00:00We were speaking to a guest on the show earlier this week from Blue Bay Asset Management who said
00:03that another one month, another month of closure of the straight home moves and we could be looking
00:07at recession in the eurozone. How close are we to negative growth in the block? I think that
00:15uncertainty is absolutely dramatic. I don't I would not confirm that one month would be the
00:22appropriate time, if I may, for getting such a very bad result. But it's clear that this
00:29is an option which we have to get in mind. After all, the IMF itself said we have several
00:36scenarios and the worst one is a recession scenario. So and not only for Europe, by the way, because
00:44a lot of other countries are badly touched, including in in Asia. The U.S. paradoxically
00:52because the U.S. is at the heart of everything at the present moment, but is not touched as
00:58much because protected very largely by its own self-sufficiency. And but still, of course,
01:05the prices are up also in the U.S., it seems to me. And so that also creates problem. I
01:11hope
01:11that all those problems will drive the partners to get a deal and to reopen the slate.
01:20And through the lens of the ECB, with that mandate on price stability, traders now pricing
01:25in more than two interest rate hikes from the European Central Bank this year. Would you
01:30hike if you're at the ECB right now? I think that the universe is so uncertain and you have
01:37both, I would say, the depressionary, the depressive effect of what happens and the inflationary effect.
01:45So both are operating. And after all, the depression is helping paradoxically, of course, in terms
01:53of less inflation. So all taken into account, it seems to me that to remain, I would say, in a
02:01position
02:02of quiet and calm observation of the situation, hoping very much that the European pressure to reopen
02:10the slate will operate. But I think that the sentiment of the market that it's very unlikely that there
02:18would be changes is correct in the sense that it corresponds to the extremely high uncertainty that
02:28we have. Events are uncertain. And also the impact on growth and on inflation is also to be seen.
02:36So some of the impacts still to be seen. Good morning to you, Jean-Claude. Good morning. You used to
02:41say often
02:42that there for the ECB, there's just a single needle in the compass and that is pointed firmly at inflation.
02:49So why is it a good time to pause then in terms of interest rates and not hike now?
02:54Because we have obviously the kind of supply shock that, again, we have to wait to see whether you have
03:02secondary effects that are operating. The enemy are the secondary effect. You know, the price of oil,
03:09we have no way to correct the price of oil. We cannot substitute to the president of the United States
03:15or to the Ayatollahs in Iran. So we have to accept that we cannot do many things. But on the
03:27secondary effect,
03:28on the capacity of this increase of prices to be, I would say, operating in all the economy there,
03:35we are very important. And that the reason why the anchoring of inflation expectations at the level
03:42of our definition of price stability, namely the famous two percent, is something which is very,
03:47very important. I'm sure that the ECB and I hope also the U.S. will be very keen on not
03:55unanchoring
03:56inflation expectations, which is one of the great success of the central banks in the past years.
04:02Yes. I mean, do you see anything worrying in the inflation expectations yet? And how long would
04:07eurozone inflation expectations have to remain elevated before that means that the ECB must act?
04:14I mean, again, it's a question of appreciation by not only by one person, but by the college,
04:21if I may, the Open Market Committee in the U.S., by the Council of Governors in Europe. I would
04:28say
04:29that you know when you are analyzing both the market and, of course, the survey, when you have really
04:36the start of unanchoring of inflation expectations, we are not there at all. And we will follow the
04:44events as, I would say, carefully as possible. If we had the sign that the state is closed for a
04:51very
04:52long period of time, we would be in a situation where, of course, secondary effect would have been
04:58very likely because you can take that the union will say, well, this will be up for a very long
05:04period of time. We ask for immediate augmentation of wages and salaries. So that is one of the
05:11secondary effect, of course, that we have to follow extremely carefully.
05:14But for now, is it fair to extrapolate from what you've been saying, that for now, you think the
05:20market pricing of more than two hikes this year, the markets are getting over their skis on that?
05:27Frankly speaking, the market itself is in a totally uncertain world. So this, I take it as the
05:35sentiment of the market. I would not say that it is my sentiment, of course. I think we have to
05:40remain extremely cautious and prudent in a world which is extremely highly uncertain.
05:46Do you think we've learnt a lot, Jean-Claude Trichet, and your experience is useful here. Do you think
05:51we learnt a lot in 2008 and in 2011, when you were in charge of the ECB, about the circumstances
05:58in which it is appropriate to hike into and when it is not? Because there have been suggestions that
06:03maybe the ECB in the past has hiked into weakness. Well, the ECB had to run a new currency, a
06:12currency
06:13which had to gain its own credibility. And as I said, we had the main responsibility to be sure that
06:22inflation expectations, medium term, medium long term, would be correctly anchored. And that, of course,
06:28in a universe where you had very different public opinion. You have the north of Europe, you have the
06:36center of Europe, if I may, you have the south of Europe. And the sentiment are not the same in
06:41all.
06:42So I think that when I was in this extremely difficult period of time, during four years, the main, I
06:50would say,
06:51consideration was, are we sure that we continue to correctly anchor inflation expectations, which
06:59is good, of course, because it's our mandate in the ECB, but also key for, I would say, sustained growth
07:09and sustained confidence in the economy. Given the ruptures to supply chains through COVID,
07:16through this conflict, through Ukraine, through Iran and the U.S., longer term, do we need to start to factor
07:23in higher inflation, structurally higher inflation? I don't think so. I think that if you, if you say that, if
07:32I may,
07:33when you are responsible, you are calling for higher inflation. Central banks are used to permanent challenges
07:41to inflation. You mentioned a succession of challenges. From time to time, we have also a
07:47challenge of deflation to materialize. And it's been the case during 10 years. So something goes up,
07:56sometimes it goes down. I mean, I'm speaking of the other challenges that we have to cope with.
08:02And this idea of trying to anchor expectations around the famous two percent is very, very important.
08:12It worked extremely well, I have to say, in preventing us, all of us, from deflationary
08:18materialization. It proved very effective in a recent period of time. After we had the surge of inflation
08:25with the COVID recovery, we could regain control much better than in the past of price stability.
08:34On both sides of the Atlantic, I have to say, by the way, we are supposed to have the same
08:38definition
08:38of price stability in the U.S. and in Europe, which helped considerably, in my opinion, in a recent period
08:44of
08:44time. And so all taken into account, sometimes goes up. I mean, the inflation is supposed to go up,
08:52sometimes to go down. But this stabilization is part of the success of central banks during last year.
09:00So you don't see a need to structurally rethink where inflation goes. What about structural rethinking
09:06about other aspects of the European economy? For example, defense spending. The years that you were in
09:12charge of the ECB, Jean-Claude, that looked very different in terms of the level of defense spending
09:17around Europe. Are you expecting this to be what impact economically do you anticipate from higher
09:23defense spending across Europe? Well, first of all, it is absolutely necessary because we have a war in
09:29Europe triggered by President Putin. We have the sentiment expressed by the president of the U.S. that
09:38the protection, the defense protection of the U.S. is not eternal in Europe. So we are bound to augment
09:46defense and to protect ourselves. I would say De Gaulle, I refer to De Gaulle because he was visionary in
09:54many domains. He clearly said Europe has to get autonomous as regards its own defense. And I think that
10:02it's truer today than it was before. So, of course, that has consequences in terms of, I would say,
10:09investment that has to augment. So pressure on the savings. We have a lot of savings in Europe. So I
10:16think that we are able to care and to take ourselves the appropriate, I would say, capital to invest. On
10:25the
10:25other hand, of course, it is something which transform very profoundly the European economy. And if really the
10:34European are augmenting that far their own defense spending, of course, it has also in terms of growth
10:40an impact which would be positive.
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