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00:00I'm trying to get your assessment first of the conversation in the room among the G7
00:03and what sort of idea of collective action, what is appropriate at the G7 level
00:07to dampen the effect that you're seeing from the score?
00:09So first, as you are perhaps aware, this happened to be my last G7 meeting
00:14and I was delighted to welcome my friend Joachim Nagel and all my colleagues from the G7.
00:20So I can compare through the last 11 years and I can frankly say that this Paris G7
00:26won a very good G7.
00:29We are in difficult circumstances, you mentioned them,
00:33but the discussion was lucid, without any complacency.
00:38It was a free discussion at the highest possible level
00:43and it was a confident discussion.
00:46And we shared the analysis on global economies,
00:49we shared the will to reduce global imbalances
00:52to address the negative consequences of the conflict in the Middle East.
00:56And for us central bankers,
00:58we are fully determined to bring inflation back to target.
01:02And I'd like to get in, if you could share with us
01:04some of your joint analysis of that situation.
01:07Right now, the ECB has given us a framework by which to think about this,
01:10the base case, the adverse effect, the severe.
01:13I'd like to get both of your perspectives on where we lay on that
01:15in terms of the impact of the world.
01:17Maybe before I come to this, I have to congratulate Franz, François as well.
01:23I think it was an excellent meeting and you alluded to it.
01:27We were, let me say, outspoken in a way.
01:31We really recognized this is a delicate situation
01:34and we had an open discussion.
01:38And so this was a very fruitful meeting here in Paris.
01:43I mean, back to your question where we are.
01:45I think this whole conflict started more or less three months ago.
01:50Now we know that this energy supply shock is more persistent.
01:56So we are moving away from our baseline scenario.
02:01And so this is, I guess, I believe a fair description of where we are at the moment.
02:06But does that mean that we are now in an adverse and severe scenario?
02:09How are you thinking about it?
02:10Because that's the framework the ECB has put out for us to think about.
02:13It is as always.
02:14We will take our decision on data.
02:17We will come together in June
02:19and then we will have our decision based on data.
02:23But I alluded to it, there is a higher probability now
02:28that we are now away from that baseline scenario.
02:31That means that maybe we have to do something.
02:33And one of the big questions is about the secondary effects
02:36and whether or not this inflation is spreading
02:38from just the energy headline level to the broader core.
02:41What is your analysis of that at the moment?
02:42I first insist on the fact that figures are very volatile
02:45if you look at financial markets.
02:47So we should be focused on data points to look at the trend.
02:51As Joachim just said, as this conflict is lasting for longer,
02:55we have to look at more structural, long-term consequences.
02:59To give two obvious examples,
03:01we discussed financial stability and the bonds market situation.
03:05We also have to accelerate our energy diversification
03:10and reducing the dependency of most of our countries,
03:14starting with Europe, from force-high energy.
03:17It's obvious, but let us not limit our response to an emergency answer.
03:23On the monetary answer,
03:25I think the data will matter more than a precise date.
03:29And this is focus on the second one.
03:31But so through the market's expectation,
03:34so they say that there's going to be two to three rate hikes from the ECB this year,
03:37beginning in June.
03:38Are you comfortable with that analysis?
03:40Do you find that that is a correct interpretation of what we've seen so far?
03:43I guess it's not helpful to speculate about maybe the numbers or when do we what?
03:50I think this is not helpful.
03:51I think this meeting-to-meeting approach,
03:53based on the data that we have on that meeting,
03:55this is the right way to do it.
03:58So we showed our commitment over the last four years.
04:02We hiked 10 times.
04:04We lowered 8 times.
04:05And we will show the same commitment
04:07when we're coming together for our next meeting.
04:10We think of the French...
04:11Can I add on market to France?
04:13We are not market-driven.
04:15We are data-driven, obviously.
04:17That said, through markets,
04:19there is a tightening of financial conditions.
04:22And it already plays a role in fighting inflation threats.
04:27So we will see.
04:30And I think that this is the most important commitment.
04:34We showed it in the last four years.
04:37But European households, European firms can trust us,
04:43ECB, Bundesbank, Grande France, to bring inflation back to target.
04:47And this is, believe me, the most important commitment.
04:51And though you're not market-driven, necessarily,
04:53the market can have bearing on the economy and how things develop.
04:56We've seen a move in the bond market recently.
04:58How do you interpret that move?
04:59You just spoke recently about, obviously,
05:01part of it is inflation expectation.
05:03You said part of it is political risk.
05:04What political risk?
05:05Well, there are...
05:06First, it's a global phenomenon,
05:08and not only a European one,
05:10beyond the G7.
05:13And there are at least three explanations.
05:16First is global uncertainty, obviously,
05:18and political uncertainty in some direction.
05:21Some question about fiscal policies,
05:23and they must remain sound and sustainable.
05:27And third, let us be honest, fears of inflation.
05:29This is where our commitment matters most.
05:33And I think, just to try to nail you down on this one point,
05:36on the question of inflation,
05:37do you find that it is currently still segregated to the energy sector?
05:40And if it is so,
05:41is there a world in which you look through it,
05:43this next rate decision,
05:44in the sense that it is just at the headline level?
05:46So what I know from inflation,
05:48how inflation might develop,
05:51it's pretty much dependent on the duration of the shock.
05:54And I already said it,
05:57I alluded to it,
05:58the probability is rising,
06:00then that we will see more inflation everywhere.
06:03And this is something we have to take into consideration,
06:08and we will do this in our next meeting.
06:11And how much do you think the story on yields
06:13is not just about inflation,
06:14but also concerns in Europe
06:16that we're a bit stretched sort of fiscally,
06:18there isn't the firepower,
06:19because we look at the sort of fullness
06:20of what we've seen in financial markets,
06:22growth being dampened,
06:24inflation rising,
06:24while at the same time,
06:25equity markets in the United States parabolic,
06:28and now yields rising,
06:29the bond market catching up.
06:30Does that not sort of hold some of the ingredients
06:33for sort of untidy,
06:34unwind in financial markets?
06:35Does that concern you?
06:36Well, I think it is not a comfortable situation.
06:39This is for sure.
06:40I think we on the monetary policy side,
06:42we should be focused on our mandate,
06:45and this is price stability.
06:46And everyone has to take responsibility to hear.
06:49Is it fiscal?
06:50Is it our job?
06:51I think it is a delicate situation,
06:54but if everyone is taking the respective responsibility,
06:58then we can more or less calm markets.
07:00And Mr. Dug?
07:01If I can add two things.
07:03First, fiscal policy must remain sound.
07:06That means that there could be some measures
07:09to address the negative consequences
07:12for the most vulnerable in our country.
07:14But these measures must be targeted,
07:17temporary, and tailored.
07:18But we said it unanimously in the G7.
07:22And can I add another thing,
07:24if I compare with the US or some Asian direction?
07:27There is also in this direction
07:28a positive supply shock on artificial intelligence,
07:31the US or some Asian direction.
07:32And it is really of the essence that Europe accelerates
07:36on its innovation and on its growth.
07:38This is about the Draghi and Gletta agenda.
07:40We called for it together 18 months ago.
07:43And the present situation is not a reason less to focus on structural reform.
07:49It's a reason more to accelerate on innovation.
07:52And I couldn't agree more.
07:54There's a lot we can do on the European side.
07:57We have to do our homework.
07:59If it's the savings and the investment union,
08:02is it the banking union?
08:03We have so many things on our plate
08:05where we can do a lot to more or less diminish this whole uncertainty.
08:11And in those conversations you were having with the finance minister,
08:14from the monetary policy perspective,
08:15what advice did you give about fiscal policy
08:17in terms of not stoking the inflation side of the equation?
08:20Triple T.
08:21Triple T.
08:22If I may, can I add that the IMF was around the table,
08:28and they have an interesting tracker of the fiscal measures taken so far.
08:33I don't say that they are all fully compliant with the triple T,
08:37targeted temporary tailgate.
08:38But if you look at the magnitude,
08:40the magnitude is much more limited than four years ago.
08:44And this is welcome.
08:45So the two of you sit here.
08:47We take this as a symbol of the Franco-German partnership, I think.
08:50Yes, it is indeed.
08:52And we've seen some similar statements from the finance ministers
08:55coming out, speaking together.
08:57Sometimes I think we have the feeling in Europe
08:59that it's a project of managed decline
09:02rather than sort of striking out boldly into the future.
09:05How do you change that perception?
09:06How do you change that reality?
09:08Well, I can say from my perspective,
09:11the French-German relationship is not like the weather today.
09:15Definitely not.
09:16I think we both became friends
09:18since we know each other, working closely together.
09:23And so I believe we try to deliver one or the other message.
09:27I think both countries, we are so connected.
09:31And so we have, maybe from time to time,
09:33there are different views.
09:35But at the end, we all know that Europe is a peace project.
09:38And we are trying to really deliver this message
09:42that we have to work closely together.
09:43But does it need to be more than a peace project?
09:45I think it's a concept.
09:46Yeah.
09:46We have sometimes different views on monetary policy, for example.
09:50The discussion is well done.
09:51But we really try to deliver a common message on European acceleration.
09:58You know what is happening around the world,
10:00especially with the new U.S. administration?
10:03It's a wake-up call for us Europeans.
10:05We have tremendous resources.
10:07We have private savings.
10:08We have human capital.
10:10We have a huge single market, the largest one worldwide.
10:13Let us mobilize this asset.
10:15It's time to wake up.
10:16And somewhere where you also agree, and there is overlap,
10:19is on the question of joint debt,
10:20on potentially for borrowing on defense.
10:22Now we're seeing where we're stretched
10:24in terms of the fiscal position of many of these economies.
10:27Do you think that now, after the war in Iran,
10:29this is an even more sort of a necessity?
10:31Do you think the chance of that being happening,
10:33euro bonds being issued on defense, increases?
10:35Maybe.
10:36No, I could start on that.
10:38Because there could be a misunderstanding in there.
10:41There was a common borrowing in the EU after COVID,
10:44the so-called next generation,
10:46very welcome French German initiative.
10:49But it's not a substitute to national fiscal discipline.
10:53And let me be clear, starting with my country.
10:56And if there was a worry in Germany or elsewhere
10:59that it's one way to transfer the fiscal problem at European level,
11:03or to build what some call a transfer union,
11:07it's a misunderstanding.
11:09I think there could be some room for common projects with common funding.
11:14But we shouldn't put the card before the course.
11:19And by the way, there are many things in the Draghi and Leta report,
11:22which are structural and which don't require common borrowing.
11:27The European debt question is, first of all, it's a very sensitive one.
11:30But it's not a new one.
11:32We have European debt since the early 70s.
11:34So it's 50 years old.
11:35And I made a statement in a way that I would like to say,
11:40well, under certain conditionalities.
11:42And these conditionalities are important.
11:45And the purpose is important.
11:48I can have maybe, or I can develop some sympathy for European debt.
11:53But we all know we can do a lot more before coming back to the capital market union
11:59and other European projects, where we should, I believe, put our emphasis on.
12:27And something I think we should be spending more time speaking about if we didn't have several crises to deal
12:33with,
12:33is the question of AI.
12:34You referenced it just now in your speech about the positive supply shock from there.
12:38I'd like to get from both of you, again, as where we stand today,
12:41looking at the three main indicators for you of the labor market, of inflation and growth.
12:46What do you see the impact of AI on each of those?
12:49Maybe, first of all, I believe it is.
12:52I see something that is going on within the labor market.
12:57It is too early to say how impactful it is when it comes to inflation.
13:02I think their arguments, they are saying, well, it can push inflation because there will be a huge demand for
13:10new hardware.
13:12And at a later stage, maybe it could more or less soften the inflation outlook.
13:19But nevertheless, I believe this is a very disruptive technology.
13:23And we should take advantage of it.
13:27And so I believe it's also in that regard a matter of international cooperation, especially on the European side.
13:33Governor Villanois?
13:34Governor Villanois, I agree.
13:36I only add two things.
13:38The positive effects of AI we see in the U.S. or in some Asian countries are still mainly on
13:44the demand side and not yet on supply.
13:46And second, if we want to take all the benefits of AI from our fellow citizens, innovation must go along
13:54with education for all.
13:56And here, I think the European social model or the social market economy, to say it in German terms, is
14:03rather welcome.
14:05We proposed in our joint paper 18 months ago, a European community or a European project for AI.
14:13It's time to go along with education.
14:15And I want to also ask you about the Federal Reserve.
14:16We have a new chair that will be sworn in in the United States.
14:19Obviously, what happens is that the Fed very rarely stays at this Fed.
14:22How do you expect that to impact sort of global central banking?
14:26Kevin Walsh is very welcome in the central bank community.
14:29So, we know him, he's a very experienced central banker.
14:33He will get into his new position as far as I know it from Friday on.
14:39And then we will see.
14:40I guess he knows how he should more or less perform in that exceptional role.
14:45And so, I have to say that I'm pretty positive.
14:50Can we also pay tribute together to the upcoming chair of the Fed.
14:55Absolutely.
14:55So, it was for us, I guess, not only a friend, but a model of competence, integrity, and independence.
15:03And someone who stood up for the independent central bank of the Fed, which was a very active
15:07conversation in the United States over the last sort of year and a half.
15:10I have a question for your successor at the central bank in the Banque de France.
15:13As somebody that is coming very close to Emmanuel Macron, are you concerned that that could
15:17give a perception of political bias?
15:19No, I won't comment on that, because there is a democratic and legal process happening
15:24in France.
15:25No, not any comments, but my successor will be, no doubt about that, competent, independent,
15:32and yes, European.
15:34And I'd like to take a moment just to step back as you're exiting your role here and thinking
15:38about just how central banking has changed over your tenure.
15:41And also, we think about Kevin Walsh.
15:43He says he wants to bring a new regime into the Fed.
15:45Are there ways in which central banking in Europe, the ECB, needs to evolve?
15:50I think we did not that badly, may I?
15:53Yeah, because we had to confront very different prices.
15:57I started with low inflation, then we had the deflation threat of COVID, then we had inflation
16:03surge after Ukraine, then for a short line, a good position, and now again, inflationary
16:09threat.
16:09We adapted.
16:10And we revised, this is very important, answering your question.
16:13We revised our ECB monetary strategy in 21, and then in 25.
16:21Obviously, if I compare with 11 years ago, the question of independence was not on the
16:27table 11 years ago, including in the United States.
16:30I do have to say, I never thought that we had to discuss this.
16:33So this was really one of the biggest surprises over the past two years, that this topic, this
16:42issue is coming up.
16:43So we should more or less take that as a lesson, that this is not for granted.
16:49You have to work on that.
16:50But we shouldn't forget about the importance of having independence.
16:56And it's still more important, if I may, what we could see in the last year is that the expectation
17:05channel matters much more than before for modern monetary policy.
17:09Why were we successful in this soft lending without having to raise interest rates as high
17:15as in the 70s, because people believed in the credibility of the central banks.
17:21And we kept inflation expectations.
17:23And also, we adapted to a certain extent our instruments, the way we are conducting monetary
17:32policy.
17:33So we were rather flexible.
17:34I remember a time when there was a question of, will we ever get inflation to 2%?
17:38And of course, you know, the world has evolved since then.
17:41But of course, your vacancy will not be the only one in the ECB.
17:44Next year, Madame Nagel will be stepping down.
17:46Mr. Nagel, do you think that you'll be changing addresses in Frankfurt?
17:51I said everything about this.
17:53I don't want to comment on this anymore.
17:55Would you endorse your colleague as president of the ECB?
17:58I am not in the driver's seat.
18:01We have been lucky enough to have four excellent ECB presidents, including Mario Draghi and
18:07Christine Lagarde.
18:08I served along.
18:08So I'm confident.
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