Interview with Christine Lagarde, President of the ECB, conducted by Marie-Pierre Gröndahl on 8 May 2025
18 May 2025
The new US President’s first 100 days in office have been a period of economic and financial chaos. What’s the best response to all of this chaos and disruption?
President Trump taking office changed the state of play in three key areas at once: the economy, politics and defence. These have been three key pillars of international cooperation in the increasingly globalised world of recent decades. But this is an opportunity more than a threat – Europe is needed now more than ever. European leaders have to seize this opportunity and speed up the process of deepening the European Union. As we see our reliance on others in the areas of energy, defence and finance being questioned, we need to work together. These are public goods and require coordinated action at the European level. None of the countries in the euro area would be able to tackle the challenges in these three areas on their own.
Can the EU manage to do so?
The EU brings together 450 million people whose purchasing power per capita, standard of living and productivity are lower than in the United States. But the EU also has undeniable strengths and capabilities, starting with the often overlooked fact that our largest trading partner is in fact the EU itself, not the United States. Europe has no option but to rise to this challenge. Just as we are seeing how the rule of law, the courts and trade rules are being challenged in the United States, and how uncertainty is a constant and seems to be renewed every day, Europe is quite rightly seen as a stable economic and political region with a solid currency and an independent central bank. It’s impressive to see that in a period of uncertainty, when the US dollar would usually have strengthened significantly, the opposite has happened and the euro has strengthened compared with the US dollar.
Why?
It is counter-intuitive but can be explained by the level of uncertainty and the fact that some parts of the financial markets are losing confidence in US policies.
How can the EU react to the increase in tariffs announced by Donald Trump?
It needs to have a strong hand should negotiations prove unsuccessful. This means it needs to have identified the relevant sectors, regions, amounts and percentages to be able to determine the retaliatory measures that are available. From a business perspective, it has to negotiate, consider the room for manoeuvre, understand what the other side wants and see whether an agreement can be reached. The fact that the European Commission is seeking common ground with other countries, in Latin America for example, but also India, Indonesia and countries in South-East Asia, is also very relevant.
Can Europe emerge united?
It depends partly on the global challenges we are facing. If all European countries were facing external threats, they would need to take a leap forward together. NATO has so far been working very well in helping to protect Europe. We have now all understood that there was a need to build a common European defence mechanism together. Shared threats can give rise to shared initiatives, as we saw with the Next Generation EU borrowing during the pandemic. “Let’s share our best elements and enrich ourselves with our mutual differences”, as the great European Paul Valéry said.
Many French and European business leaders are disappointed that the recommendations in Mario Draghi’s report have not been acted on. They have also criticised over-regulation in Europe. Do they have a point?
They’re being slightly unfair. It’s true that progress towards greater European integration over the past 50 years has also led to a build-up of regulation. But legislative initiatives like the “Omnibus” packages, which combine multiple amendments or revisions, have kept coming over the past few months. There is political will to reduce reporting obligations and increase efficiency, but this can’t be done overnight. Politicians have a very important role to play here.
The Franco-German relationship is considered to be a driving force of the EU, but it seemed to be losing momentum in recent years. Will the arrival of a new German Chancellor change things?
The meeting between Emmanuel Macron and Friedrich Merz on 7 May sends a very strong signal. As does the announcement by the new Chancellor of a €500 billion infrastructure investment programme, in addition to a significant increase in defence spending. This is a major change for Germany. This Franco-German partnership, without which few initiatives would get off the ground, seems committed to acting together. Certain projects, like the capital markets union, had been on hold for a few years because the Franco-German partnership wasn’t working so well. These two leaders understood that it would be necessary to mobilise funds at the European level and build platforms to attract those who want to invest in it. And there are many who want to.
What needs to be done to stop a large proportion of European savings from being invested in the United States?
We need to create European solutions that help us avoid the type of dependence we had for energy, particularly for payment infrastructures and the digital euro. The major payment providers, which account for just over 60% of the market, are not European. Digital payment systems do exist in some EU countries, but none have pan-European reach. The European Parliament needs to act on the draft legislation that has been under discussion since July. I think there is the political momentum for things to move a bit faster. The digital euro is a topic that the ECB is working on jointly with the Parliament, which has to approve the project. On our side, as of October we will be technically ready to complete the preparations to implement and gradually scale up the project.
Can Europe catch up in these two areas?
Definitely. We need to develop a smart regulatory framework. Europe is not the Wild West. For the digital euro and the capital markets union, the groundswell is the strongest I’ve seen in the six years I have been at the ECB. We also need to harmonise supervision, like we have successfully done for banking.
Does this period worry you?
I’m not at all pessimistic. In Europe, employment is holding up, purchasing power is increasing and inflation is falling. Consumption and investment should pick up again, even if the uncertainty sparked by the US Administration’s announcements is weighing on confidence and holding back that recovery. However, I think we need to demonstrate a shared desire to free ourselves from the energy, military and financial dependencies we naively lulled ourselves into. It’s a rude awakening, but we can rise to the challenge – Europe has already partially shown that by diversifying its energy supply sources. And we should further reduce gas supplies that come from Russia. I am intentionally being positive, because I also think that’s the approach we have to take. Europeans tend to be less optimistic than Americans – I’ve spent enough time living in the United States to be able to say that with at least a small amount of credibility. We tend to approach things more critically. But being positive certainly does not mean ignoring the reality of the situation.
Precisely, the falsehoods are piling up, including where economics is concerned. How does one fight against this phenomenon?
It’s another challenge we’re being confronted with – what is and isn’t true. We should all check facts and figures, and the authenticity of everything that is reported. Journalists have a fundamental duty in this regard.
Is globalisation being called into question?
I think globalisation has had an underlying legitimacy issue for a long time. Even though it has been very beneficial for some countries and has saved hundreds of millions of people from famine, it has also followed, perhaps too closely, a logic of cost reduction, efficiency and fragmentation. And that’s without considering the issues of deindustrialisation and the impoverishment of certain regions or geographical areas that have been tragically affected by it. These issues have of course been exploited for electoral gain. But they should nevertheless give us cause to rethink how our economic relations, our supply sources and our payment infrastructures are organised, also with the aim of preserving the European social model, which is more protective than others.
The IMF has recently published some fairly negative forecasts for France in terms of debt reduction and the deficit. What is your opinion?
Every country, no matter its debt level or its deficit-to-GDP ratio, can decide to set its public finances on a new trajectory. In European fora, such as ECOFIN [the Economic and Financial Affairs configuration of the Council of the EU] or the Eurogroup, the French authorities have expressed their determination to reduce the budget deficit and the debt level. These intentions must become reality. It’s a question of credibility – a question that every country is facing.
The US President has attacked both the strategy of the Federal Reserve and its Chair, Jay Powell, on several occasions. Would such a thing be conceivable in Europe?
The independence of the European Central Bank is guaranteed by the Treaties. So no, that would not be possible. Central bank independence is fundamental if a country, or group of countries, is to have a healthy monetary and financial system. It has never ended well when a central bank has found itself under the thumb of a fiscal authority.
