1 00:00:02,360 --> 00:00:06,000 Speaker 1: Bloomberg Audio Studios, podcasts. 2 00:00:05,640 --> 00:00:10,240 Speaker 2: Radio news. Global central bankers have expressed their full solidarity 3 00:00:10,280 --> 00:00:12,880 Speaker 2: with the Federal Reserve after the weekend's news as grand 4 00:00:12,960 --> 00:00:15,440 Speaker 2: jury subpoenas had been served as part of a criminal 5 00:00:15,480 --> 00:00:18,560 Speaker 2: investigation into the Central Bank and it's chaired Jerome Powell. 6 00:00:18,760 --> 00:00:20,799 Speaker 2: This is happening at a time that central banks are 7 00:00:20,800 --> 00:00:23,640 Speaker 2: facing more divergent interest rate paths as well. The ECB 8 00:00:23,760 --> 00:00:26,880 Speaker 2: now not expected to alter rates for some time to 9 00:00:26,920 --> 00:00:28,520 Speaker 2: discuss all of this. The Governor of the Bank of 10 00:00:28,600 --> 00:00:32,360 Speaker 2: Latvia and ECP Governing Council member Martin Kazaks. Martins Kazaks, 11 00:00:32,400 --> 00:00:35,559 Speaker 2: good morning. Great to see you in Brussels with us now. 12 00:00:35,560 --> 00:00:38,040 Speaker 2: The ECB President signed that letter of support for Jerome 13 00:00:38,080 --> 00:00:40,000 Speaker 2: Powell on behalf of the Governing Council, which you're a 14 00:00:40,040 --> 00:00:43,239 Speaker 2: member of. What's your view of these events? How worrying 15 00:00:43,360 --> 00:00:45,200 Speaker 2: is this for central bank independence? 16 00:00:45,760 --> 00:00:49,280 Speaker 3: This is bad news because central bank independance is very 17 00:00:49,280 --> 00:00:53,760 Speaker 3: critical for central banks to deliver good monetary policy. So 18 00:00:54,640 --> 00:00:58,280 Speaker 3: the typical outcome that we see from the boss experiences 19 00:00:59,520 --> 00:01:04,480 Speaker 3: with their morning central bank independence would be inflation device 20 00:01:05,000 --> 00:01:10,039 Speaker 3: and the potential risk of the anchoring of expectations, which 21 00:01:10,080 --> 00:01:15,560 Speaker 3: means that the adjustment through monetary policy might be more 22 00:01:15,560 --> 00:01:19,959 Speaker 3: painful to the economy because one of the elements that 23 00:01:20,000 --> 00:01:23,600 Speaker 3: we've seen in the past inflation phase, especially in Europe, 24 00:01:24,319 --> 00:01:29,360 Speaker 3: has been unexpectedly law sacrifice ratios, and one of the 25 00:01:29,360 --> 00:01:32,640 Speaker 3: reasons has been the credibility of the central bank policy 26 00:01:32,760 --> 00:01:37,400 Speaker 3: that has allowed to move rates less to bring inflation down. 27 00:01:38,319 --> 00:01:41,200 Speaker 3: So this is by all means bad news. 28 00:01:41,400 --> 00:01:44,600 Speaker 1: Are you concerned about any pushback from a President Trump 29 00:01:44,600 --> 00:01:47,960 Speaker 1: on this issue? New Zealand for example, and it's Foreign 30 00:01:47,960 --> 00:01:53,520 Speaker 1: Affairs minister rebuking the RBNZ for signing that letter, saying 31 00:01:53,520 --> 00:01:56,120 Speaker 1: that the RBNZ has no role nor should it involve 32 00:01:56,160 --> 00:01:59,480 Speaker 1: itself in US domestic politics. Are you concerned about any 33 00:01:59,640 --> 00:02:02,440 Speaker 1: push back from the US against the ECB or other 34 00:02:02,920 --> 00:02:05,040 Speaker 1: central bankers for that letter. 35 00:02:06,040 --> 00:02:08,720 Speaker 3: Well, I would not speculate on that, but I think 36 00:02:09,720 --> 00:02:15,600 Speaker 3: let's be calm and really be aware in terms of 37 00:02:15,639 --> 00:02:19,560 Speaker 3: the European case as well, that the independence of central 38 00:02:19,600 --> 00:02:23,639 Speaker 3: banks and accountability of course of central banks as well, 39 00:02:23,840 --> 00:02:28,119 Speaker 3: has allowed to deliver on the mandate. And that's why 40 00:02:28,160 --> 00:02:30,760 Speaker 3: in terms of montre policy in Europe, we are in 41 00:02:30,800 --> 00:02:34,359 Speaker 3: a good place. And an important element of that has 42 00:02:34,440 --> 00:02:39,440 Speaker 3: been independence of the central bank. Independence of the central bank, 43 00:02:39,480 --> 00:02:43,160 Speaker 3: in my view as well, allows to learn from mistakes 44 00:02:43,360 --> 00:02:49,720 Speaker 3: because because then the assessment of the policy errors is 45 00:02:49,760 --> 00:02:56,680 Speaker 3: frank and it is analysis based, it's not politically driven. 46 00:02:56,760 --> 00:03:01,920 Speaker 3: So this is an advantage to have independent monetary policy 47 00:03:02,280 --> 00:03:03,359 Speaker 3: rather than a burden. 48 00:03:03,720 --> 00:03:07,160 Speaker 2: But could politicians in Europe perhaps be emboldened by what 49 00:03:07,240 --> 00:03:09,920 Speaker 2: they see across the Atlantic. This is something that City 50 00:03:09,960 --> 00:03:12,600 Speaker 2: Group has warned about that center bank independence could come 51 00:03:12,680 --> 00:03:15,880 Speaker 2: under threat in Europe if the move towards shorter dated 52 00:03:15,960 --> 00:03:20,080 Speaker 2: bond tempts politicians to push for lower interest rates. Is 53 00:03:20,080 --> 00:03:20,840 Speaker 2: that a concern? 54 00:03:21,120 --> 00:03:23,040 Speaker 3: Yes, the risks are there in my view, and they 55 00:03:23,080 --> 00:03:29,200 Speaker 3: are very strong, especially if the policies become more short 56 00:03:29,280 --> 00:03:33,320 Speaker 3: term mystic, they are more populist, and then you know, 57 00:03:33,400 --> 00:03:36,040 Speaker 3: you do not value the stability and delivery of the 58 00:03:36,400 --> 00:03:40,640 Speaker 3: long term policy efficiency. This is certainly a worry. But 59 00:03:41,760 --> 00:03:45,320 Speaker 3: the outcome from such a move would of course be 60 00:03:45,480 --> 00:03:50,560 Speaker 3: negative for the European population, so that would be a 61 00:03:50,640 --> 00:03:51,440 Speaker 3: very bad choice. 62 00:03:51,560 --> 00:03:54,280 Speaker 2: Are there particular members of the euro Area where you 63 00:03:54,280 --> 00:03:55,280 Speaker 2: see that as being a risk. 64 00:03:55,800 --> 00:03:59,320 Speaker 3: No, I would not comment on that. You know, things 65 00:03:59,360 --> 00:04:04,720 Speaker 3: can happen in any country. You know, and the politics 66 00:04:04,920 --> 00:04:09,480 Speaker 3: could move, but this has been the track record that 67 00:04:09,520 --> 00:04:14,160 Speaker 3: we have been delivering in Europe, in my view, strengthens 68 00:04:14,200 --> 00:04:18,200 Speaker 3: the case for dependence of the central bank because of 69 00:04:18,960 --> 00:04:22,200 Speaker 3: it doing a good job so far. But as I mentioned, 70 00:04:22,200 --> 00:04:27,159 Speaker 3: of course, independence should come hand in hand together with accountability. 71 00:04:27,440 --> 00:04:31,279 Speaker 1: Okay, so accountability is sort of a necessary precursor in 72 00:04:31,360 --> 00:04:33,919 Speaker 1: terms of the interest rate path. The head markets aren't 73 00:04:33,920 --> 00:04:36,920 Speaker 1: pricing in any rate moves this year. Are you comfortable 74 00:04:36,960 --> 00:04:37,720 Speaker 1: with that? Outlook? 75 00:04:38,480 --> 00:04:40,120 Speaker 3: The mode is a brandy that we have had so 76 00:04:40,200 --> 00:04:44,480 Speaker 3: far has been the appropriate one. So it's meeting by meeting, 77 00:04:45,560 --> 00:04:50,960 Speaker 3: data dependent open mind, seeing what the trends in the 78 00:04:50,960 --> 00:04:53,560 Speaker 3: economy are and then reacting to that, and this has 79 00:04:53,600 --> 00:04:56,240 Speaker 3: allowed us to be in a good place. The decisions 80 00:04:56,240 --> 00:04:59,320 Speaker 3: of the past years have been appropriate once and we 81 00:04:59,360 --> 00:05:02,360 Speaker 3: are at the tour get spot on now as well 82 00:05:02,360 --> 00:05:07,960 Speaker 3: at two percent, with services inflation as well gradually coming 83 00:05:08,000 --> 00:05:12,440 Speaker 3: down to two percent. But it does not mean that 84 00:05:13,040 --> 00:05:18,640 Speaker 3: we can be relaxed. Uncertainty remains very high, and that 85 00:05:18,800 --> 00:05:22,000 Speaker 3: means that you know, there are multiple of shocks that 86 00:05:22,160 --> 00:05:25,000 Speaker 3: might hit us, and that in my view still very 87 00:05:25,040 --> 00:05:32,039 Speaker 3: strongly supports the current models operandi let's not give too 88 00:05:32,160 --> 00:05:35,680 Speaker 3: much forward guidance in terms of the rates. What is 89 00:05:35,720 --> 00:05:38,760 Speaker 3: important for the markets to understand is our reaction function 90 00:05:39,480 --> 00:05:42,120 Speaker 3: and the market's understand it. In my view, so that 91 00:05:42,240 --> 00:05:42,839 Speaker 3: is good news. 92 00:05:42,960 --> 00:05:46,480 Speaker 2: Would something like an end to Russia's war in Ukraine 93 00:05:46,720 --> 00:05:49,359 Speaker 2: be an issue that could shift your view and the 94 00:05:49,360 --> 00:05:53,480 Speaker 2: Governing Council's view on interest rates in the future. 95 00:05:54,040 --> 00:05:57,360 Speaker 3: That, of course would be one of the elements, because 96 00:05:58,600 --> 00:06:02,640 Speaker 3: ending this negative shock would be beneficial. But of course 97 00:06:02,680 --> 00:06:05,080 Speaker 3: one needs to understand what kind of piece is it 98 00:06:05,120 --> 00:06:10,200 Speaker 3: going to be. Is it a good piece with economic growth, 99 00:06:10,400 --> 00:06:14,080 Speaker 3: political certainty, or is it just a pause for another 100 00:06:14,480 --> 00:06:17,680 Speaker 3: outbreak of a conflict. So the outcomes are likely to 101 00:06:17,720 --> 00:06:22,240 Speaker 3: be very different. But this is only one of the shocks. 102 00:06:23,240 --> 00:06:25,360 Speaker 3: There are many other shocks that are likely to shape 103 00:06:25,360 --> 00:06:28,080 Speaker 3: the future parts of one Tree policy. One of those 104 00:06:28,200 --> 00:06:32,880 Speaker 3: is the valuations in the financial markets, the risks potentially 105 00:06:32,960 --> 00:06:36,920 Speaker 3: to financial stability if there is some nonlinear adjustment, But 106 00:06:36,960 --> 00:06:42,560 Speaker 3: of course also in terms of you know, micropolicies as such, 107 00:06:42,640 --> 00:06:47,080 Speaker 3: for instance, what happens with the Chinese trade to European markets, 108 00:06:47,160 --> 00:06:51,040 Speaker 3: what happens with our European competitorness in our export markets? 109 00:06:51,320 --> 00:06:54,320 Speaker 3: You know, that might weigh down on our economic activity, 110 00:06:55,600 --> 00:07:00,320 Speaker 3: exert some deflationary pressure, so you can come up so 111 00:07:00,440 --> 00:07:07,520 Speaker 3: many various scenarios that visibility still remains relatively low. But 112 00:07:07,600 --> 00:07:10,200 Speaker 3: the good thing is that we are by and large 113 00:07:10,840 --> 00:07:15,000 Speaker 3: within the baseline scenario and the current monetary policy is 114 00:07:15,040 --> 00:07:19,320 Speaker 3: in my view, very appropriate. But meeting, unfortunately still meeting 115 00:07:19,400 --> 00:07:20,120 Speaker 3: by meeting. 116 00:07:20,360 --> 00:07:22,280 Speaker 2: On the issue of Ukraine. The European Commission is going 117 00:07:22,320 --> 00:07:26,600 Speaker 2: to unveil its plans for Ukraine financing later today as well, 118 00:07:26,680 --> 00:07:30,000 Speaker 2: which of course is an issue of joint debt. Do 119 00:07:30,680 --> 00:07:33,840 Speaker 2: the Boulder threats on Greenland made by Donald Trump increased 120 00:07:33,840 --> 00:07:36,280 Speaker 2: Do you think the chances of more joint debt being 121 00:07:36,320 --> 00:07:37,880 Speaker 2: issued in Europe for defense spending? 122 00:07:37,960 --> 00:07:41,200 Speaker 3: I think for defense join debt is a necessity. It 123 00:07:41,280 --> 00:07:45,360 Speaker 3: is simply more efficient to resolve defense issues. But let 124 00:07:45,360 --> 00:07:48,080 Speaker 3: me come back a bit in terms of a policy 125 00:07:48,120 --> 00:07:52,560 Speaker 3: mix and structural change. Monetary policy, if I'm say so, 126 00:07:52,680 --> 00:07:56,840 Speaker 3: has delivered, and it's somewhat boring now, which is good news. 127 00:07:56,920 --> 00:07:59,680 Speaker 3: The action is not in monetary policy, but the action 128 00:07:59,720 --> 00:08:03,680 Speaker 3: should be somewhere else, and that is structural policies in 129 00:08:03,720 --> 00:08:06,560 Speaker 3: Europe with somewhat in my view spend too much time 130 00:08:06,600 --> 00:08:08,960 Speaker 3: in terms of thinking, you know, what could be the 131 00:08:09,000 --> 00:08:14,680 Speaker 3: next blow, next outburst of volatility that we will need 132 00:08:14,720 --> 00:08:17,600 Speaker 3: to take care of. But I would say that the 133 00:08:17,680 --> 00:08:21,000 Speaker 3: risks are so many they could hit all across the board. 134 00:08:21,480 --> 00:08:25,960 Speaker 3: And the key choice and strategy for Europe would be 135 00:08:26,080 --> 00:08:31,120 Speaker 3: to make our economy stronger overall, to deliver on the 136 00:08:31,280 --> 00:08:34,800 Speaker 3: increase in living standards, to continue increasing living standards for 137 00:08:34,880 --> 00:08:39,680 Speaker 3: our population, to strengthen our democracies, and also to make 138 00:08:39,720 --> 00:08:45,640 Speaker 3: European economy much much stronger and more resilient in this multipolar, 139 00:08:45,720 --> 00:08:49,000 Speaker 3: geopolitically volatile world. And the only thing to do it 140 00:08:49,080 --> 00:08:52,840 Speaker 3: is to make our economy stronger. And these are all 141 00:08:52,880 --> 00:08:56,360 Speaker 3: the structural reforms that have been discussed in the past. 142 00:08:56,440 --> 00:08:59,480 Speaker 3: As for financial markets, of course, it is deepening of 143 00:08:59,520 --> 00:09:04,640 Speaker 3: financial markets single market in financial services that would be 144 00:09:04,679 --> 00:09:09,480 Speaker 3: the first step that we would need to take, and 145 00:09:09,520 --> 00:09:12,760 Speaker 3: there've been some moves on that, but still relatively timid. 146 00:09:12,800 --> 00:09:15,200 Speaker 3: And sometimes the understanding, at least in my way, is like, 147 00:09:15,440 --> 00:09:18,079 Speaker 3: you know, there's always a question, why do we choose 148 00:09:18,840 --> 00:09:22,960 Speaker 3: a lot of nothing rather than a bit from something. 149 00:09:23,520 --> 00:09:28,600 Speaker 3: By moving into more single market environment, we would unlook 150 00:09:28,640 --> 00:09:32,520 Speaker 3: the scale we would make our financial markets more dynamic 151 00:09:32,600 --> 00:09:36,080 Speaker 3: and able to finance our economies, and I would say 152 00:09:36,120 --> 00:09:38,880 Speaker 3: that is the major move that we need. We need 153 00:09:38,920 --> 00:09:44,200 Speaker 3: structural improvements to make our economies more dynamic, and this 154 00:09:44,360 --> 00:09:51,160 Speaker 3: will support defense spending. This will support also job political 155 00:09:51,320 --> 00:09:54,880 Speaker 3: standing of Europe and we would be pushed around much less. 156 00:09:55,080 --> 00:09:59,360 Speaker 3: So it's all about the underlying fundamental strength of the 157 00:09:59,360 --> 00:10:04,560 Speaker 3: economy and monetary policy by providing stability and being at 158 00:10:04,559 --> 00:10:08,160 Speaker 3: the target, will help with that. But it's not the 159 00:10:08,320 --> 00:10:12,760 Speaker 3: job of monetary policy to resolve productivity problems and single 160 00:10:12,800 --> 00:10:13,640 Speaker 3: market problems.