Opening Statement by Christine Lagarde to the Economic and Monetary Affairs Committee of the European Parliament

IMF News, September 4, 2019

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Published: September 4, 2019

Professional experience and overarching priorities

Managing Director of the International Monetary Fund since July 2011; previously Finance Minister of France.
At the IMF contributed to crisis resolution tools, financial regulation, and strengthening the Economic and Monetary Union.
Stated guiding values: serve the public interest; address rising inequality; tackle climate change; promote fairer and more inclusive growth.
Leadership approach: evidence-based, data-led decisions; promote inclusiveness, diversity, and engagement with civil society.

Core principles proposed for ECB Presidency

Commitment to the ECB’s mandate as laid down by the Treaty.
Agility in responding to new challenges, including reappraising prior convictions and innovating within legal boundaries.
Inclusiveness as a leadership tenet: cooperation across institutions and diversity of voices in policymaking.

Monetary policy: assessment and stance

Findings

The ECB has demonstrated commitment to price stability since inception and adapted policy in response to post-2008 deflationary risks ("lowflation").
The ECB estimates that the economy is almost 2% larger today thanks to the unconventional measures taken since mid-2014.
Employment in the euro area has increased by over 11 million since its trough in mid-2013, attributed in part to those measures.

Stance and near-term view

Agrees with the Governing Council that a highly accommodative policy stance is warranted for a prolonged period of time in order to bring inflation back to “below but close to 2%”.
Warns of potential side effects of unconventional policies and calls for continuous monitoring.

Strategic questions for central banks

Enhance understanding of inflation dynamics.
Take stock of new instruments activated to contain the crisis, including balance sheet and other unconventional policies.
Reflect on whether monetary policy frameworks are sufficiently robust to future challenges.

Broader challenges affecting monetary policy

Climate change, disruptive technological change, and potential fragmentation of the multilateral order are identified as new types of challenges monetary policy must consider.
Emphasizes that monetary policy should be forward-looking and consider the broader context in which price stability is achieved.

Financial stability and supervisory developments

Findings

The ECB’s role in financial stability has expanded; it now embraces macro‑prudential responsibilities and hosts the European banking supervisor.
Common Equity Tier 1 ratios rose from 11% at the end of 2014 to 14% in 2018.
The stock of non-performing loans of significant banks has almost halved.
The share of non-bank financing flows to euro area firms has risen from around 30% before the crisis to more than 50% today.
Fintech firms now receive around a quarter of the financial service industry's venture and startup funding.

Remaining challenges

Banking union and capital markets union need completion to foster deeper private risk-sharing and expand access to finance.
Bank profitability is low.
The landscape is changing due to the growing role of non-banks in intermediation and technological transformation.

Policy implications for supervisors and central banks

Ensure safety of the financial sector while being open to opportunities from technological change.
For new technologies, including digital currencies: be alert to risks to financial stability, privacy, and criminal activities; ensure appropriate regulation; recognise social benefits and allow innovation space.

Inclusiveness: cooperation and diversity

Cooperation

Leverage Eurosystem expertise to prepare for future challenges (example: Network for Greening the Financial System launched in 2017).
Central banks can sustain global cooperation to underpin the multilateral order.
Monetary policy effectiveness can be enhanced by appropriate national and European policies and public trust.
Calls for completion of Single Market, improved coordination of fiscal policies, and institutionalised cooperation rather than reliance on crisis-driven responses.

Short-term institutional steps proposed

Conclude the reform of the European Stability Mechanism.
Operationalise the backstop to the Single Resolution Fund.
Establish a scalable Budgetary Instrument for Competitiveness and Convergence.

Expected benefits

These measures, combined with reforms to financial and payments systems, would help strengthen the international role of the euro, affording more benefits of issuing an international reserve currency and greater strategic independence.

Diversity

Diversity defined as drawing on all talents from all backgrounds and committing to equal treatment on the basis of gender, race, or nationality.
Emphasises speaking and listening to as wide a range of voices as possible (trade unions, consumer groups, NGOs, civil society) to strengthen policymaking and public understanding.
One priority if confirmed: reinforce the bridge between the ECB and the public so people understand the ECB is their central bank and acts in their interests.

Communication, accountability, and trust

Accountability to elected representatives is essential for democratic legitimacy of independent central bankers.
Innovation and cooperation, alongside accountability and communication, are required to deliver commitment, agility, and inclusiveness.
Trust metrics cited: Trust in the euro currently stands at 76%, the highest level ever; trust in EU institutions, including the ECB, is not at the same level.

Key statistics and exact figures

Managing Director of the IMF since July 2011.
ECB estimates economy is almost 2% larger today thanks to unconventional measures since mid-2014.
Employment in the euro area has increased by over 11 million since its trough in mid-2013.
Common Equity Tier 1 ratios: 11% at end of 2014; 14% in 2018.
Share of non-bank financing flows to euro area firms: around 30% before the crisis; more than 50% today.
Fintech firms receive around a quarter of the financial service industry's venture and startup funding.
Network for Greening the Financial System launched in 2017.
Trust in the euro: 76% (Spring 2019 Standard Eurobarometer).

Opening Statement by Christine Lagarde to the Economic and Monetary Affairs Committee of the European Parliament, September 4, 2019.