Speaker 1: Joining us now the President of the European Central Bank,
Speaker 1: Christine Leguard, who stopped traffic here the bison stopped walking
Speaker 1: around the fields over the importance of this speech. I
Speaker 1: was talking to our wonderful Bosler covering the New York
Speaker 1: Fed and he's here supporting the US team. And the
Speaker 1: first thing he said, Philip Lane, So the speech that
Speaker 1: you put together here that we're going to dive into
Speaker 1: here in the next thirteen minutes, how was it constructed
Speaker 1: off of your team with doctor Lane.
Speaker 2: It's a little bit more complicated than that. Typically my
Speaker 2: speech is works as follows. I picked the theme, which
Speaker 2: in this case was not complicated because Jackson Hall has
Speaker 2: indicated that we have to concentrate on the shifts, and
Speaker 2: they are major shifts.
Speaker 3: So I pick the theme.
Speaker 2: My team produces a first draft that I then look at,
Speaker 2: correct changes, am we reconstruct a bit.
Speaker 3: Then I pass it on.
Speaker 2: To Philip, and Philip looks at it, brings new things
Speaker 2: into the substance, will amend this or that. Then it
Speaker 2: comes back to me again and I will polish it
Speaker 2: one more time. Then I share it with a few
Speaker 2: more economists in the team. I don't take all their comments,
Speaker 2: because if I did, it would not.
Speaker 4: But legendary for that, that's called on the guard.
Speaker 3: No, right, that's true.
Speaker 2: Yeah, because everybody wants to have their little thing in there,
Speaker 2: and before you know it, it has no line, no rational,
Speaker 2: no logic, no conclusion.
Speaker 3: And I don't want that.
Speaker 1: We'll extend this to a one hour interview. There'll be
Speaker 1: some logic to this discussion today. The rules of the road, folks,
Speaker 1: for all of you on radio and television. Is it
Speaker 1: an academic conference. We don't focus so much with any
Speaker 1: central banker about what are you going to do at
Speaker 1: the next meeting. It's about the architecture of the speech.
Speaker 4: And this is an.
Speaker 1: Exceptionally original speech off of the pandemic. Where do we
Speaker 1: go from here? I want to go back four months
Speaker 1: to your speech in New York where in Wyoming, and
Speaker 1: this is Ernest Hemingway's Wyoming. You talked about suddenly sun
Speaker 1: also rises. There is gradually and then it becomes suddenly.
Speaker 1: What is the tension you see now? What is the
Speaker 1: fear you have that the gradual now could be suddenly painful?
Speaker 2: We are facing major shifts. I'll mention three for you.
Speaker 2: One is there's a complete change in the labor market.
Speaker 2: There's a complete change in the energy future that we
Speaker 2: are facing, and there is a complete shift in how
Speaker 2: geopolitical forces organize our economies, not to mention in the
Speaker 2: background the climate change impact on our economies, our life,
Speaker 2: and the imperative that it becomes, as we have seen
Speaker 2: during the whole summer, for instance, in terms of major
Speaker 2: heat waves, major hurricanes, and so on and so forth.
Speaker 2: So you've got these three key shifts and the background
Speaker 2: of climate change, and we need to address each and
Speaker 2: every one of these three, which we inherited from the pandemic,
Speaker 2: which we inherited from the major supply chain disruptions, which
Speaker 2: we inherited from the geopolitical tensions that we see developing
Speaker 2: between the United States, Europe, Japan, and many other countries
Speaker 2: around the world, in particular China.
Speaker 1: I was talking to Alex Weeber out of Frankfurt on
Speaker 1: this speech, and I want to take the sixty thousand
Speaker 1: foot nature of the speech, and I can't imagine Draggy
Speaker 1: doing mactrechet giving the speech. It's original to you. But
Speaker 1: if I look at clarity, flexibility, humility, your backdrop out
Speaker 1: years is exactly the same as your backdrop on September sixteenth,
Speaker 1: which is the original structure you have is to pick
Speaker 1: two nations, the tension between Germany and the tension with
Speaker 1: Portugal as well.
Speaker 4: How do you get to.
Speaker 1: These lofty goals given the fractious original nature of the ECB.
Speaker 3: I would disagree with that.
Speaker 2: I think the ECB and the weight has been constructed,
Speaker 2: is intended for collaboration, for controversies, for debates, but at
Speaker 2: the end of the day, for large consensus. And this
Speaker 2: is how I have been operating at the ECB. The
Speaker 2: fact that monetary policy is really European monetary policy is
Speaker 2: a plus. We are bound by the same currency, the Euro.
Speaker 2: We exchange the same banknotes, maybe digitally one day, but
Speaker 2: this is what brings us together and is part of
Speaker 2: the culture. Now, then you have the fiscal situation, Then
Speaker 2: you have the debt situation. Then you have different markets
Speaker 2: and different constraints locally in you know, in the twenty
Speaker 2: member states. But the European Central Bank brings all those
Speaker 2: national central banks together, not without pain, not without you know, discussions,
Speaker 2: as I said, controversies occasionally and not always by unanimous consensus.
Speaker 2: There is the Senate occasionally there is descent absolutely, and
Speaker 2: you know we have to learn how to live with it,
Speaker 2: and we are.
Speaker 3: My job is to measure how.
Speaker 2: Profound the descent is, and who expresses and shares it
Speaker 2: to a point that he or she will not be
Speaker 2: prepared to compromise and to move to the consensus.
Speaker 1: A single sentence in this original speech breaks in established regularities.
Speaker 1: Do you have an operative theory right now, whether it's
Speaker 1: again to September or it's out six months a year.
Speaker 1: Is there a set of economic theories you're working with
Speaker 1: or is it ad hoc each and every day out
Speaker 1: of this pandemic one.
Speaker 2: It is deliberately decisively data dependent, which forces us to
Speaker 2: react meeting by meeting. We cannot given the fact that
Speaker 2: regularities are no longer regular and we have more irregularities
Speaker 2: than regularities, we cannot exclusively rely on inflation outlook as
Speaker 2: determined by models. We have to bring into our reasoning
Speaker 2: and our considerations other elements, other measurements, including underlying inflation
Speaker 2: as we see it empirically now as we anticipated coming up.
Speaker 2: We also need to measure the impact of har monetary policy,
Speaker 2: how fast does it produces financing tightening, and what consequences
Speaker 2: will it have. So in a way, the break of
Speaker 2: this regularity forces us to have a larger spectrum of
Speaker 2: indicators and to think in a mode much broad away
Speaker 2: about the consequences of what we decide.
Speaker 1: One thing that's fascinating here, Joan Randa in Frankfort really
Speaker 1: emphasizes to me with the deterioration in economic data. I'm
Speaker 1: sure you've been more than brief down it in Europe
Speaker 1: and frankly around the world China as well. There's this
Speaker 1: waiting between conventional monetary dialogue and to use an American phrase, OMG,
Speaker 1: there's a growth slowdown. Is you go into your sequence
Speaker 1: of data dependent meetings, what is the waiting now to
Speaker 1: growth or real economy economic data versus a monetary policy
Speaker 1: which with a process almost that you say is under
Speaker 1: threat right now.
Speaker 2: First of all, I would not put in the same
Speaker 2: bag Europe and China when it comes to clarity and
Speaker 2: comprehensiveness and transparency of data. We are totally transparent. We
Speaker 2: aggregate our national data at the regional level and we
Speaker 2: have very solid institutions that are in charge of those data.
Speaker 2: So I would challenge anybody who argues that our data
Speaker 2: is not correct and not reliable, that is as reliable
Speaker 2: as it can get. Point number one, point number two.
Speaker 2: The best way to have the highest level of confidence
Speaker 2: is to look at a series of information data model produced,
Speaker 2: empirically provided anticipated by financial analysis. That that's the best
Speaker 2: job that we can do at the moment in order
Speaker 2: to deliver on our stability mandate, which is to bring
Speaker 2: infection back to two percent in the medium term, which
Speaker 2: we will do.
Speaker 1: I can mention this with China, but what I can
Speaker 1: mention is you are original and that you have real
Speaker 1: world export import experience. I believe I met you when
Speaker 1: you were French trade minister. That's right, newly appointed at whatever.
Speaker 2: Two thousand and five, two thousand and five.
Speaker 1: A few years ago, folks, Christine Leguard is simple as
Speaker 1: I can say the statistic in your speech today of
Speaker 1: real imports declining thirty percent.
Speaker 4: If we get what Gorgyeva and Leguard.
Speaker 1: Are both talking about, which is a regional blackism, a fragmentation,
Speaker 1: how close are we to that.
Speaker 3: It's a worrying situation.
Speaker 2: If you look at the number of protectionist measures that
Speaker 2: are being engineered implemented around the world, If you look
Speaker 2: at the volume of trade, whether it is pure volume
Speaker 2: or momentum. It is either stable or on the decline.
Speaker 2: And the fragmentation is something that is much talked about
Speaker 2: that we are not beginning to see in terms of investment,
Speaker 2: in terms of market penetration by various companies around the world,
Speaker 2: and the control of FDI for indirect investment in many countries,
Speaker 2: including in Europe, is not being sc rutinized in a
Speaker 2: much much thorough way. So we are seeing not deglobalization,
Speaker 2: let's you know, not kid ourselves, but a much more guarded,
Speaker 2: much more careful target of supply chain development, of setting
Speaker 2: up foreign investment abroad, and the purpose of those investments
Speaker 2: are different.
Speaker 3: There was a.
Speaker 2: Time when you were setting up facility in a place
Speaker 2: where costs was lower. Now you set up an investment.
Speaker 2: You set up a facility because you're going to penetrate
Speaker 2: that market and you're not relying on input output.
Speaker 4: You mentioned tit for tat inflation.
Speaker 1: Is that where you confront at the next meeting, and frankly,
Speaker 1: at the meetings into twenty twenty.
Speaker 2: Four, we will be very very attentive to wage developments
Speaker 2: because obviously one of the strongest portion of the economy
Speaker 2: where prices are going up is services and services is intensive.
Speaker 2: Services is generally less interest rate sensitive than others, where
Speaker 2: capital expenditures, of course are more sensitive. So wages as
Speaker 2: they develop will matter enormously, which is why it's critically
Speaker 2: important that inflation expectations remain anchored at two percent. If
Speaker 2: trade unions and business associations appreciate that in relatively short
Speaker 2: order inflation will be back to two percent, they will
Speaker 2: not want to fuel more inflation by having wage or
Speaker 2: margin increases that would not be consistent with that.
Speaker 1: The language of this is accommodative restrictive. Dominie Constumate Missoula
Speaker 1: would say, there is super restrictive. Talking about the US
Speaker 1: Central Bank, how do you gauge the parlor game of
Speaker 1: interest trate trajectory? Now, giving your new theme here, how
Speaker 1: do you take the minutia of analyzing up and down
Speaker 1: the restrictiveness? Just as one example with these larger thoughts
Speaker 1: of we need to change behavior and economics.
Speaker 3: We take all that very seriously.
Speaker 2: If you pick the example of the financing tightening, we'll
Speaker 2: look up and down the stream of you know, all
Speaker 2: financing channels from you know, credit lending, money markets, sovereign bonds,
Speaker 2: the whole gambit of it to appreciate how much tightening
Speaker 2: is produced by our restrictive monetary policy, and we have
Speaker 2: to factor that into what I have called my three criteria.
Speaker 2: If you will, inflation outlook, underlying inflation transmission, and strength
Speaker 2: of the transmission of monetary policy.
Speaker 1: You ends this speech, and folks, really for those of
Speaker 1: you in economics, this is truly an original speech from
Speaker 1: the ECB today and from Christine lecard Caines. The difficulty
Speaker 1: lies not in the new ideas but escaping the old ones.
Speaker 1: Which one are you trying to escape September sixteenth. I
Speaker 1: mean not to bring a meeting in the focus here,
Speaker 1: but you need a new idea on September sixteenth?
Speaker 4: What's it going to be?
Speaker 2: I think what I meant using this particular quote is
Speaker 2: that we cannot just stay in the same box all
Speaker 2: the time and assume that the models that we have
Speaker 2: been using for number of years are going to produce
Speaker 2: the result that will guide us towards the right decisions.
Speaker 2: And I think by adding, as I said, underlying inflation,
Speaker 2: strength of the military policy transmission, we bring new ideas
Speaker 2: and new principles into our thinking and our collective considerations.
Speaker 1: One final question, if I could, on a beautiful day
Speaker 1: in Wyoming, you have to fly back to Frankfurt and
Speaker 1: sell this speech to a very original set of nations
Speaker 1: in Europe. What will be the response, not only the
Speaker 1: response at your meeting in September sixteenth, but the simplistic
Speaker 1: statement of between the hawks and the doves. How will
Speaker 1: there be a uniform response or will this engender an
Speaker 1: immediate heated debate in Frankfurt.
Speaker 2: I took the precaution to discuss that with some of them,
Speaker 2: and I think that's the general principles of those three shifts,
Speaker 2: the responses that we must provide, and the new key
Speaker 2: principles of clarity, humility and transparency. Sorry, clarity, flexibility and
Speaker 2: humility will stand and I think will be appreciated and
Speaker 2: respected by my colleagues on the Governing Council.
Speaker 1: No. I look forward to September fourteenth, truly in a
Speaker 1: historic day.
Speaker 2: I can't guarantee the same beautiful landscape as well.
Speaker 4: The hills are alive with the sound of music.
Speaker 3: Chrystia, thank you