Transcription
Martin, if I was to lower interest rates, rock bottom, if I was to do massive quantitative easing, which are the the key tools that have been used historically by the ECB, would it change the barriers that I was talking about? Would it facilitate the movement of goods and the provision of services across the member states? No, it wouldn't.
So, it's a great pleasure to be with you, Christina again. Um, uh, I've known you for about 30 years and when I first met you, you were agriculture minister of France and what a career it's been since then. So subsequently of course you were finance and economy minister during the financial crisis uh which was quite an event and we talked a lot then uh then of course managing director of the international monetary fund and now of quite a few years uh in uh um you have been president of the European Central Bank and one can safely say that throughout all that period the world has been very exciting and in way getting even more exciting.
Let's start with what doesn't look so exciting right now, namely the Euro's own economy. It looks as though things are going rather well in terms of your targets, the state of the economy. So, give give us your assessment of where you see the Euroone economy and and how happy you are with where uh monetary policy has brought you.
>> Martin, it's lovely to be with you again. Um, and I would say that we haven't changed much in those 30 years. Well, you've got younger, of course.
>> Yeah. So, I'm I'm used to say we are in a good place. And of course, I talk about our monetary policy. I talk about price stability, which is the primary objective of the European Central Bank. And with a track record of around 2% inflation and a medium-term projection at 2%, I would say again that we are in a good place. Now of course that is in with the landscape of a Eurozone economy which is doing better than was feared. So we keep saying that it is more resilient and that growth is resisting. So you know in the last projection exercises we have upgraded our projections. My suspicion is that we might do that again in December. Now, I'm not going to talk about that because it's uh it's upcoming next week, but the Euro zone area is resisting better than what we had anticipated back in April when the tariffs hit, when the uncertainty grew, when war was raging, uh everyone thought that growth in the Euro area would would fall uh very badly and this hasn't been the case. Uh Europe has resisted. there was no retaliation on tariffs. Uh the euro did not depreciate as we could have anticipated. And I think that when we look at the you know whether it's the the composite uh numbers uh surveys um of manufacturers intentions whether we look at employment numbers record low whether we look at employment participation record high the whole economy is is fairing uh better. Is it as good as it should be? We are I think clo qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu qu quite close to potential but there is a lot to be done in terms of improving the situation and improving the productivity of the Euro area.
I'd like to come in a second to these longer term concerns, but if we look at where the Euro zone is now, are there things [snorts] that worry you a bit? I mean, one of the issues that has obviously been raised, it's not extreme, but even in the case of your own home country, France, is fiscal, the fiscal policy, the fiscal situation. Is that from your point of view in any way critical? Are there issues of that kind, that one in particular, that sort of you feel that it really needs to be fixed quite soon?
>> I think what needs to be fixed soon and I I will come back to soon because I think that's that's critically important is the structural impediments, the barriers, the obstacles that we put in the way of productivity, in the way of innovation, in the way of investment. And we have a special art in doing that to ourselves. It's a bit of a challenged uh set of numbers, but we have recalculated the IMF numbers. We have produced our owns to determine how much self-inflicted tariff we impose on ourselves. Yes. And the numbers are just staggering. It's 110% equivalent tariff on services crossing between member states and 60% on goods crossing between member states. Everybody can debate numbers but directionally that's where it is. We are constraining the traffic of goods the transactions on services amongst member states which are supposed to be a single market and this is what we need to fix and we need to fix it soon because I think that time is of the essence. I did say almost a year ago that Europe was going through an existential crisis. I still believe that we are in the midst of that existential crisis, but I also think that there is a euro and possibly a Europe moment. And if we are smart and fast at addressing those issues, the obstacles that we put in our way and at focusing on having a good and efficient capital market union within the Euro area, I think we have ways to actually transform that Euro moment into an answer to that existential crisis.
>> What you've just said then really interested me because to be honest, when I saw those IMF numbers, I found them very difficult to believe. And if you
>> I did too. That's why I I told the team I said fix
>> but you now are saying and I think it's very important they're sort of basically right.
>> Yes. Yes. So there are some people who challenge them because they say that we have not taken enough into account the taste uh the cultural appetite and and that's a difficult one to factor in in the equation. But even if assume for a second that it it was only half right
>> it is still massive.
>> Yes. And if we could just fix those numbers like the Netherlands, because the Netherlands have actually finded a way to reduce those amounts, we would wipe out the negative impact of the trade barriers resulting from the US tariffs. Actually, if we only did a quarter of what the Netherlands does. So, it's it we have we have a situation which is not good, but that we can address in short order. And of course it's a to some extent these barriers exist or many of them because the politics are still in favor of them. So there there is it's quite a big challenge for governments and for people to get rid of the residual national preference which is obviously in different ways so important in
>> absolutely zone and you know where I sit now as president of the European Central Bank I can see it whether it's banking supervision whether it's regulation on on products uh on services there are principles that are decided in Brussels always blamed but then the real bulk of the added barriers, added obstacles, added requirements, added reporting is generally decided at the national levels because everybody wants to sugarcoat, goldplate and and do just a bit more.
Now, let me move on to some of the longer term issues partly here. Now uh the president of France Emanuel Macron has recently had done an interview and I've been given a quotation um uh of what he said um he said it seems to me that European monetary policy can be significantly adjusted today and he went on to say reasserting the value of the European internal market means we can't let inflation be our sole objective but also growth and employment and that gets us very very uh uh uh close to supporting adoption of the US um twin objective um framework inflation and unemployment equally weighted. Well, we had Europe Europe Europe the EU had a passionate debate on these issues at the time of the law committee in the late 80s and the creation of the Euro zone. It sounds to me as though he's recommending a change in the treaty which but what is your reaction to these I must say quite extraordinary remarks.
>> Martin if I was to lower interest rates rock bottom if I was to do massive quantitative easing which are the the key tools that have been used historically by the ECB would it change the barriers that I was talking about? Would it facilitate the movement of goods and the provision of services across the member states? No, it wouldn't. So, it's it's a good debate to have and it's interesting to consider a possible treaty change. I contend that under the current treaty, we focus on price stability, but we have to take into account growth, employment, innovation, productivity, climate change. nothing has prevented us from taking climate change into account and and quite forcibly so but the rest we take in take it into account as well. So I think the the the key priorities um is to actually get results on the effective internal single market and to and to give it more life and to remove the barriers that we have imposed upon ourselves and that will have nothing to do with monetary policy.
Do you think really that this is a case of political leasers essentially frustrated at their inability to fix the problems you mention and quite intelligent to enough to realize this casting around for some savior and the European Central Bank and central banks quite frequently play that role are seen as the savior but that can be quite dangerous can't it?
Well, central banks are often seen as the scapegoat. That that's that's a fact. And in in in various places around the world, but I think that you know the the duty of a central bank and and its its leaders is is to focus on the mission that was given to us by the governments at the time when they decided that the central bank had to organize the monetary order in a particular zone. And we have a pretty clear mandate which has two you know primary objective price stability secondary objective which is aligned with the economic policies decided by the authorities in Europe and and we do that and you know proof of it is that we are delivering on price stability and we are operating in in an environment which is financially stable as well
>> and if you look around the world and I don't expect you to comment on this but if you look at the US it does appear that you've got a some policies, the trade policies hugely destabilizing and destructive and the and the administration of course starts blaming the Federal Reserve for not slashing interest rates when inflation is above their target. So this is quite a dangerous way for for politicians to go in my view. Um I suspect you agree with that. You don't need to comment further.
Now going to something that is quite a big set of issues. We're just interested in your view on this. One of the proposals that were the ideas that made in the draggy and letter reports is that the euro eur the EU is a huge surplus zone that has [clears throat] excess savings and uh so what should happen is that the savings should be invested domestically. The external surplus of uh of the euro zone should be diminished. Um but there's presumably nothing that the central bank can do about that. But do you think that targeting in some way in macroeconomic policy in the Euro zone, fiscal policy and other or other ways the the the aim of absorbing excess savings into productive investment should be a central part of the growth program of the uh Euro zone now?
Yes, it should definitely be a central part of our growth program because it all starts with money. We have talent, we have innovators, we have people who can develop uh vaccines, who can develop artificial intelligence, but the key thing is for them to have access to enough financing during the second and third round of financing and to to reach the stage where they can go public and and prosper here in Europe, in Europe at large. And I think that you know when some of us say capital market union is an urgent matter that everybody should focus on that's exactly the point. It's not for the sake of uh concentrating powers with Isma or the sake of having a single investment product. It's to say those innovators, inventors who can improve productivity, who can help develop uh new um new drugs, new uh new new ways of of uh operating should be financed in Europe. And instead of having this, you know, massive savings traveling across the Atlantic to be invested in the US and for US investors and venture capitalists to then come back to possibly invest in some selected projects which suits them, we should just indicate that there is a will and there is a way to invest in in Europe. I think by the way that the commission is getting that message loud and clear and I believe that the delivery of the saving and investment uh project that the commission is working on the reinforcement of supervision with more uh power delegated to ESMA are going in the right direction but there is a lot of push back I can guarantee you that in the next six months there will be push back from multiple corners that I can almost identify today that will say well there is no need to do a big capital market union. We're functioning well. We're very happy in our in our corner of of Europe. Let Leave us alone.
Um, would this mean that one possibility is to be substantially more relaxed about fiscal deficits if the increased spending is pretty clearly invaluable investment
>> that the that [clears throat] and this seems to be where the German government is now very clearly going. It will be an implication of this where countries in a reasonably good fiscal position manageable they should be encouraged to spend more provided it is in productive uh I'm not going to go into the defense issue that's separate but in in productive assets you would support that
>> absolutely it's it there's a dual objective one you have to you know have have decently solid stable and compliant public finance but of course you have to invest in what is productive investment and what is going to improve the conditions of growth in Europe. So it's it's directionally it has to be um you know in line with public finance principles that have been agreed within the club but the the spending is needed and necessary provided as you just said that it is in productive domains and will improve the uh the conditions of growth
>> and does that mean more spending at the European level and are you do you think that's a direction that they should be thinking about? I hope you don't mind but I'm going to come to defense now because I think that this is this is the perfect uh direction
>> fits together perfectly.
>> Yes. Yeah. Absolutely.
>> So I know that you know my predecessor and some colleagues argue that we should have that uh you know the equivalent of of the treasury bonds here in Europe and that as a result yes
>> Europe should be issuing jointly severally and d
>> to fund uh to fund defense
>> to fund defense. We did so for COVID because it was a matter of survival and emergency. Defense is equally a matter of survival and emergency. And I think that this is the perfect case in point
>> um point in case to to actually um go for this joint issuance.
>> Oh well that's very important.
>> That's a personal view that I hold. You know it's not been vetted or validated.
>> The official position of the ECB as an institution. Now let's move to the euro, the dollar uh as a global currency. So the broad question I'd start with um do you see what's going on in America, what uh the way the administration is behaving in various ways as an opportunity for the euro to stand up and be a genuine rival for the dollar.
I think the perception of investors has significantly evolved over the course of the last six months.
>> Yes, I agree.
>> If you go back to April I second and sequit and perception of investors is not as positive forthcoming as it used to be regarding investment in dollars. And we did observe a movement out of dollar assets into other investments including euros predominantly hedge funds. Then there was a reverse back. But there is still when you talk to investors when you talk to uh sovereign funds of various corners a reticence now that used not to be expressed. And I think this is very opportune for the euro and for Europe uh to you know deliver on our commitment to stability, price stability, that's our business, financial stability and and um respect for the principles that we abide by which is the rule of law uh the respect of property rights and so on and so forth. And I believe that the euro has a role to play. I'm not suggesting that we should be in that race or competition for uh dominance in terms of currency because these things take a lot of time but I think that from the 20ish position that we hold at the moment in terms of reserve currency
>> share of world currency
>> yeah uh our 52% of um invoicing of transactions around the world we we can we can we can offer more and I believe that when I look at the number of repo lines or swap lines that we are um receiving. Uh it's an indication that member states not member states in Europe but sovereign nations look at the euro as a as a solid currency.
Now one of the there are many issues here don't have unfortunately a lot of times but the in that context um are you now reasonably comfortable with using Russian assets in support of Ukraine given what's happening with America uh or is there still a concern that this might undermine trust in uh in European uh financial institutions and management.
First of all, I think that it's it's our duty as Europeans to continue to support, defend, and act um in in favor of Ukraine. Second, I believe that the scheme that has been put in place and which is going to be debated at the next European Council is the most achieved solution that I have seen so far that would as I understand it because I'm you know I I don't know what is what the ultimate result will be will be but is the closest I have seen to something that is uh in compliance with the international law principles. That's question number one because we have to respect those international
>> principles insisted on that
>> and I think it's you know if if we can explain our position as as it stands um I believe that investors in uh euro denominated assets and in Europe will appreciate that this is not uh a practice that we have to uh deprive people of their property or to remove sovereign assets because it suits us. It's it's a very very exceptional case and it does not remove uh the title of Russia to the assets. I think that's a critical point.
>> Let's move on to um since we're talking about the dollar and the euro. Um there's a lot of issues been raised and I wrote a column about it very recently about the the attempt of the US administration to promote US dollar-based stable coins privately issued stable coins.
>> Excellent column this morning
>> in uh uh in including in Europe which we just discussed. So at what level do you to what degree do you feel that the possibility of this um these coins becoming very widely used in Europe as a threat to put bluntly to stability security and to monetary sovereignty?
>> I think it is a real threat uh to um to sovereignty um and to monetary policy. It is a threat because it is the the intrusion of private money. Um and as I think you pointed out in your in your piece and and extortion of of senorage.
>> Yes.
>> Um, but more importantly, what I'm concerned about is the possibility that some stable coins might use discrepancies between the Genius Act in the US and Mikar, which is the set of rules applying to stable coins in Europe. So that they might use this discrepancy to issue dollar denominated or multicurrency denominated stable coins that could attract European savings. which would not be governed particularly in the situation of redemption, particularly in the situation of reserves, particularly in the situation of resolution which would not be governed by the European rules.
>> Yes.
>> And that could be an introduction of great marketing for um US denominated stable coins which would be backed by US Treasury bonds. So I think that it's it's a matter that evolves very fast where the interests at stake are still regarded as non-sistic but could become systemic and which really warrants uh that people like you as you did look into it and that we all be as vigilant as we can be because those things evolve over time. They're 250 billions today. There might be two trillion uh dollars tomorrow.
>> Some people think it will be. We only have a a little under three minutes, but let's get to the alternatives and perhaps one question which you can answer. Um, and the alternative is a central bank digital euro.
>> Uh, you've got ideas for really rather small issuance. The other is private issuance regulated in Europe by European entities, European banks.
>> Both can be used. Yes. How fero how fiercely are you now going to promote these ideas in this rather disturbing context?
>> We are going to promote those ideas fiercely and and passionately and in particular as far as the one we are de directly concerned the digital euro we are going to push as hard and as fast as we can to get it out.
>> Will it be issued while you're still president?
>> No. No. because no matter what uh given that we are dependent on the European Parliament issuing a bill and then we have technical um checks and and and testing that will take about a year and a half. I'll be gone at the time when it's finally launched and I really hope it will be launched. You know there is a very strange situation at the moment where people can be barred from access to any financing because of a decision made on the other side of the pond. There's the case of the International Criminal Court judges at the moment who have no access to finance. If we had a digital euro in place, that person could use financing in whichever way he wants and and should because he would not be deprived of his financial sovereignty himself. That is the case at the moment. And that gives you one very specific example of how we are not effectively sovereign in our own garden. and uh and the issuance of Eurobbased stable coins by European private entities. What are you going to do about that?
>> You know, if they are if they if they are governed by Mikar, which is the uh the framework that has been uh decided uh by uh Europe, uh this is fine. You know, this is another digital payment that uh I don't really understand the business case for it other than, you know, fear of missing out and and wanting to be part of the game. But if if it is in compliance with Mikar and and protects u the one for one and and has all the attributes required fine.
>> Well, if you look at the US stable coins, I mean the business case seems to be criminal at least a large part of it. Presumably Europe will not want to promote the development of currencies that encourage corruption, criminality, uh fraud. So there are some big issues here.
Absolutely. But here we are really talking about protecting fundamental attributes of sovereignty are they? Absolutely. And unfortunately the US doesn't look right now particularly after the national security strategy um very friendly. So these are actually now quite pressing issues. Um and
>> to give you an example you know under Mikar anti-money laundering countering the financing of terrorism would actually be conducted. Not sure it's the case everywhere.
There's so much more to discuss, but I'm told I must stop now. Thank you very much. It's been a wonderful interview, and I've enjoyed it very much.
>> So have I. [music]
>> [music]