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00:00YOU REALLY LAID OUT WHAT YOU ARE TRYING TO ACHIEVE YESTERDAY AND THE PRESS CONFERENCE. AT THIS MOMENT, WHAT DO YOU SEE AS THE BIGGEST CHALLENGE? MADAME LAGARDE: THE BIGGEST CHALLENGE IS GOING TO BE TO HARNESS ALL THE VIEWS, ALL THE ASSESSMENT, ALL THE CONVICTIONS INTO A DIRECTION THAT WOULD ACTUALLY SERVE THE PURPOSE THAT WE HAVE BEEN ASSIGNED TO, WHICH IS GUARANTEED PRICE STABILITY IN THE ECONOMY. THAT SEEMS LIKE A VERY DRY PROPOSAL. THE WHOLE POINT IS TO ACTUALLY CREATE THE GROUND, MAINTAIN THE GROUND, AND FERTILIZE THE GROUND SO THAT THERE IS GROWTH, SO THAT THERE ARE JOBS AND THE ECONOMIES OF THE EURONET AREA -- YOU ' RE A -- YOU ' RE OUT -- EURO AREA ARE WORKING WELL AND GENERATING VALUE. [AUDIO DROP] -- I DON ' T THINK THAT BE UNDER ANY KIND OF INFLUENCE, OTHER THAN REVIEWING THE RIGHTS, UNDERSTANDING THE REACTION, RESPONSE, THE EFFECTIVENESS OF WHAT WE CAN DO. THE WORLD HAS CHANGED SO DRAMATICALLY FOR THE LAST 20 YEARS. LAST TIME WE HAD A STRATEGY REVIEW WAS IN 2003. THE GROWTH WAS MUCH HIGHER IN THOSE DAYS, INFLATION WAS HIRED. THE PROSPECT OF THE VARIOUS DEMOGRAPHICS AROUND THE WORLD WERE DIFFERENT. THE WORLD HAS MASSIVELY CHANGED. WE DID NOT USE OF SOCIAL MEDIA AS MUCH AS WE DO. > > CAN YOU GIVE US A SENSE OF THE FUTURE TIMETABLE FOR THESE REVIEWS? WILL IT BE A REGULAR THING? MADAME LAGARDE: THAT SHOULD BE DEBATED. THE INITIAL TIMETABLE WHICH WE ARE SETTING FOR OURSELVES, WHICH IS AMBITIOUS, IS TO TRY TO CONCLUDE BY THE END OF THIS YEAR. DECEMBER 2020, HOPEFULLY WE WILL HAVE REACHED THAT PLATFORM OF CONSENSUS ON THE VARIOUS TOPICS THAT WE HAVE. DO WE HAVE TO REPEAT THE EXERCISE EVERY YEAR, EVERY FIVE YEARS, EIGHT YEARS, EVERY 16 YEARS, AS WE HAVE? I HAVE MY VIEWS AS WELL. WE WILL DEBATE THAT WITH THE GROUP TO SEE HOW NECESSARY IT IS, HOW HELPFUL IT CAN ' T BE -- CAN BE. > > MARKETS ARE INTERPRETING THE EXERCISE AS MAY BE HAVING A LITTLE BIT OF A DOVISH TILT. MADAME LAGARDE: I AM NOT A DOVE. > > WHAT SIGNS IT SHOULD MARKETS BE LOOKING AT IN THE REVIEW TO GIVE US A SENSE OF WHERE GOES? MADAME LAGARDE: IF MARKETS ARE INTERESTED IN WHAT HAPPENS IN THE NEXT 12 MONTHS, THEY SHOULD NOT PAY TOO MUCH ATTENTION TO THE STRATEGY REVIEW. WE ARE CONDUCTING TWO SEPARATE EXERCISES HERE. WE WILL HAVE OUR MONETARY POLICY ASSESSMENT AND REVIEW AS USUAL. EVERY SIX WEEKS, WE ALL GET TOGETHER, LOOK AT THE NUMBERS, LOOK AT THE MARKETS, LOOK AT THE VIEWS OF THE CITIZENS IN TERMS OF INFLATION EXPECTATIONS, AND WE DECIDE WHETHER THINGS SHOULD BE VARY ONE WAY OR ANOTHER. THAT EXERCISE WILL BE CONDUCTED IRRESPECTIVE OF THE STRATEGY REVIEW. WE MIGHT HAVE DIFFERENT SIGNALS BUT WE MIGHT RECONSIDER. IT WILL BE TWO DIFFERENT EXERCISES. THE STRATEGY REVIEW WILL BE ON ITS OWN, ON A STANDALONE BASIS. WE ARE LOOKING AT WHAT WE DO IN THE FUTURE, NOT WHAT WE DO NEXT WEEK OR IN MAY OR JULY. > > IS IT A WARNING TO THE MARKETS NOT TO OVER INTERPRET TO QUICKLY -- TOO QUICKLY? MADAME LAGARDE: ISSUE DOVISH, HAWKISH -- IS SHE DOVISH, HAWKISH? I TOLD THEM ON DAY ONE, DO NOT OVER INTERPRET. I KNOW SOME PEOPLE ARE UPSET WE DID NOT SAY MUCH MORE YESTERDAY. . THE STRATEGY REVIEW STARTS HERE, FINISHES THERE. WE KNEW TO DO A LOT OF STOCK-TAKING, LOOKING AT THE EFFECTIVENESS OF WHAT WE HAVE DONE, LEARN FROM OTHER COUNTRIES AROUND THE WORLD AS WELL. WE KNEW TO DO A LOT WE NEED TO TAKE TIME TO REACH OUT TO THE PARLIAMENT, ACADEMIES, PEOPLE INTERESTED IN THESE ISSUES TO HEAR THE VOICES, TO UNDERSTAND WHAT THEIR VIEWS ARE. WE WILL LISTEN TO MARKETS AS WELL BUT THEY ARE ONE OF THE VOICES WE WILL LISTEN TO. > > ECONOMISTS BELIEVE MONETARY POLICY AT THE ECB WILL BE LARGELY ON AUTOPILOT FROM NEXT FEW YEARS -- FOR THE NEXT FEW YEARS. IS THAT A MISTAKE? MADAME LAGARDE: I THINK THAT IS RIDICULOUS. THERE IS A FORWARD GUIDANCE WHICH IS A STRONG WHICH IS SETTING A VERY CLEAR TIMETABLE THAT IS FACT DEPENDENT, BUT LET ' S LOOK AT THE FACTS. LET ' S LOOK AT HOW THE ECONOMY EVOLVES. WE NEED TO BE CLEAR IN OUR COMMUNICATION AND WE WILL BE. DON ' T ASSUME THAT IT WILL BE ON AUTOPILOT. > > YESTERDAY YOU TALKED QUITE EXTENSIVELY ABOUT NEGATIVE RATES. YOU SAID TEARING -- TIERING IS WORKING WELL. IS ONE OF THE SIDE EFFECTS OF NEGATIVE RATES THAT YOU NEED TO SCALE IT BACK? MADAME LAGARDE: WE WILL BE LOOKING AT THE SIDE EFFECTS AS PART OF THE STRATEGY REVIEW. WE WILL HAVE TO LOOK AT IT, OF COURSE. DON ' T FORGET THAT WE NEED TO HAVE A BANKING SECTOR IN THE EURO AREA THAT ACTS AS A GOOD CHANNEL OF TRANSMISSION. > > WHICH MEANS YOU COULD EXTEND TIERING. MADAME LAGARDE: THERE ARE MULTIPLE RESPONSES. WE ARE NOT CONSIDERING THE AT THE MOMENT. > > PRESIDENT TRUMP LEFT DAVOS SAYING HE IS STILL THINKING ABOUT TARIFFS AGAINST GERMANY AND EUROPE IN GENERAL. YOU ARE SEEING GROWTH IN EUROPE. HOW DO YOU MATCH UP THE TWO? MADAME LAGARDE: WE SEE MODEST GROWTH IN EUROPE. WE SEE A BIT MORE MODEST DOWNSIDE RISKS AS WELL. THAT IS PROBABLY THE REASON IT IS SLIGHTLY BALANCED TO THE UPSIDE, BUT VERY SLIGHTLY. WE SHALL SEE. WHAT I WAS PLEASED ABOUT WAS TO SEE THERE HAD BEEN A GOOD FIRST MEETING BETWEEN URSULA VON DER LEYEN AND PRESIDENT TRUMP. IT IS BETTER TO START OFF ON GOOD FOOTING. THERE WILL BE DIFFICULT RELATIONSHIPS GOING FORWARD AND POINTS OF NEGOTIATIONS THAT WILL BE HARD. YOU KNOW, WHETHER THAT ' S TRADE, TAX, TECHNOLOGY, ENERGY. THERE ARE MULTIPLE TOPICS. EUROPE AND THE UNITED STATES HAVE BEEN FRIENDS FOR A LONG TIME. IT WILL NOT GO AWAY. IN MANY INSTANCES, THEY HAVE JOINT INTERESTS. EUROPE OPERATES ON DIFFERENT VALUES AND DIFFERENT SYSTEMS. THAT NEEDS TO BE SECURED AND PRESERVED. > > ARE TARIFFS THE BIGGEST CONCERN THAT YOU SEE FOR THE EUROPEAN ECONOMY? MADAME LAGARDE: IT IS A BIG CONCERN, LET ' S FACE IT. THERE IS A TRADE ENTRY EUROPE -- INTRA-EUROPE, AND THAT WILL NOT BE AFFECTED. TRADE WITH THE UNITED STATES WOULD BE AFFECTED IF THERE WAS A SUDDEN RISE ON TARIFFS, YES, OR A TARIFF WAR. TIT-FOR-TAT. THAT WILL OPERATE AS A BREAK ON THE ECONOMY. > > YOU HAVE DONE A NUMBER OF PUBLIC EVENTS IN THE LAST COUPLE OF WEEKS. WHAT CONCERNS DO PEOPLE RAISE WITH YOU? MADAME LAGARDE: YOU KNOW, IT VARIES. WHEN I TALKED TO FAMILY MEMBERS, THEY SAY, EXPLAIN WHAT YOU DO, MOM, PLEASE. THAT IS A REAL GOOD SIGNAL FOR ME THAT WE NEED TO COMMUNICATE IN A MORE EXPLICIT WAY ABOUT WHAT WE PROCURE. YOU KNOW, BECAUSE IF WE EXPLAINED THAT EXACTLY WHAT WE DO, IT IS TECHNICALLY SOUND, THE EXPERTS WILL UNDERSTAND. FAMILY MEMBERS AND TAXI DRIVERS, HAIRDRESSERS AND SHOPKEEPERS WILL NOT UNDERSTAND. IF WE EXPLAIN WHAT WE DO ACTUALLY PROCURES GROWTH, FACILITATES INVESTMENT, AND CREATES JOBS, THEN IT MEAN SOMETHING -- MEANS SOMETHING. > > IS IT RECONNECTING WITH THE CITIZENS? MADAME LAGARDE: I THINK THAT IS AN IMPORTANT FACTOR, YES. THE PEOPLE IN THE EURO AREA ARE QUITE BULLISH ON THE EURO. WE DO EVERYTHING WE CAN TO MAKE SURE THAT EUROS CAN FLOW EASILY, THAT PAYMENTS ARE SECURE, THAT WHAT THEY HAVE IS SOLID STABILITY. I THINK WE NEED TO DO A BIT MORE. > > A LOT OF FOCUS HERE IS ON SUSTAINABILITY. IS THERE A DANGER THAT WE HAVE OUTSIZED EXPECTATIONS ABOUT WHAT CENTRAL BANKS CAN DO TO TACKLE THIS? MADAME LAGARDE: POSSIBLY, BUT I THINK THAT NONETHELESS, EACH AND EVERYONE ONE OF US HAS TO EXPLORE WHAT HE OR SHE CAN DO ABOUT THE CURRENT RISKS. I THINK THAT IT HAS BEEN -- THE RISK S S BY CLIMATE CHANGE HAVE BEEN LARGELY AN ESTIMATED, AND FOR GOOD REASONS -- LARGELY UNDERESTIMATED, AND FOR GOOD REASONS. MANY RISKS ARE DIFFICULT TO ASSESS. WE ARE TALKING ABOUT WHAT HAPPENS IN 30 YEARS. IT IS NOT IN THE CARDS OF A STRESS TEST OR TO ANTICIPATE WHAT HAPPENS IN 30 YEARS. YOU LOOK AT THE IMMEDIATE FUTURE, THE MARKET RISKS, MACRO RISKS. THE CLIMATE RISKS IN 30 YEARS THAT NEED ACTION NOW IF WE WANT TO REMEDY THOSE RISKS, THAT ' S DIFFICULT. WE NEED TO DO IT, ABSOLUTELY. > > DO YOU WORRY THAT THE MORE QUESTIONS YOU ASK -- MADAME LAGARDE: BY THE WAY, CENTRAL BANKERS CAN DO QUITE A BIT. > > LIKE WHAT? IF YOU FORCE OR ASK FINANCIAL INSTITUTIONS TO STRESS TEST CLIMATE CHANGE, HOW MUCH COMPLEXITY, HOW MUCH COST DOES IT INVOLVE, AND HOW MUCH MORE COMPLEX ISSUES COME TO THE SURFACE? MADAME LAGARDE: NO MIND THE COST, BEWARE OF THE ACCIDENT, NUMBER ONE. EVEN IF IT COSTS SOMETHING THAT, THE RISK THAT IT PROTECTS US AGAINST IS SO MUCH BIGGER THAT IT IS REALLY WORTH A BIT OF INVESTMENT AND IT IS A SOURCE OF ECONOMIC OPPORTUNITY. LET ' S NOT FORGET THAT. BUT THAT IS WHERE EVERYBODY HAS TO RALLY AT THE TABLE. BECAUSE IT REQUIRES GOOD AND PROBABLY DIFFERENT ACCOUNTING PRINCIPLES. I AM DELIGHTED THAT THE BIG ACCOUNTING FIRMS ARE TAKING THE SERIES AND I HOPE THEY DELIVER -- THIS SERIOUSLY AND I HOPE THEY DELIVER. IT REQUIRES THE REGULATORS TO BE ON BOARD AS WELL. POLICYMAKERS, GOVERNMENTS HAVE TO TAKE IT SERIOUSLY AND NOT PAY LIP SERVICE TO THE RISK. TH EY ALSO HAVE TO TAKE THE RIGHT MEASURES. CENTRAL BANKERS CANNOT ELIMINATE CLIMATE CHANGE ALONG. I WILL DO THE BEST I CAN TO PARTICIPATE. IT IS NOT THE BUSINESS OF CENTRAL BANKS. > > SHOULD CHIEF EXECUTIVES AND GOVERNMENTS TAKE IT SERIOUSLY? MADAME LAGARDE: GOVERNMENTS HAVE TO TAKE IT SERIOUSLY. THEY ALL SIGNED UP TO THE PARIS AGREEMENT. NOT MANY COUNTRIES ARE AT THE POINT OF BEGINNING TO DELIVER. > > IF YOU SEE A RECESSION OR A TILT DOWNWARDS FOR THE ECONOMY, IS THERE A RISK ALL THIS GOODWILL GOES OUT. MADAME LAGARDE: WE HAVE SEEN THAT IN THE PAST AND I THINK WE MIGHT SEE IN THE FUTURE. PUBLIC OPINION WILL BE AROUND TO REMIND US THAT THIS IS NOT SOMETHING WE CAN PUT ON THE BACK BURNER, BECAUSE WE HAVE AN ISSUE. > > WHAT IS THE ONE THING YOU WOULD ASK OF THE EUROPEAN COMMISSION WHEN IT COMES TO TACKLING CLIMATE CHANGE RIGHT NOW? , DEFINITION -- EUROPEAN COMMISSION -- COMMON DEFINITION? MADAME LAGARDE: IT IS NOT JUST UP TO THE EUROPEAN COMMISSION. THE AGENDA BY URSZULA VIA -- URSULA VON DER LEYEN IS A REPURPOSE AND OF ADDITIONAL BUDGETS AND NEW FINANCIAL INSTRUMENTS. IT ALSO TAKES THE EUROPEAN PARLIAMENT AND THEY ARE HEADING IN THE RIGHT DIRECTION OF IDENTIFYING A TAXONOMY, WITHOUT WHICH, IT WILL BE DIFFICULT FOR OTHERS TO MOVE AND SAY, HERE, WE NEED TO TAKE A PROVISION. THAT COLLATERAL IS NOT REALLY WORTH THE FACE OF IT. > > IS THIS ONE ISSUE THAT YOU THINK EUROPE CAN SPEAK WITH A COMMON VOICE ON? MADAME LAGARDE: I WOULD HOPE SO. I KNOW IT IS DIFFICULT. I WOULD HOPE SO. JUST AS EUROPE HAS MOVED AND IS MOVING THE WORLD ON DATA PROTECTION, AS IT ALSO HAS MOVED THE WORLD IN RELATION TO SAFETY, YOU KNOW, EVERYBODY COMPLAINED ABOUT REACH AT THE TIME. REACH WAS THIS LEGISLATION THAT ACTUALLY HELPED REGULATE BETTER CHEMICALS THAT COULD BE DANGEROUS FOR PEOPLE. AND A LOT OF GOOD VIEWS -- GOOD USES ON A DAILY BASIS AROUND THE WORLD BECAUSE OF THAT. EUROPE IS OFTEN CRITICIZED FOR BEING TOO BUREAUCRATIC, GOVERNMENT INTENSIVE. IT IS ALSO HELPING PEOPLE. > > IS THIS SOMETHING THAT WILL DELIVER THE REAL FISCAL SPENDING THAT YOU AND YOUR PREDECESSOR HAVE BEEN ASKING FOR A LONG TIME? MADAME LAGARDE: WELL, I AM WATCHING. I AM WATCHING. I DO NOT HAVE A VOICE CONCERNING FISCAL POLICY, SO TO SPEAK. OUR MONETARY POLICY IS MUCH MORE EFFECTIVE IF YOU DISH OUT WHERE YOU HAVE THE SPACE SOME FISCAL TOOLS AS WELL. BUT WHEN I LOOK AT SOME COUNTRIES, THEY ARE BEGINNING TO PUT MONEY ON THE TABLE. > > CHRISTINE LAGARDE, I KNOW YOU HAVE TO GO, SO I FINAL QUESTION. IF YOU LOOK AT THE CENTRAL BANK STANDS AROUND THE WORLD, THERE IS A LOT OF TALK THAT CENTRAL BANKS ARE COMING TO THE END OF THE TOOLS THAT THEY HAVE. CAN SOMEHOW FISCAL SPENDING ACROSS THE ROAD MAKE UP FOR THAT? MADAME LAGARDE: FIRST OF ALL, -- AROUND THE WORLD -- ACROSS THE WORLD MAKE UP FOR THAT? MADAME LAGARDE: FIRST OF ALL, I DON ' T THINK THAT THEY HAVE USED ALL THEIR TOOLS. I THINK THAT CREATIVITY ALSO APPLIES TO CENTRAL BANKING, NUMBER ONE. IT WILL NOT BE A SUBSTITUTE. IT IS A COORDINATION . > > IF YOU LOOK AT HOW MARKETS HAVE REACTED, OUT OF KILT. MARKET ECONOMY IS IN A LITTLE BIT OF A STANDSTILL. MADAME LAGARDE: THERE ARE TIMES WHEN I THINK SO. > > IS THAT BECAUSE WE DON ' T PRICE RISK? MADAME LAGARDE: I THINK SOME OF THEM CLEARLY DO NOT PRICE CLIMATE CHANGE RISK FOR SURE.

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ECB’s Lagarde on Strategic Review, Climate Change, Policy Tools

European Central Bank President Christine Lagarde discusses the ECB’s strategic policy review, the role of central banks in combating climate change, and policy tools available to central banks. She speaks with Bloomberg’s Francine Lacqua at the World Economic Forum’s annual meeting in Davos, Switzerland on "Bloomberg Daybreak: Europe." (Source: Bloomberg)

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