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During an interview with RedaktionsNetzwerk Deutschland (RND), the President of the European Central Bank (ECB), Christine Lagarde stayed the course. “If we act now in haste, the recovery of our economies could be much worse and jobs would be put at risk. It wouldn’t help anyone,” she said when the topic of a possible interest rate hike came up.
It is not without reason that Ms. Lagarde defends the policy of the ECB with a German media like RND (an organization bringing together 60 German regional newspapers). Indeed, in the eurozone’s largest economy, irritation is growing at the policies of Ms Lagarde, whom the Bild newspaper dubbed “Madame Inflation” some time ago.
Raising interest rates “wouldn’t solve any of the current problems,” Lagarde said in today’s interview. On the contrary, “if we act too hastily now, the recovery of our economies could be much worse and jobs would be threatened. »
Lagarde had even prepared a metaphor for the German listener. She compared the normalization of interest rate policy to driving a car around a corner. “No one does it in fifth gear by pressing the gas, but you take your foot off the accelerator and gradually downshift. That’s exactly what we do. And as soon as the speed is good and the situation allows it, we take the turn. »
Energy
According to Ms. Lagarde, “more than half of current inflation is attributable to energy prices”. She expects them to stabilize at a high level. “The high cost of oil and gas is not a temporary phenomenon,” she stressed, but “the price level is already very high. The price of oil has risen from less than 20 euros in April 2020 to 90 euros per barrel, and it is very unlikely that it will continue to increase at the same rate. Inflation will slow for this reason alone”.
The ECB is closely monitoring the impact of high energy prices on headline inflation, the ECB President stressed. “We will be watching this very closely in March and at all subsequent meetings in the months to come. If necessary, we will act. But it will only be done step by step. »
Ms. Lagarde ruled out the risk of an additional price shock due to the energy transition. “I think the whole debate about green inflation is overblown,” she added.
“The actual effect of decarbonization on prices is minimal, and it doesn’t matter whether we’re talking about emissions trading or special taxes,” she added. This also applies, according to her, to the increasingly expensive raw materials of the energy transition, such as silicon, nickel or copper. “The impact of these specific commodity prices on the general price trend is small, at least for now,” she added.
Fed
The umbrella organization for US central banks, the Fed, is reportedly considering raising interest rates half a percentage point at a time to counter runaway inflation in the US. Although inflation is also reaching high levels in the EU (on average daily life has become 5.1% more expensive than in January last year), Ms Lagarde stressed that the euro zone cannot be compared to other major jurisdictions.
“The American economy is overheating, while our economy is far from it,” she argued. “That’s why we can – and should – proceed more cautiously. We don’t want to nip the recovery in the bud. »
“Inflation could turn out to be higher than what we forecast in December,” Ms. Lagarde said. “We will analyze that in March and then look from there.”
However, a growing number of ECB policymakers are losing confidence in the institution’s current inflation forecasts. As a result, they are increasingly leaning towards the interest rate hike camp, sources told the Bloomberg news agency.
Cash
The President of the ECB also spoke out against the abolition of cash. “People are used to cash and don’t want to give it up. I therefore consider the discussion of the abolition of cash to be superfluous,” said Ms. Lagarde. “I also like having banknotes in my wallet,” she added. She assured that even if a digital euro is introduced, there will still be euro coins and banknotes.
She even advocated depicting well-known Europeans on future euro banknotes. “Personally, I can very well imagine the faces of famous Europeans depicted on banknotes: Leonardo da Vinci, Ludwig van Beethoven or James Joyce,” Ms Lagarde said. “I myself have a good memory of the five-franc note with Victor Hugo which existed in France 50 years ago,” she added.
Still according to Ms. Lagarde, several elements plead against the digital euro project: for example, there would be too many private service providers who would try to set up crypto-currencies. “We have to do something to counter this. It is not possible for money to be made with the personal data of users. »