The following is a transcript of an interview with Christine Lagarde, President of the European Central Bank, broadcast on Sunday, April 24, 2022 on “Face the Nation”.
MARGARET BRENNAN: We are now joined by Christine Lagarde, President of the European Central Bank, who sets monetary policy, including interest rates for the 19 countries that use the euro as their currency. Madame Lagarde, welcome to the program.
PRESIDENT OF THE EUROPEAN CENTRAL BANK CHRISTINE LAGARDE: Thank you very much and good morning.
MARGARET BRENNAN: Good morning. Good to have you back here in Washington. We often talk about inflation in this country, but inflation is also at a record high in Europe. The Federal Reserve chairman has talked about raising interest rates in this country next month by as much as half a percent to try to gain control here. Why do you think you can wait until summer?
LAGARDE: I think we share the same will, which is to tame inflation, which is to use all the tools we have to do that. But we are facing another beast. When I look at my core inflation, which is inflation that removes the most volatile elements such as energy and food, my core inflation is 2.9%. Inflation in Europe is very high at the moment. Fifty percent of it is related to energy prices. Before the Ukraine War it was already rising, but the Ukraine War has dramatically increased these prices. So we need to use the tools and the order that is appropriate depending on the sources of inflation. If I raise interest rates today, it will not bring down the price of energy. So we have embarked on that journey of gradually eliminating lax monetary policy. So we will stop purchasing assets during the third quarter. High probability that we will do so early in the third quarter. And then we will look at interest rates and how and how much we raise them. But we need to be data dependent because of the sources of inflation we currently have.
MARGARET BRENNAN: You have said that energy, high energy and lack of self-confidence could be persistent here. Does it indicate a high level of concern that we may tip into a recession? And can you raise interest rates without that risk?
LAGARDE: This is the trade-off that the central bank governors are facing at the moment. We must be guided by our mandate, by our goal, which is to restore price stability, which we have all defined as around 2%. So it is – that is the mandate. But at the same time, we must do it in a sufficiently well-sequenced, well-calibrated, for us in Europe, gradual way so that we do not provoke recession. We are currently facing, you know, winds that reduce growth and increase inflation. So we have to navigate between the two, guided by the mandate of price stability and reducing inflation.
MARGARET BRENNAN: You have referred to the war with Russia a few times here, and we have all learned how dependent Europe is on Russia for its supply of fossil fuels. Germany warned that an embargo on Russian gas could cause economic output to fall by 5%, and yet there are calls for total embargoes on Russian gasoline. I mean, is – is it practical? And how much does the policy affect this?
LAGARDE: You know, I think we need to be guided by the purpose we have. And the purpose we have is to reduce and possibly cancel the funding given to Russia to fund the war, Russia’s unjustified, illegitimate war against Ukraine. So we have to adjust the policies, whether it’s sanctions, whether it’s de-SWIFTE the banks, whether it cuts the oligarchs out of the assets and their sources of funding, whether it reduces and ultimately cuts out supplies from Russia in such that we actually reach the goal we have, which is to reduce funding. If we were to take abrupt measures that would lead to an increase in the price of oil or gas around the world that the Russians would ultimately benefit from, then that would not be the right political move. So we have to do it in a sufficiently smart and subtle way so that we actually reach the goal we have, namely to reduce funding. And I think that’s what Europeans are looking at together. The plan to completely boycott coal has been adopted. There’s a lot of work going on regarding oil, regarding gas. And you know, there will be more stories to tell a little later.
MARGARET BRENNAN: You know, in this country, there’s a lot of debate about how much the government owes to the central banks for the inflation we’re experiencing. The United States spent $ 6 trillion on COVID relief, $ 2 trillion of it on President Biden’s watch last spring, when the economy was already recovering. Do you think some of these spending in the US exacerbated inflation because Europe did not use it like that?
LAGARDE: We spent – we in Europe spent less on stimulus. And I think we used differently. We spent pretty much half as much as the US government spent on stimulating and warming the economy. But we also used it differently because I think the focus was mostly on keeping the jobs, not necessarily sending the checks. And as a result, people who managed to keep their jobs alive while not necessarily, you know, went to work because COVID prevented everyone from going to work at some point, they had their jobs. So when COVID was over, they went back to their work. So I think the it-it-labor market that you have right now in this country, in the US, which is incredibly tense, where you have, you know, a lot of jobs that are not occupied, where you have lots of vacancies, we do not have that in Europe at the moment. And the current situation you have in the labor market here in the US clearly contributes to a possible strong inflation and second round effect, where prices rise, wages rise, labor shortages, wages continue to rise and it goes back to prices . That – that’s one of the differences between our two economies.
MARGARET BRENNAN: You have been in key positions through a number of economic crises. How dangerous is this moment that we are in right now?
LAGARDE: It’s a difficult moment, but it’s one where a very interesting phenomenon developed. If I look from my point of view on Europe, the Russian aggression against Ukraine has yielded three key results. It has revived NATO. It’s Easter day. So I’m not … I’m not fantasizing here, but it’s revived NATO. It has united Europeans more than ever and it has strengthened a nation, Ukraine. The price for it is awful. Death, destruction, destruction. And we are all concerned and would all like to help.
MARGARET BRENNAN: OK.
LAGARDE: But it’s a pretty interesting development. And we must be united and decided to actually tackle the situation together because …
MARGARET BRENNAN: I have to …
LAGARDE: – there must be solidarity.
MARGARET BRENNAN: I have to finish that because we’re out of time. We’ll be back.