
>> They will appreciate the urgency of the matter and the, the need, the need to find a dialogue that is productive on both sides.
>> And, uh, President, for Europeans, you've had to increase, uh, interest rates. You talked about some of the uncertainty facing the European economy. Just for the average European, they see that they're now operating in an environment where interest rates are much higher, uh, than they were used to just a few years ago. Uh, is this the new normal?
>> No, but look, I think what was not the norm was a time when interest rates were in negative territory. It, it just, you know, it, it was an anomaly.
>> It's a total anomaly that if I lend you money, that you will only give me back in five years, in addition to lending you money, I have to give you a bonus on it. You don't pay. This doesn't make any sense. I mean, it, everybody understands that if I lend you money, you only pay me back in five years, you have to give me a little top-up, which is, you know, the term premium and the risk premium eventually. So interest rates go with the payment of money over time. And if you give money, if you lend money over time, obviously there is an interest. So I think we are more in normal times when you have an interest rate. Now, interest rates are determined, uh, with the objective that the central bank has, which is to provide price stability. If you don't have price stability, if you think that prices are going to go up or down, you just completely, uh, confuse as to what you should do, whether you should buy, whether you should sell, whether you should employ, whether you should fire, whether you should invest. So what our mission is, is price stability. And for that, the big tool, especially when you have inflation rising its nose, is interest rates. So we slightly increased interest rates, which are now at 2.25% when we have the latest reading of inflation at 2.8%. Not to say that we align with inflation, because our goal is medium-term. We need to see inflation returning to 2% in about three years' time. And that's what we have with the projections that we, we produced. And on that level of interest rates, which is so key for European consumers, your message is to say, this is the level that we believe will be the base for the months to come. Ultimately, you have to be okay with this. Understand that this is the level now.
>> Potentially even go like higher, depending on how things go.
>> We do an assessment at each and every meeting. We meet roughly every six weeks, and we look at all the fundamentals. We look at the projections that, uh, we have. We look at the estimated inflation in three years, in two years, in one year's time. We look at the underlying inflation. What is it without oil and gas? What is it without food? What is it if you take out the most volatile things? What is it if you take out tobacco and all? We have multiple measurements. Then we also look at how this is propagated throughout the economy and what it produces ultimately in the medium term. And it's on the basis of all that that we say, we are fine, or we should go down a bit, or we should go up a bit.
>> And, uh, Madame Lagarde, I have to ask you, of course, about France. Just a final question. Uh, France is, Junker used to say, it's not just any country. France is France. This is a founding member.
>> And Jean-Claude is Jean-Claude.
>> And, uh, and he is, of course, he, he is. And he also used to say, look, uh, this is a founding member of the European Union. It is systemically important when it comes to the Euro area, but beyond that, it's a country that represents a form of ideals to the world. Is the republic for its citizens? At this point, and this week, we've had now what seems to be now an idea of who will be able to run or not, uh, in which conditions, crystallize. Le Pen will be a candidate. And if I look at polls now, there is a real scenario in which the final ticket, the two final candidates will represent extremes, certainly in the European Parliament. Jean-Luc Mélenchon is really on the left in the European Parliament. She is on the Patriots for Europe, a creature created by Victor Orbán to change Europe. When you look at that final ticket, and it is a possibility, do you say, yes, it is an existential threat to France, and therefore it is an existential threat to the stability of the European economy?
>> You know, I try to look at all member states without diving deep into the politics of anyone. Of course, as a French, I have my own views. I keep them to myself. But what I very much hope is that the democratic process will continue. You know, in politics, the next, you know, eight months is eternity. So, so many things can happen. We will be monitoring. We will be looking at the risk level. We will be looking at all that carefully, and we hope that reason will always prevail, and that France will appreciate, whoever is the leader for France, that it is one key member of Europe, and that Europe is the only playground within which member states, nations, even France, can actually play a significant role.
>> On the European voice. Some would say that is the anomaly at this stage. There are many, many in Europe who feel proud of being Europeans, and no politician at this point seems to be able to tap really into that appetite for a political offer that really puts that upfront. Uh, are you to find that bizarre that in France, no one is occupying that space? And some would argue maybe you should occupy it?
>> Well, I will certainly explain, to the extent I can, uh, you know, why the European dimension is so critical,
>> in a campaign or in your role. I will explain that in whichever capacity I will be most efficient.
>> It's all open for you at this point.
>> I'm not a candidate for anything, but I'm very keen that Europe is protected, that Europe is the framework within which member states operate, including France.
>> Well, President Lagarde, thank you so much for joining us on Euro News.
>> Thank you very much.