Christine Lagarde: Interview with Wall Street Journal

21 February 2025

My first question is probably not going to come as a surprise: are you considering resigning?

What a surprise. Look, I’m on a mission, and I have been ever since the beginning of my term. And the mission is driven by the mandate that the European Central Bank has. So the mission is price stability, financial stability, and I also regard our European Central Bank and myself as in charge of protecting the euro, making sure that it is solid and strong and fit for the future of Europe. That’s, for me, the mission. And when I look back at all these years, I think that we have accomplished a lot. That I have accomplished a lot – you know, I’ll take credit a little bit for that – and that we need to consolidate and make sure that this is really solid and reliable. So my baseline is that it will take until the end of my term. And I will leave it there.

We’ve all got questions but the one that I’m most interested in is this theme that was bubbling at Davos, which was the uncoupling of Europe from the United States politically, economically, technologically. Can Europe seize the moment and actually get a grip with some of the deep-seated problems that are behind the economic malaise?

Great question. So I would preface with this: there are lots of wonderful things about Europe that go unnoticed, unreported or taken for granted. We talked about silly things like the infrastructure works. If you take a train in France, in Italy, or even in Germany, those trains actually work well; they are fast. That’s just a very silly example. But when you look at a number of indicators that are not often talked about, whether it’s life expectancy, infant mortality, poverty rate, prison ratio to population – there are lots of good things that are there, and that make a difference. So that’s why the word “malaise” prompted this, not a rebuttal, but let’s not only think in terms of GDP growth, GDP per capita, market capitalisation.

And on all those fronts, Europe has to improve its game; there’s no question. So second point, because you asked me, is Europe now going to change, to transform, to improve? And my optimistic view of this continent – my continent, Europe – is yes. I think it will, and in a way – I’m not suggesting it’s a tribute to President Trump, but I have said publicly, and I’m repeating, that his assessment and grievance about Europe is more than a wake-up call. I’ve said somewhere else, it’s a kick in the butt. And I really hope that this will materialise in reforms that are long-awaited, in streamlined processes, in a sense of urgency and speed. So that many of the reforms that have been talked about – like Capital Markets Union, Savings and Investments Union, the energy reform, the improvement of productivity through simplifications – that this will actually happen. Up until recently, it was hinted, it was talked about a bit, and there was controversy and not necessarily general support. I think now it is talked about with a new format in terms of action plan, deadline, imperatives – the sort of key performance indicator where you know who is doing what, by when, and with what test of success. So there is an element of “we now need to implement, not just talk about it”. And I can see that. I sit in those European councils – not all of them, but many of them – and I really have that sense. There is one coming up in March, and I think it will be a bit of a test.

So, are we going to see something else that’s been talked about for a long time but never actually happened: this idea of a multispeed Europe where you’ll get groups of countries that come together, for example with the capital markets union or the savings and investments union, and they’ll say, “OK, we’re going to do this, we’re ready”?

Qui m’aime me suive. [Follow me if you love me.] Yes, this is in the works as we speak. I see two elements of that. One is the initiative that was started by Spain and that brings together six countries, the six largest ones. So you have Germany, France, Spain, Italy, the Netherlands, and Poland – Poland being outside of the euro area. But these six have decided that they have to move together, make some proposals and plans that will be open to others for consideration, comments, and whatever, but they are – I think they call themselves a lab – ambitious, which is good. And that is happening there.

The second area where it’s happening is in the European Council itself. When there was the discussion about the loan to Ukraine, Hungary, Slovakia, and the Czech Republic were outliers. And they said, “No, over our dead body. We don’t want a loan to Ukraine”. They have valid reasons, from their perspective. And yet, the other 24 said, “You know what? That’s OK. You don’t come along, we’ll do it by ourselves, and we’ll pick up the share that would have normally been allocated to you on a capital-key basis. And we’ll move.” And this is happening.

And third example: you have the schedule that the [EU members] have for now, which is if by the end of March we have not agreed on the action plan and the road map for the savings and investments union, well, we’ll work with a reduced number of countries, which has to be a coalition of the willing. And for that to work, you need nine member states.

Which sounds easy to get, right?

Nine, yes, I would think so. I really would think so. On the savings and investments union, yes. So, nécessité fait loi. How do you say that in English?

“Necessity is the mother of invention”.

That’s right, yeah. This is what we’re seeing.

If you split up into sort of these coalitions, does it not fracture things more within Europe?

What’s the alternative? That’s what I ask myself, and I hope they’re asking themselves the question. When I see the six, because I’m quite close and familiar with their thinking, they’re not saying, we will form a club that is not open to others. They’re saying we think that six of us can move faster and further, and then it’s for others to join.

Sometimes you pick up that there’s fear in Europe that there are actors very actively trying to destabilise the European Union and they would like to see it break apart. Is that something that you hear discussed “How do we defend ourselves against these forces,” for want of a better word?

Yes and no. Yes, because I think that we hear other leaders in sectors other than central banking who tell us about hybrid war, cyberwar, and the attacks that some of the Member States are under at different levels of institutions. We are ourselves seeing cyber threats, with ebbs and flows, but certainly at a much higher degree of intensity. And as a result, we just have to protect against that. In practical terms.

President Lagarde, so you were here a couple of years ago, and there was an exchange we had that I’ve never forgotten. We talked a bit about how Europe perceives the fundamental change/rupture in the relationship given the possibility of Trump returning. You elided the distinction between the attitudes of Democratic and Republican presidents, seeing them both as fundamentally hostile to the rules that we had grown up with. My question to you today is: now there’s again a Trump Administration, does it feel fundamentally different from what actually you had under Biden? And is there a possibility that after Trump it goes back to the way it was?

I think the form of it is very different. The sort of abrupt approach that is taken is fundamentally different from what we had. As they say, there is no love, only proof of love. From my perspective, what I regarded as breaking points are when the United States decided to stop providing intelligence to Ukraine for a period of time, which left that country open to a lot of attacks from Russia without much by way of capacity to identify where the attacks were coming from. I think the second one – which is also for the Europeans, based on their reaction, a breaking point as well – was the claim on Greenland, which is a clear violation of international law. So in terms of form, approach, certainly different and much more abrupt and less concerned about the form of the relationship, to say the least.

Can I just ask about Davos? What was it about the Lutnick speech that upset you so much? Why did you walk out?

Look, it was the opening dinner that was offered by the organization. It was a very large room. And you had in the room a lot of leaders – prime ministers, presidents of European countries, you had the King and Queen of Belgium, you had the president of the Swiss Confederation. And in that context, to have as a last speaker, without any rebuttal of any arguments that were made, someone who just bashed Europe, right, left and centre. I thought that was just too much and just unnecessarily offensive. And the fact that the dinner was due to finish with his comments, I don’t think it was either polite nor appropriate. Full stop.

You’ve been quite vocal about your support for Jerome Powell and somewhat critical of this US administration, which is very keen to go after critics. Do you worry at all about how that impacts the ECB’s relationship with the United States and the Federal Reserve?

No. Because I think that you have to be honest and you have to be efficient about the points that you want to make. I don’t think that compromising gets you anywhere. I think that if you feel strongly about something, you have to express your views. I think we are all fine with a disagreement – on the substance, on the expected outcome, on what you wish for your society. It’s not even my remit because I’m just a central banker, I’m not a politician, so it makes my life a bit easier. But I feel very strongly that central bank independence is something that should not be damaged and that is precious for the whole of the society, to which the central bank has responsibility. And when it’s been dented, we’ve seen historically that it’s damaging for society, it’s damaging for expectations.

You and Powell have come from similar backgrounds, not academic, not from the priesthood of central banking. You’ve encountered very similar challenges unique to your economies. As he concludes his eight years, can you give us any insight as to what he’s drawing on? Models, instincts, institutions? What made Powell able to rise to these challenges, if you think that’s what he did?

I think he did rise to the challenges in a big way. You see everything that you see at home and from what the Fed does in the United States and for the American citizens. I see also what he does as the key representative in the Bank for International Settlements (BIS), where he’s highly regarded, seen as a character with principles, with strength, not a compromiser. And where he inspires a lot of smaller central bank governors coming from other parts of the world and sometimes with a lot more constraints, in a way. So he has been a force of nature in that regard, and the international community of central banking regards him very highly.

I think Jay has this sort of inner strength and principled view of what his duty is, what his mandate is, and who he is accountable to: the American people and through the representatives and the senators. But he really regards that responsibility very highly and he abides by that. And that’s deeply inside himself.

Looking back to 2022 and the pandemic reopening, central banks assumed the surge in inflation would be temporary. There had to be a lot of regret.

We need to go back and revisit history and really think if everybody was stunned. You tend to revisit history and assume that all that has developed as a result should have been anticipated, was anticipated by most, except those at the Fed or those at the ECB. Again, I think that at that time on both sides of the Atlantic we genuinely – based on history, based on models that granted, were wrong, and by necessity were wrong – we really thought this transition period was transitory and that we could just see through. Which of course did not happen, because the way in which this supply shock was channelled through the economy, and was a combination of a supply shock followed by a demand shock – circumstances that none of us could have dreamt before because we never saw a good of the third of economy stop in the way it did. The ECB was the first one to say we made a mistake. We should have anticipated, despite what the models were saying, despite what literature was saying, despite what historical references would have dictated, we should have imagined it might have this impact, it might take inflation up to 10% in the case of the euro area. We acknowledged that, we revisited our models, we set up a group of experts that looked into it and tried to validate what would have to be changed going forward. But equally, I don’t take the “You are at fault, and of course you should have seen it, and everyone else did”. No. Honestly, I don’t think so.

Powell gives a rifle shot of a speech at Jackson Hole that year. “We’re in charge of price stability” and he basically says if we have to accept a recession that’s what we’ll do. I wonder if it made it even more clear to you that this is why you have long terms. “If this is what we have to do, this is what we’ll do”.

And the United .States did not have a recession. Nor did Europe.

Can you talk to us a bit more about the statement you made in support of Powell. How did that come together and why did you decide to do it? As you know, Fed Gov. Miran criticised you for it afterwards.

I claim the idea. I had the idea that such a colleague, a role model for us, would warrant and would deserve and hopefully would feel reassurance as a result of his colleagues coming along to support him. So I reached out to my friend Andrew Bailey from the Bank of England and the two of us decided to explore that with the president of the BIS and other colleagues around the world through the BIS membership. We put together those two paragraphs in support of Jay. It was not intended to meddle, fiddle or interfere with internal domestic affairs in the United States It was more to support a colleague that we highly value and respect.

It looks, for now, that Powell has won this battle with the administration. Do you think that the Fed has won the larger war to maintain its institutional independence?

The future will tell.

Do you know Kevin Warsh?

Yeah, I know Kevin. I know him from the financial crisis days because he was in the very early days advising the president, George W. Bush. And then after that, I think he was also very often sitting at the G20 table, and the G7 table, to represent the Fed or to be the deputy to the Fed chair. So we spent quite a bit of time together in those days.

What do you think is gonna be the first big test for him? Looking at the outlook, the US economy is behaving in ways I think people didn’t necessarily expect. So it looks like it’s more robust than people perhaps realised, which means perhaps there’s less pressure to cut interest rates, but we know what the president thinks about that. I’m asking you to speculate, but how do you think you will manage the first big test?

I hope he does well, and I wish him the very best, but it’s a big challenge. It’s a big challenge. Knowing him, I’m sure that he will want to get as much as possible under the skin of numbers and statistics, and understand the labour market, in particular. But no I won’t speculate.

You’ve been focused quite a lot on the geopolitical situation, the fragmentation in the global economy. But I was wondering if you could speak a little bit about the fragmentation within Europe, not just in France but also Germany. What do you see as the risk for the economy from what’s happening politically inside of Europe?

We had “uncertainty” as the buzzword; I think fragmentation is the next buzzword after uncertainty. An “uncertain fragmentation” is probably the paroxysm. In Europe, you always have had fragmentation. We have an economic and monetary union – with 21 countries by the way. It’s one of those examples where we do not have the 27 around the table and yet it works. But because of what it is, because of the reasonably short history of the continent, and what we went through before, there is by almost DNA a necessary effort to come together.

But I think that fragmentation is going to be – I don’t want to say under attack, it’s not under attack, but it’s likely to be mended towards joint destiny on certain projects. We can keep the big dream out there, which was created by the founding fathers, but I think it will have to go into the very specific reforms or togetherness that will actually create benefits for the people. Because that’s another battle that has to be fought: making sure that the European citizens, whether they are French, Germans, Spanish, or Italians, or from the Baltic states, all associate Europe with a benefit for them and not necessarily an impediment or a reduction of vested rights. So it’s hard.

There are just so many proposals out there: a “28th regime,” the Draghi and Letta reports, coalitions of the willing. What is your vision for how Europe overcomes this?

Well [our checklist sent to EU leaders] really encapsulates the views of all Governing Council members around the table. So you have 21 representatives from the central banking community all saying we need to go forward with these five key planks of reforms and development. And then we explain why it’s going to be helpful and what it takes in terms of structural reforms. So that’s what I believe. You can just go back to the checklist.

The form and the process is going to matter, as always in Europe. And how they go about it, by saying, “Well, you know, if not everybody is willing to participate, we’ll do it at 15 or nine plus,” that’s OK. And second is what Ursula von der Leyen has flagged in relation to trade agreements, trade agreements being one way to respond to the current situation. On all the middle countries coming together…no, I’m not saying that. I’m not a Carney-ist. But the way in which she came out a couple of days ago to say we have to shortcut and expedite the process because we cannot just carry on with taking 10 years to make big trade agreements. The fact that Mercosur and then the EU-India agreements were finally concluded – again, I think that’s tribute to the pressure under which Europe is. So coalition of the willing, expedited process without compromising necessarily with the democratic consultations that are a requirement. And the checklist, and being sort of almost military about it. “What have we done? What remains to be done? What is the deadline? Who is doing what?”. If it was up to me, I would bring in top-notch military and corporate leaders and I would ask them to be adjunct to the Commission, to report back to the Commission or to the Council. To be “bang, bang, bang, bang”. Do it.

What do you see as your role in Europe? Obviously, you’re the head of the ECB, but you speak on such a wide range of topics.

I’m very undisciplined. I often ask myself, “Why should I go there? Why should I say that?” because I have this sort of restricted parameter, which led one of my esteemed colleagues to say, “You’re going to find it terribly boring because you’ll have to learn how to dance on the head of a pin”. But the beauty of the mandate of the ECB is that we have two objectives: so the primary objective is price stability, which doesn’t go without financial stability. So this is really sort of the compass, the North Pole, everything has to be focused on that. And the secondary objectives are all the economic objectives pursued by Europe and led by these other institutions that are the Commission, the Council, and the Parliament.

I think that we have delivered on the primary objective: we have inflation at target – 2% medium term – we have agreed on a strategy, which is symmetric in its assessment of whether we are or are not at target, which is very clearly defined. In terms of financial stability, I think that we are in a position where the banking sector in particular is stable, solid, well-capitalised – in a much better shape than 15 years ago. So in a way, that allows me to look at other elements. We have a monetary union but we don’t have enough by way of economic union. Because we have these barriers to the single market, because we still have processes that are overly complicated, duplicated in many ways. If the changes that we think are called for as indicated in my five key points checklist – if that was to be done, if only 50% of it was to be done, I’m convinced, we are convinced at the ECB, that it would significantly improve the growth potential of Europe. And if that happens, then my job to fight inflation is facilitated. So, I have the mandate. I have the hope that the potential growth will be improved. To be a strong monetary union, the economic union, which is the “E” of EMU, is lagging behind. So I don’t feel out of place.

You probably must be thinking a bit about legacy, and I’m curious what you hope your legacy will be from your time at the ECB?

I’d say on the primary objective, I think we can say “mission accomplished” – failing some kind of massive unexpected shocks that would come to hit our economies. I don’t want to speculate on what these could be but you cannot exclude it. I think we’ve learned through the process of what happened in ‘22: we have to be not only agile in terms of how we respond but also how we anticipate, how we try to project. But on that account, I think that we’ve done the job.

I want the euro to be fit for the future. I know this is not a view shared in this country, at the moment at least, but we have really worked long and hard on our digital central bank currency at the retail level with the digital euro, and at the wholesale level. Those are the two Pontes and Appia processes that we are working on at the moment and which will allow us to proceed and settle tokenised deposits and assets in a distributed ledger technology format. So we are working in these two directions, both digital euro – where we’re waiting for the European Parliament to finally, finally vote on the piece of legislation. The Commission is prepared, the Council is prepared, so we’re waiting for the third branch to say “OK, this is what we want, these are the thresholds, the limits”. And on the other two, it’s more internal, it’s a lot of pipes and bolts and nuts which I’m not the most expert in – I understand the principle of it and the speed at which we would be able to operate. So I think that that is hopefully a legacy that I will also leave behind.

I think the demonstration that you can actually bring 21 “divas” together to play a harmonious monetary policy for the benefit of Europe is also something that I would probably claim the benefit of. It’s not just me, but I’ve been very keen to achieve that and to help others to be respected and feel included in the process. I know this is not popular at the moment, but I don’t care. Including climate change as a risk in how we project our future and as a result our projections, in how we assess the collaterals we hold, in how we decide our investment – although we don’t buy bonds anymore – I think that’s also a tribute that I could claim.

You talked about the lifestyle of Europe, the infrastructure, the gifts of Europe. Do you worry that that government debt will eventually weigh on that lifestyle because of the resources that’ll have to go to either defence spending in a future world or to cushion the workforce from displacement from AI?

I think we will all be under that sort of constraint. And when I look at the US public debt and the euro area public debt, the euro area is in a much better position at the moment in terms of debt to GDP and servicing that. This is not consolation. And this is not addressing the question. But we have to look at the numbers and the maturities and the debt profile and all that. Two observations: one is Germany has decided to use its balance sheet. And this is unprecedented. This is brave. How this is going to be spent will matter enormously. So this investment in military, in infrastructure – I hope the German authorities are very careful as to how they use it. And I hope that there will be political leaders to actually argue the case that there might be a trade-off in the making, as a result of the commitment to secure the sovereignty of Europe.

It seems to me everything you say is true in terms of the progress that Europe is making, but you’ve got this very challenging political backdrop with these far-right parties who are promising the earth, who are disruptive. Where will Europe look to for leadership on this?

I hope there will be the right leaders to rise and to have the courage and the guts to explain that. In spite of propaganda, cheap talk… in French we say “y’a qu’à faut qu’on” [ “all you have to do is this”]…knowing that they’re not going to do it.

The Greenland crisis seemed to heighten the sense of economic sovereignty being important to achieve, especially with AI. I’m curious what you think about the path for Europe to take in AI. What kind of action does Europe need to take to stand on its own two feet on this?

I hold one view quite strongly. I think that it’s pretty obvious that the United States is leading that game, and that China is a close second, and that those two large powers have a large advance when it comes to AI. And that Europe is lagging behind. Now, two things: one is the massive investments that have already been made – north of USD 300 billion last year, expected more than USD 600 billion this year – with little by way of immediate return. But in my view, from what I hear from some of these, predominantly, gentlemen – they all say the same thing. They say we need massive amounts of energy, we need huge amounts of data, we need the smartest kids around, and then we need the scale to amortise the massive investment that we are making. To me, that speaks to cooperation. It speaks to harmonisation of standards. It speaks to a common denominator regarding privacy of data and use of data. It speaks to diversification of energy sources. Those who are traditional allies should sit down, talk to each other, and arrive at a minimum platform which will then allow the big smarty-pants and big shots in the field of AI and everything that goes with it – software and hardware included – to actually deploy and operate in a continent like Europe. For 450 million people’s data available for the work that they want to do is not trivial. To not have it, I think, is probably an issue. Not being able to market some of their products is, I suspect, an issue as well. In a way, the private sector operator should just make those points if I’m right. I profess no ultimate wisdom, but that’s what I’m getting from the comments that they make.

It seems like therefore the “different speeds” version of Europe might work for some things but not others like harmonising standards, the AI project as a collective.

It’s a collective project that should bring us together. Look at the internet. This is also something that has brought us together, for good or for bad, and that has a governance which has been almost sui generis and which is working. And when I hear some of the leaders in the field of AI say we need a framework, we need to have limitations, whether they’re self-imposed, whether they are government driven, I think it’s up to policymakers to decide at the end of the day. But I think it has to be us together. I hope that we will not have these battles of: freedom of speech as defined by me, versus freedom of speech as defined by you. If that eventually leads to kids being pushed to suicide, because it’s available, and artificial intelligence will help you along the way, then we have a problem.

What can the central bank do to increase the global role of the euro in a way that also brings in a stronger unification and de-fragmentation of European capital markets?

First of all, I think the euro as a currency in Europe is highly, highly credible. We have 82% of the population recognising [the euro]. It’s a percentage that has very gently increased, not massively because it’s been high for a long time – but it’s gradually increasing. So 82% of the population actually supports the euro, regards the euro as a sort of common bond. And by having a central bank that is credible and independent, I think we reinforce the perception that people have that their currency is in good hands and will be protected.

Second, I was going to say a man’s got to do what a man’s got to do, but you cannot go beyond your remit. And when we recently decided to enlarge the recourse to our euro repo line by making it accessible to all national central banks – except the rogue states – that’s our way to say, “If you trade in euros, if you invoice in euros, and there is a crisis or there is an issue, liquidity in euro will be there for you because your national central bank has access to that euro repo line”. That’s one way to say, over to you now policymakers, over to you people from the corporate world, you don’t necessarily have to invoice in renminbi or in dollars or in rupees.

Currently if you look at central bank reserves, the euro is at 20% – it’s increasing a little bit. The volume of dollars held in reserve by central banks is decreasing a little bit, and it’s not to the benefit of the renminbi, which is pretty stagnant; it’s more other currencies like the yen, the Swiss franc, and the pound. But the euro is on a slightly increasing path. But it’s not going to happen because I would decide or I would give a speech. It’s also a matter of the geopolitical strength of the country or the region, and the United States has had that and ever since the Bretton Woods Agreement, the dollar has been the international currency of reference. And you have to earn it, essentially. So you have to be geopolitically strong, which means capable of defending your territory, you have to have the trade agreements and the reliability in terms as an international partner, and you have to have a rule of law that is highly respected and which gives confidence to the people who decide to use that currency.

Crypto is taking on a whole new life under this administration. When you look at crypto and the kind of advances it’s making here and globally, what do you think of that?

First of all, I would distinguish the technology on which many of them are based, which is – for the moment at least – distributed ledger technology] (DLT), which is not a brand-new technology. It’s been around for about 10 years or so, maybe more. But that technology is unbelievably innovative, solid, and we are adopting it. And the Pontes and Appia systems that we’re working on, to have a wholesale digital currency or wholesale digital mechanism to settle, this is something that we highly value and recognise and that will continue to improve. I draw the line between the “cryptocurrencies” – which I’ve consistently said are worth nothing and are a speculative asset of first order – and the stablecoins, which are a different beast and have a potential to disrupt.

Whether your term ends in October 2027 or earlier, do you have any thoughts about what you want to do next? There’s always the talk of the World Economic Forum. Are you still interested?

It’s one of the many options. I was [asked recently] in Munich, “Is your next position going to be Paris, Brussels, or Geneva?”, and I said, “I’ll check where my grandchildren are located first,” and that is still the case.

If you do leave early, the criticism is that this will in some way hurt the independence of the ECB. Is that something you’re worried about?

I think the ECB is a very respected and credible institution, and I hope that I have participated in that. No further comment.