Watch the full event
Speaker
Christine Lagarde
President, European Central Bank
Moderator
Frederick Kempe
President and CEO, Atlantic Council
Introduction
Josh Lipsky
Senior Director, GeoEconomics Center, Atlantic Council
Event transcript
Uncorrected transcript: Check against delivery
JOSH LIPSKY: Good morning, and welcome to the Atlantic Council. I’m Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. And it is truly my honor to welcome you today to our AC Front Page conversation with the president of the European Central Bank, Christine Lagarde.
This morning’s event keynotes our series of interviews with leading financial policymakers during the IMF-World Bank annual meetings. Both here at the Council and live from our studios inside the IMF, we are hosting fifty conversations this week on a range of issues, from China’s economy to digital currencies to the future of the Bretton Woods system.
And I wanted to take a moment this morning to explain why we’re doing that. When we launched the GeoEconomics Center nearly four years ago, it was founded on a simple premise: Finance, economics, foreign policy and national security are deeply interconnected. The events of the intervening few years have proved the point. Think of the pandemic and the resulting supply-chain shocks. Think of Russia’s illegal invasion of Ukraine and the way the tools of economic statecraft have been deployed by the G7 to respond.
This center, through our research, our convenings, our fellowships with young economists, has sought to be the place that delivers new solutions for the challenges of our time. In fact, it was on this very stage two years ago that US Treasury Secretary Janet Yellen delivered her friendshoring speech, just before the IMF-World Bank annual meetings.
She called upon all of us to channel the spirit of Bretton Woods, to remember that 44 countries met in New Hampshire not after war but during war, six weeks after D-Day. She said at the time that they sought to build the future they hoped to win.
And so the IMF and the World Bank to us are the quintessential geoeconomic institutions. They are proof that even in crisis, international collaboration works and can deliver something better than what came before. And there is no one who more embodies that principle than our guest today.
Time and again over the past two decades, President Lagarde has been called upon to lead in extraordinarily difficult moments. In 2007 she became French finance minister, the first time a woman was appointed as G7 finance minister. Only months into the job, she helped not just her country but the rest of Europe and her counterparts here in the US navigate the global financial crisis.
In 2011 she became the first woman to lead the International Monetary Fund. Here she was asked to help manage the unfolding eurozone crisis and strengthen and stabilize the IMF after a difficult period.
In 2019 she became the first woman to lead the European Central Bank, just before a global pandemic and a land war in Europe would send shockwaves through every economy in the euro area.
In each of these roles, she demonstrated what true leadership looks like. And on a personal note, for me, the opportunity to work for her at the IMF was an incredible honor, as I know it is for all those who have had the chance to learn from her. And many of them are here in this room.
So it is truly my pleasure today to welcome President Lagarde back to the Atlantic Council as she joins the president and CEO of the Atlantic Council, Fred Kempe, for this special conversation.
Fred, over to you.
FREDERICK KEMPE: Thank you.
So, Madam Lagarde, first of all, you trained Josh really well.
CHRISTINE LAGARDE: He came with high recommendation from you.
FREDERICK KEMPE: So salute to Josh and his remarkable GeoEconomics team; another amazing week you’re putting together. And you’re putting it together as we dismantle our offices here.
Good morning to all of you for this, our last major event at our old headquarters. We’re already moving into our new headquarters at 1400 L. I think you’re going to be amazed at the new convening space.
And good afternoon in Europe. Good evening in Asia. Hello all over the world. We’ve got people tuning in all over the place because they want to hear what you have to say. So if you have questions we’re going to do them online today. All those in the audience live here can send them in through your phone if you like, and it’s AskAC.org. Send it to AskAC.org.
Let me get started with monetary policy, which seems like the right place to start with you, and I’m really interested in a situation where you’re looking at inflation coming down. One point eight percent in September. It was as high as 10.6 percent October 2022.
So that’s the good side. The bad side is growth is slow. In Germany it could be negative this year, probably will be negative this year, and they may be on the edge of a recession.
GDP outgrowth—growth outlook forecast under 1 percent for the euro zone. As you weigh these factors looking at future decisions how do you weigh inflation coming down but growth—which is a good thing, but growth being as slow as it is, which is not a good thing?
CHRISTINE LAGARDE: Thank you, Fred. Thank you, Josh, very much for your way too kind introduction and it’s really a pleasure being here.
I was wondering whether you follow a tradition that is often observed where when you leave a place you allow anybody who is here for the last time to pick up something from the—
FREDERICK KEMPE: That’s the end of our program today.
CHRISTINE LAGARDE: No, but it’s wonderful to be back at the Atlantic Council and congratulations for having expanded so much the scope of your work and your research, bringing together geopolitics, economics, and security under one single roof.
Back to your question, and thank you for starting with monetary policy because this is really my business. So at the European Central Bank we are driven by a mandate which is pretty simple and straightforward, which has a primary objective which says price stability.
It’s upon us to define what it is and we have in our last strategy review defined it as 2 percent medium term symmetric. So we, first of all, look at inflation, at prices. We dissect inflation as much as we can and we try to distinguish what is sort of headline inflation, which is what is felt and resented sometimes by people, from what is permanent, from what is temporary, to really understand where it is heading and how our decisions on interest rates in particular are going to affect inflation.
So that’s what we look at primarily. But, of course—and we are—at this point in time we are rather satisfied with the progress made because, as you just mentioned, we started off back in October two years ago at a reading of 10.6 percent on average and we are now below 2 percent for the moment.
We have reasons to believe that it will move up again above 2 percent in the next few months but it’s really good progress that we have contribute—we have largely contributed to.
Growth. So we are attentive to growth, of course, because it impacts on inflation and it is that impact of growth on inflation that we are attentive to. It’s different from the Fed. The Fed has this dual mandate of price stability but also growth, economic activity, employment. The ECB does not have that. We have a primary mandate which is price stability.
FREDERICK KEMPE: And so let’s get to European competitiveness and growth. Your predecessor Mario Draghi just released a major report on the future of competitiveness. As Josh said in his opening, you’ve not just been in your current job as a central bank governor but you’ve been a minister in France. You’ve been the head of IMF. You were in the private sector for twenty years, and so you know that it all links together in how competitive a place is.
He raised many issues that fall on the fiscal side—not your job—but the ECB does play a role in financial regulation of capital markets. You have urged people to swiftly follow up on Draghi’s plan, I think particularly on capital markets. But I guess the question behind this is, how concerned are you about European competitiveness, and what’s most urgent in the Draghi report?
CHRISTINE LAGARDE: Well, first of all, his report is comprehensive, analytical, documented, and, as I said, a severe but just diagnosis of where Europe is. From my position, as president of the central bank, I’m particularly attentive to three directions that he’s identified. The first one—because they matter for monetary policy.
So the first one is productivity. Europe lags in productivity way behind the United States. Just to give you a number, between 1995 and, say, 2020, US productivity has increased by 50 percent. Europe, productivity has increased by 28 percent. So Europe is lagging behind in terms of productivity. That’s objective number one, improve, catch up, and identify which sectors are going to drive productivity. When you look at the gap between 50 and 28 percent, you see that a lot of that results from the tech sector. Very obvious.
Second item, which he also identifies, is energy costs, and what can Europe do about it. If you look at the price of energy, it’s about two or three times higher in Europe than it is in the US If you look at the price of gas, it’s four to five times higher in Europe than in the United States. So are we suddenly going to find oil, find gas? Do we actually want that? No. What he identifies as the way forward is rapid and smart decarbonization of the economy so that Europe can lead in terms of non-fossil energies, where we are a little bit ahead of the game—with caveats—but which would lead to a much cheaper source of energy once the investments are made, once the transition is completed. And which would also be a good way to adapt—to adapt to the climate change impacts that we are suffering more and more by the day.
The third dimension which he identifies as well is digitalization of our economies. And that is one where the productivity gap is obvious, and where a collective endeavor by the Europeans is called for. What is needed behind it and why does it matter to us, you know, in terms of monetary policy, is the financing. To progress in digitalization, to move into the innovation journey that is needed for that, you need capital. And you need capital that is prepared to take risk. This is not something that we are very good at in Europe. If you look at the volume of venture capital that is raised in Europe, it’s minimal relative to what is raised in the US, or even China.
So he advocates, and I have advocated before that myself, for a capital market union that is common to all, at least, countries of the euro area, if not the whole of the European Union. And for that we need a single, integrated market from a regulatory point of view, from a supervision point of view, with common trade and post-trade infrastructure, where we are completely scattered all over. So those are the three directions where it matters to us—improved productivity, of course it matters to us, especially with an aging population as we have in Europe. Cheaper energy. Of course it matters, because it’s clearly one of the domain that can shock our economies, and has shocked all our economies but Europe in particular recently. And digitalization, because there will be productivity improvement as a result as well.
FREDERICK KEMPE: So, coming back to the core question behind this, how worried are you about it, we’ve known that these things need to be fixed for a long time. And so you look at the Draghi report, and you can’t help but embrace it. But how does one now—what would be different now that one would actually execute on something like capital markets, when one hasn’t before?
CHRISTINE LAGARDE: You remind me of a famous Margaret Thatcher comment. You know, don’t tell me what to do, tell me how to do it. And that’s exactly where I think Europe is. Because, yes, those things have been identified—probably in a more piecemeal way. One of the great values of the excellent Draghi report is that it brings it all together by someone who’s been in all positions. National central bank, so he knows about the territorial aspects of some of the reforms. He has been president of the European Central Bank before me, so he knows how bringing everyone together is necessary and relies also on other unions than just monetary union. And he’s been president of—prime minister of Italy, so he appreciates the politics that is behind it. So value is comprehensive by somebody who has a holistic view of the issues.
He doesn’t go, in my humble view, deeper enough into the action list, what needs to be done. And that’s probably not—you know, it’s—this is now going into the weeds and rolling sleeves up and getting the job done, but this is what the European leadership at all levels of institutions will have to do. How do you go about a capital market union? What do you need to tackle first? Who do you need to bring around the table to say, OK, you have your territory at the moment, it’s not a question of taking it away from you, but bringing it to a level where major operations, major issuance, will be taken at a different level? So all this needs to be done, and the urgency of the matter is now.
FREDERICK KEMPE: Thank you for that very clear, clear statement.
So I won’t—we don’t want to turn this into a press conference; that’s not the purpose of the Atlantic Council. But I do have one follow-up question on your first answer, from Mark Conahan: Is it appropriate for markets to begin pricing in an aggressive rate-reduction path in anticipation for economic data even when the ECB’s forecasts seem more sanguine? And this really gets to the point that if you look only at the inflation data you may go in one direction. It’s not your mandate to look at the economic data, but you’ve said how much it’s linked. I think the real question behind this is: Are you being too sanguine?
CHRISTINE LAGARDE: What we have done since last June on the basis of the data that we had and our baseline, we have gradually cut interest rates once, in June; then we held, in July; then we cut again, in September; and we cut again, in October. So we do not have a linear, systematic sequence that would be, you know, the way to go.
We have reiterated many times—and I’m happy to do it again, because it’s really the way it works—we are data dependent and we look at everything that’s available. And we analyze those data on the basis of three key criterias, which include the inflation outlook, the underlying inflation, and the transmission of monetary policy. And when we last cut, in October, we were confident on the basis of the data that we were receiving and observing that the disinflationary path was underway and that we could continue to dial back the restrictive monetary policy that was in place—that is in place.
But of course, we need to be cautious. We need to be cautious because data will come—will come up and will indicate to use what is the state of the economy, what is the state of inflation, of underlying inflation, and there will be a judgmental aspect to our decisions. But we will, indeed, have to be cautious in doing so.
FREDERICK KEMPE: Thank you for that.
So from the immediate to the generational question, you’ve delivered a truly fascinating speech last month at the IMF, and you said central bankers today—and any of you who have not read it, you should go and read the whole thing.
CHRISTINE LAGARDE: Oh, thank you.
FREDERICK KEMPE: As you know, I’m an amateur historian as well as a think tank leader. But you talked about how central bankers today have better tools to manage structural changes than the 1920s, even if some of the headwinds are similar. Here’s your quote: “Two specific parallels between two ‘twenties’, the 1920s and the 2020s,” which I found fascinating. “Then, as now, we’re seeing a setback in global trade integration and a stride toward progress in technological progress.” So AI on the one side and decoupling/derisking. I would add a third element to this that was there in the 1920s, which is a rising geopolitical risk.
So we all know how the 1920s ended, which is the disasters of the 1930s, whether it was the Great Depression or whether in the end it was world war. What makes you more confident of our challenges today? You know, if you’re looking at the 1930s versus the potential 2030s, how do we avoid wrong turns at this point?
CHRISTINE LAGARDE: OK. Well, each one of us has to do what one has to do. So you are the historian and you can do the sort of geopolitical comparative analysis between the 1930s back then and the 2030s now. I will not venture in that area, because I have to focus on what impacts monetary policy. And you would take me into too political direction.
But what gives me more confidence today—maybe it’s twofold. One is, if you look at trade, back in those days, in the 1920s, trade went down significantly. In a couple of decades, trade went down by 20 percent—down. The numbers we have on trade are not downward. They are up. So if you look at the forecast by the IMF for the next couple of years, it’s an increase of trade. I think it’s 3.1 next year and 3.4 the year after.
So we are not in a world where trade stops and trade declines. We are in a world where trade continues. But it continues in a different way. And I think we have to be attentive to the composition and the distribution; so no less trade, but trade with other partners, trade in a different risk distribution, if you will.
It’s the whole, you know, strategies of corporate to have China plus one or to have plus one, but certainly to continue to use the world in order to benefit from elasticity or in order to benefit from larger market outside home base. So I don’t think that trade is here to go on the basis of the information that we have and the analysis that we can conduct.
I think the second reason I’m more optimistic is that central banks in those days, they exacerbated the problems because they were operating within a rigid framework. And I think that we don’t have that rigid framework anymore. I mean, the gold standards and the reference that currencies had vis-à-vis each other with gold as the standard is no longer with us. And we have invented, over the course of the last few decades, a much more flexible system which allows for that room to maneuver in a less brutal and rigid way on the economies.
Second, still in that monetary toolbox that we have and the way that framework is organized, inflation expectations is one of the major compass that is being used in order to make sure that inflation comes back to that target that most of us around the world have of 2 percent, more or less.
So those are two reasons, in my field, that give me hope that those twenties, while there are interesting similarities in terms of decline of trade and massive technology breakthrough, will not give rise, I hope—and I’m sure you do as well, Fred—to the thirties.
FREDERICK KEMPE: Thank you for that, because the saying, those who forget history are condemned to repeat it, I hope you’re right.
I’m going to ask for a visual aid here from our AV team, because I’m going to talk here about central-bank digital currency, which I know is, you know, something of a passion of our GeoEconomics Center here. We’ve studied central-bank digital currencies closely. What you’re seeing right now is one of our most clicked-on and most-viewed webpages of the Atlantic Council, which tells you what geeks follow the Atlantic Council. But the ECB is currently in a two-year preparation phase of the digital euro, so you’re testing it for real-world-use cases.
Two questions from this, really. What are the factors that are going to lead to a decision on whether a digital euro will be deployed at the end of the two years? Aligned with that is you’ve made an argument for digital euros, a European sovereignty issue. So I’d like you to elaborate on this.
So I guess there’s actually three questions, those two questions, and then the third is we’ve been pushing for the US participation and leadership on this issue of digital assets. As a peer central bank, how do you view the role of the US on central bank digital currency? So it’s really a three-part question on digital currencies.
CHRISTINE LAGARDE: So your second—or, it was—sorry—
FREDERICK KEMPE: The first one is, how are you going to make a decision to go? The second is, what is the sovereignty issue? And the third is, how does the US play?
CHRISTINE LAGARDE: OK. You know, I might start with your second question, because—no, I’ll tell you where we are. So we are, as you rightly said, in the—what we call the exploratory phase. And it’s a phase that will finish at the end of 2025. So we have still one year to go. And at the end of 2025, provided that the legislative process is completed, then the governing council of the euro system will decide to launch for real or not.
Why do I say the legislative process? Because in Europe, it follows this two-prong approach that hopefully will work, and do work at the moment, in parallel, where we explore from a technological and practical point of view how the digital euro will work. And the legislator, meaning the European Parliament, will have to pass a law that will define what the digital euro is, what its threshold is, how it will operate, whether it will be fiat—well, whether it will have tender status, rather, with fiat currencies. And those two tracks are working in parallel.
My hope—because a lot of work has already been covered under the previous Belgium presidency—my hope is—and Hungarian presidency, to a certain extent. But we now have a new European Parliament which has, you know, now a lot of work on its—on its plate, and will look at that, I hope, in the not-too-distant future. My hope is that in the course of 2025, the law will be voted by parliament. We will have a legal framework in which our technology efforts and definition will be inserted. But the two are coming together.
Your second question, which is more fundamental, is, you know, why do we do that? I think the reason we do that is that everything is digital. And what is not digital, is gradually—and more rapidly than gradually—becoming digital. You buy digitally. You we speak digitally. There are lots of things that are taking place that way. So why wouldn’t currency also be digital? I’m going to oversimplify it. You have central bank money, which is essentially, let’s say, banknotes. And that central bank money is critically important for the trust that people have in the system.
The fact that you hold a dollar, that I hold a euro, is—you know, in euro we trust. And we know that that bank note is always going to be honored. It is central bank money. Then you have commercial bank money, which is what commercial banks create by activating, granting loans. And it’s a whole different situation. But if you just look at central bank money, why would it not also turn digital? Why would we always and forever rely on banknotes as our basis for the currency?
So I think we owe it to future generations, and to all of us, to build that alternative of digital currency, which is, you know, to—again, to put it—to oversimplify it, it’s digital banknote. With less total anonymity, which is probably right given, you know, the security that we want to give each other, and the respect that we have for both the confidentiality of information, which we’re working hard so that there is as much privacy as possible, but equally the fact that it cannot be totally, totally anonymous and facilitate the likes of money laundering, financing of terrorism, and what have you.
So, number one, everything is digital. Central bank money should be digital as well. And there are countries in Europe where banknotes are hardly ever used. So we need to have that anchor established in digital—in a digital way.
I think the second reason we are doing that is the fact that payment systems are not exactly sovereign, and more to the point they are very fragmented. In Europe, you know, if you want to pay digitally, there are at the moment thirteen countries that are operating in an isolated manner and which are not linked to the rest of the system. Having a digital euro is a way to actually bring that together on the back of whatever infrastructure will be available, but which will essentially facilitate peer-to-peer point of sales off-hours payment between people in the trade, people between themselves in a cheap, fast, transparent manner. That’s the objective that we have. And I think it’s—you know, if you look after your currency, it’s also a way to really establish your sovereignty, which is what we are all doing.
FREDERICK KEMPE: Well, let’s drill down on the sovereignty issue. Ananya Kumar from our team is asking about the parallel conversations happening about undercutting the international role of the dollar and the euro at the BRICS summit this week. How do you view the geoeconomic role of the digital euro within this context? And perhaps we could add the digital dollar to that, but your business is the digital euro.
CHRISTINE LAGARDE: Yeah.
So I think here we’re touching on two different things. One was the digital euro, which I tried to explain and which we are working on, we’ll continue to work, and we’ll hopefully launch at the end of 2025.
I think what is also important is linkages between payments systems, because at the moment we have too fragmented a payments system around the world, as a result of which if, for instance, people want to remit money back home—and it is the case for a lot of migrants who are working away from home and want to send their salary back home—it takes forever, it’s very expensive, it does funny loop-the-loop circuits around the world for some countries. So interlinking payments system so that people can actually transact easily and cheaply and transparently, so that remittances can go back to the Philippines or to Thailand or to Mexico in a smooth and cheap way, that is important.
And it’s the reason why we in Europe, we have a system which is called TARGET Instant Payment system, which applies to retail transactions and which, within Europe, work in that fashion—fast, cheap, transparent. And yesterday or a couple of days ago, we announced that we were prepared to link that TIPS—this instant payment system—with other instant payment systems around the world, and they are blossoming.
And I would like to pay tribute to your CBDC Tracker, which is really elaborate and top quality. But I think it would be interesting to also track the instant payments systems that are blossoming around the world. If you look at India, if you look at Brazil, if you look at Europe, we are heading in that direction. And it’s a system that should not be closed off or restricted to the G7 countries, for instance. It’s a system that has vocation to open up to multi-countries around the world in order to serve consumers and people who transact in the best possible ways, in the cheapest way, and introduce good competition.
FREDERICK KEMPE: Fascinating. And, obviously, you can’t comment or instruct the US what to do on its own digital currency, but we seem to be a little bit behind on that from that the European—
CHRISTINE LAGARDE: Can I say something on that?
FREDERICK KEMPE: Yeah. Yeah.
CHRISTINE LAGARDE: I will not comment on it. But I think we need to be really attentive to developments around the world. We publish annually the International Role of the—of the Euro. That’s an ECB annual publication. And we follow, you know, in which currency people transact, in which currency they keep reserves at the central banks in which currency they do trade finance. And the role of a currency should never be taken for granted.
Now, of course, the dollar has the dominant role, and has had it for a long time. It’s the exorbitant role of the dollar that Giscard d’Estaing, the former president of France, had identified. And the dollar is at around 50 percent of all those transactions, when the euro is just below 20 percent. But we have to be attentive and careful. And there is—there are rising—there are phenomenons of rising movements concerning gold, notably. I mean, China has been buying gold like never before. Russia is supporting gold because it is extracting a lot of gold out of its underground, and there are clearly attempts to push other currencies. The renminbi is neck to neck with the euro on trade finance.
So I think we all need to be attentive to developments. We all need to be attentive to new technologies. We need to listen to our customers and our compatriots to see what will serve them best with the concern of defending the currency, establishing the sovereignty as it should be by legitimate means, but clearly defending finance.
FREDERICK KEMPE: That’s an excellent answer. Thank you.
So let’s talk a bit about Russia and its immobilized reserves. Six months ago at the last IMF World Bank meetings we’d been through several months of negotiations between the US and EU on the use of $300 billion of frozen Russian reserves.
G7 announced in Italy—brought forward interest income into a fifty-billion-dollar payment, though not yet delivered. It seemed like something as a breakthrough. The CFR—the Council on Foreign Relations—I think it was back in April you were talking about how freezing assets is different than confiscating assets and the global legal consequences of that.
How do you view this new idea? What role would the ECB play now in getting the fifty billion dollars plan over the line?
CHRISTINE LAGARDE: OK. Maybe let me describe what the new idea is so that it’s—we all understand what the difference is with the old idea.
So the new idea that is being discussed is to use the interests generated by those frozen—not confiscated, frozen assets. So this interest generated by the frozen assets that actually belong to the CSD—Euroclear—and to use that in order to serve the debt of Ukraine vis-à-vis the European Union, Japan, the US, the UK. And this is—and, of course, Canada. I don’ t want to forget anyone in that game but, yeah, Canada is also part of the proposal.
So it’s very different from confiscating the capital. What I think the analysis is the interest generated do not belong to Russia. They’re generated by the capital. The links between the CSD and Russia did not provide for any attribution or ownership of those interests as a result of which it is in the books and in the accounts of the CSD—Euroclear—and can be used for the purpose that is intended by the lenders.
So that’s really what is at stake and I think it’s vastly different from saying we confiscate your assets. No, there’s no such thing. Assets are frozen. They will remain frozen as long as it’s determined by those who made the decisions and the interest generated that do not belong to Russia but to the CSD are used to serve the debt of—that is, to Ukraine.
FREDERICK KEMPE: So you’re comfortable with that approach it sounds like. We’re at work—Ukraine’s at work. This is ongoing. Why can’t it move faster and what would be the ECB role in this?
CHRISTINE LAGARDE: No. No. It has moved. I think it was two days ago that the European—I think it was the parliament or the three institutions together have actually decided to issue the loan, which the exact amount I can’t remember—I think it’s thirty billion—that is backed—guaranteed, if you will, in terms of debt services—by the interest generated as such. And I know that other G7 countries are moving in that direction. I think the UK is fairly advanced, as well, and I don’t know about the US You’d have to—you’d have to ask Janet.
FREDERICK KEMPE: Let’s go back to US and China and trade. You talked—it’s one of the overwhelming themes of this week. And so on the one hand you have, you know, European-US tariffs, the danger or potential of more. On the other hand you have manufacturing over capacity of China being imposed on the world.
What are the specific long-term risks of what’s going on with this potential decoupling between Western economies and China? How concerned are you about the Chinese manufacturing overcapacity on the one hand and rising tariffs on the other?
CHRISTINE LAGARDE: I’ll start with that. I think that trade, according to the rules that partners have agreed with each other—meaning essentially the WTO rules—is beneficial for innovation. It’s beneficial for the development of the activity. Has proven extremely good for some countries that have managed to reduce poverty as a result of extended activity and development of the economy, as a result of trade being the major driver. And I think that we all stood to benefit from trade in many respects. So trade barriers, whether they are tariff or nontariff barriers, are likely to have a negative impact on that. On growth, certainly. On—I think it would have an impact on inflation as well. And not one that, you know, would be—would be particularly welcome.
There is clearly overcapacity in certain sectors in China. And we have to remind our partners that there are rules by which we trade, which they have consented when they joined the WTO, and that they have to abide by. And that not being the case, then decisions have to be made. But I think that jumping to the conclusion that the economy will fare better at home because we have a big market, simply because we will raise tariffs, I think is a bit of a far-fetched conclusion that I don’t—I don’t see in the history of large economies. Because when you look at that—you’re a historian—when you look at that, it’s pretty clear that periods of restrictions and barriers have not been periods of prosperity and strong leadership around the world.
So whoever in this country is ultimately the president, I think should at least bear that in mind. The times when the United States has been in strong leadership, and when the economy has been prosperous, have most often coincided with periods of trade around the world and engagement of the country. Because the US economy is such a large and powerful economy, and it has to project in the world on the global stage.
FREDERICK KEMPE: Thank you for that. I’m going to call for another visual aid. And this gets to the question of leadership at central banks and finance ministries. And we’d like to show you the disparity here between—this is our own data visualization, so the team is very good at this kind of thing. Twelve percent of the world’s finance ministers are female. Thirteen percent of the central bank governors. This is fact. You can see it on the chart very strongly. But are there implications for the global economy? Is this something we should fix just because it doesn’t seem right, or is there actually implications for the global economy in this—in this visualization?
CHRISTINE LAGARDE: I think it’s abysmally small and does not reflect the availability of talents and merits that many economists, and macroeconomic experts, and financial experts have around the world. So it does not—there’s a whole pool of talent that is not tapped into, and clearly not reflected on this chart. Thank you, by the way, for putting that in in such a colorful way.
FREDERICK KEMPE: And but so the economic impact is we’re not tapping enough—
CHRISTINE LAGARDE: But, going beyond that, it’s talent—a pool of talent that is untapped. But it’s also a lack of diversity as such. And we all know from, you know, having studied that and practiced it, that diversity is a source of better decision, of more stability, of, you know, better outcome altogether. Whether it’s in the financial sector or otherwise. And I think we should just, you know, learn that lesson, and do it. Just do it.
FREDERICK KEMPE: OK. Thank you for that.
CHRISTINE LAGARDE: I know you do here.
FREDERICK KEMPE: Well, look, first of all, you look at the facts. And if the facts don’t seem right, then you start—you change.
The final question. And I don’t expect you to prognosticate what will happen here in November or give a view on that. But we’re the Atlantic Council. You’re one of the most remarkable transatlantists/atlanticists we know. You lived in the US for a long time. You have a great appreciation of this country and the transatlantic alliance. What message would you share with our American audience about how their decision now and through December 5th can impact not just Europe, but the rest of the world? I’ve had ministers of foreign countries complain to me that they don’t get to vote in the US elections, because they have so much at stake. But what do you think the stakes are in our own democratic process and elections?
CHRISTINE LAGARDE: I agree with them that a lot is at stake, actually. And the domestic decision, that belongs only to the American people, will have ramifications around the world in a very significant way. So it’s not just a decision at home, although I understand the concern is much more at home on inflation and the economy and all that. But it has massive implications outside the United States because of what I’ve just said. The United States is leading in multiple ways and has to deploy its leadership for the common good. That’s what we should always keep in mind.
FREDERICK KEMPE: And maybe then let’s put this a little bit of a different way. For Europe and the US to maintain their leadership role in this inflection point in history, where we’re going to be shaping the global future yet again together, from your standpoint, what you’re doing, what do we need to do better together?
CHRISTINE LAGARDE: I think we need to remember what history has forged between us. And, you know, I don’t want to go back to Washington and Lafayette. But reading their letters, reading the letters that these two men exchanged and how they played a role in structuring that history, which led to this extraordinary country, should always be a reminder that in whichever position, in whichever situation, we need to be together. And I think that there are some bounds of history that is seen on the Normandy beaches, that is seen on the East Coast of the United States, that cannot go to waste. So we are together, and we should stay in this together.
FREDERICK KEMPE: I think Washington and Lafayette is probably a good spot to close. So please join me virtually and also here in the audience in thanking Christine Lagarde, president of the European Central Bank, for this fascinating discussion.
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Further reading
Image: ECB President Christine Lagarde speaks at an Atlantic Council Front Page event held on the sidelines of the IMF-World Bank Annual Meetings on October 23, 2024.
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