Inside Europe’s Economic Crises With Christine Lagarde — Leaders with Francine Lacqua

[00:00:01] Christine Lagarde: We will live in a world which is more volatile, which is more prone to shocks, and which has clearly fragmented under our eyes in the last few years. Is this just because of the cycle of humanity? There's probably something much deeper. I hope we come to a moment of reckoning where we realize that there is only one planet. That the distribution of revenue is clearly important and where we have to live in a society that is not utterly divided and hostile to each other. [00:00:46] Speaker 2: Madame Nagel, thank you so much for joining us. I'm so delighted to, first of all, be in your home at the ECB. [00:00:52] Christine Lagarde: Welcome. And to have a good time with you. Yeah, it's a beautiful view from here. You have over there the financial district of Frankfurt. And the point about this building is that it should not be right in the center of the financial district. It should have its distance because it is in charge of monetary policy, it's in charge of supervision, and it shouldn't be too close to them. [00:01:14] Speaker 2: Christine Lagarde is one of the most powerful women in the world. I tried to look at things in a very positive way and focused on my mandate. She spent her career steering countries through crises. [00:01:25] Speaker 3: We're in this together. We will come through it together. [00:01:29] Speaker 2: First, as French finance minister. [00:01:31] Speaker 4: Madame Christine Lagarde. [00:01:33] Speaker 2: Then, as international monetary fund chief. My hope is that growth picks up and that jobs can be created. Now at the European Central Bank, her job is to keep the continent's economy stable. What did you learn about yourself in becoming ECB president? You were seen actually as an outsider because you weren't really an economist and you weren't a former central banker. [00:01:56] Christine Lagarde: You know, I've often been an outsider. So I'm used to it. And I think that what I've learned in all those situations is that you have to work very hard. Not to catch up because you're never going to catch up. You're never going to reinvent yourself. But at least to not be fooled by people who will try to pull wool over your eyes by using jargons or theories or quoting so-and-so. And second, you have to be surrounded by a team of people that you trust, competent in the fields that you are short of. [00:02:30] Speaker 2: This building isn't a bank in the normal sense. It's where Lagarde's team set interest rates for the continent. What they do directly makes Europeans feel richer or poorer. The ideal is when inflation is near 2%. [00:02:44] Christine Lagarde: At 2%. At 2%. Who is the 2-chooser? You know, 2% is something that, you know, goes reasonably unnoticed as long as wages progress as well. [00:02:55] Speaker 2: Each Eurozone country has a central banker. And they all come together at the ECB. How do you find consensus at the governing council level? I mean, is it right, actually, to always try and find consensus? And in terms of just mechanics? [00:03:11] Christine Lagarde: You know, not always. There are times and there are, I'm sure, circumstances or sectors where you have to just drive through and be this authoritative leader who is going to carry the day and ignore completely what the views of others are. It's just not my style. And so far, it has served me reasonably well. Even in times of crisis, when you've established your leadership, notably by respecting the views, notably by being tolerant, notably by listening to what people have to say, in times of crisis, when you have to move fast, then people will go with you and they will respect you. [00:03:46] Speaker 2: This is what about values? Is it your value system? Is that how you want to lead because of what you think is right and just? Or does it deliver just better results? [00:03:56] Christine Lagarde: Yes, I think it's rooted in my values and in my personal background, yes. [00:03:59] Speaker 2: What was your childhood like? [00:04:03] Christine Lagarde: My childhood was, by the seaside, happy. Both my parents were professors, so there were lots of books in the house. A lot of activities, a lot of intellectual concerns quite early on. Music played an important role and where we were lucky to have opera singers and musicians around. And I've always remembered one lovely conductor who explained to me, you always have to be one step ahead when you conduct the orchestra. If you are riveted to the music and you're not one step ahead, you're going to miss getting the violin started or you're going to miss getting the drums on time. So being one step ahead and thinking, okay, I'm going to this meeting to deal with this issue, but what do I do next and how do I prepare for the next one and on and on and on. [00:04:55] Speaker 2: I think that's a world where the skills are based on a priori. Lagarde went on to study law and secured a job at U.S. firm Baker-McKenzie. By 1999, she'd moved to Chicago to work at their head office as chair. This was at a time when 91% of partners there were men. [00:05:14] Speaker 5: I believe it was a world where the skills are based on a priori. The world of tomorrow, I hope, will be responsible for these machism principles. [00:05:26] Christine Lagarde: What did that feel like? Prima inter pares. Very much. And that was the philosophy of the firm. That every partner had a voice. And whether you were a partner in Rome, in Hong Kong, in Beijing or in Cairo or in Chicago or New York, your voice mattered in the same way. And I think that influenced my leadership later on. It's not a question of the credit that you get, but it's a question of moving forward and moving together. [00:05:53] Speaker 2: How do you do that? [00:05:55] Christine Lagarde: Listening a lot, talking a little, trying to understand the motivation, trying to see where the vested interests are and debunk or, you know, fix things along the way and moving on. [00:06:13] Speaker 2: Lagarde's talent did not go unnoticed. In 2005, she was invited to leave the private sector and join French politics. So did you think back then that you would go into politics? [00:06:25] Christine Lagarde: No, absolutely not. [00:06:28] Speaker 4: Voilà la voie dans laquelle le gouvernement veut s'engager, fidèle à son objectif de croissance sociale. [00:06:34] Christine Lagarde: I got a call from the prime minister at the time, Dominique de Villepin, who said, we need a trade minister. You have no experience in politics, but we think that you would be the right person. Can you consider? I said, do you lead that group as a team? And is there a good team spirit? I was naive and didn't know anything about politics and he said, oh yes, absolutely, of course, this is a team. I said, okay, all right, I'll consider. And I guess I have a little bit of time to think about it. And he said, of course, but I don't put the phone down. So it was short thinking time. I said, yes. I said, you are irresistible. And I'm saying, yes. [00:07:18] Speaker 4: Nous continuerons notre travail avec méthode, avec calme, avec persévérance. [00:07:26] Speaker 2: How can you tell if someone's a team player? Is there the Lagarde test on whether you can work with someone or want to hire someone? [00:07:34] Christine Lagarde: Well, first of all, I learned how not to believe what people say. I observe sometimes the way in which people behave without them knowing. You know, in a meeting, in a conference, at a table, I look at how people behave and relate to each other. And I can tell one from the other. And those who want to, you know, sort of show off and display their talent or who pretend that they are good team players by repeatedly mentioning, you know, so and so and so. And I can feel it. [00:08:08] Speaker 2: First, she served as Minister of Trade, then Minister of Finance. [00:08:12] Christine Lagarde: Globalisation is not something that you can either deny or challenge. French banks will do well under the stress test that they are currently going through. I wanted to contribute. I wanted to serve because I thought it was warranted. Europe was being questioned. There were lots of things in flux, and I thought, okay, maybe I can help. [00:08:37] Speaker 2: Months into the job, Lagarde faced her first unfolding global crisis. [00:08:43] Speaker 6: A Black Monday for European stock exchanges. Investment bank Lehman Brothers' insolvency is weighing heavily on Europe's big markets, Paris, London and Frankfurt. [00:08:53] Speaker 7: The entire authorities, monetary, bank banks, reserves, have been concerted for several days. We've still worked this night. The mechanisms are in place. The central banks are alerted. And there's no panic at all. [00:09:12] Christine Lagarde: We saw the financial crisis arrive, in a way, and there were not many people who could see it. Those of us who could were trying as hard as possible to fix it and put a stop to certain things, but it was rolling. It was, you know, fire under the ashes. [00:09:34] Speaker 2: This is what financial Armageddon looks like. Red screens that scream, sell, sell, sell. [00:09:42] Christine Lagarde: We had not anticipated that it would be as bad as that. We had not anticipated that liquidity just vanished from the surface of finance around the world. But in times like that, I generally stay calm. And it's not that I enjoy crisis, maybe second nature or DNA or my background or whatever. But I, together with other key finance ministers, we tried to keep the boat afloat. [00:10:08] Speaker 7: When the global recession hit Europe, heavily indebted euro area countries struggled to borrow as their finances worsened. [00:10:31] Speaker 2: By 2010, investors no longer believed the Greek government could repay its debts. At this point, the ECB, the euro area and the International Monetary Fund all stepped in. Mr Papandre, do you think that Europe has done enough to help Greece today? [00:10:49] Speaker 6: It's clear will, both to stabilize the eurozone and Greece. [00:10:53] Speaker 2: But loans came with strict conditions, forcing deep cuts to government spending. As the economy shrank, protests broke out on the streets. It was against this economic backdrop that in 2011, Lagarde took over as managing director of the IMF. Her first task contained the crisis, then negotiate additional emergency loans. The negotiations with Greece were very difficult. With hindsight, is there anything that should have been done differently? [00:11:25] Christine Lagarde: The negotiations were very difficult because we were not prepared for that. The euro area was a monetary zone. We shared the same currency. We had, in principle, the same fiscal principles and rules, which, of course, had not been respected by some countries, but Greece in particular. The difficulty of transferring liability and assuming collectively the mistakes of one country was just not in the cards. And that's how the IMF got involved. Because the Europeans, amongst themselves, did not have the will or the tools to actually rescue one of their members. [00:12:06] Speaker 2: Still, the IMF and Europe faced criticism for how they handled the crisis, with some saying they made the recession worse. [00:12:15] Speaker 7: The purpose of what we're doing, all together, is to actually restore the stability of the economy in Greece. And we will continue to work. [00:12:27] Speaker 2: Did it change you as a European? Did you become more European in terms of what you thought was the way forward for Europe as a continent and a bloc? [00:12:35] Christine Lagarde: Yes, it did. Because the Greek crisis helped us put the finger on what was missing and how much progress we had to make. But it was also a confirmation that we were in this together. And that there was no way one country could exit. Because if one country could exit, all countries could exit. And the group was gone. [00:12:56] Speaker 2: Do you have an internal balance in a crisis? [00:13:02] Christine Lagarde: I think it's a balance that I have all the time. And in terms of crisis, you're put to a bigger test. I do enjoy this difference between the excitement, the fear, the anxiety, and the fact that you can sort of draw on your own strength, on your resources, on your breathing to actually bring about some calm. [00:13:21] Speaker 2: Was there ever a day where you thought of quitting? Any job? [00:13:25] Christine Lagarde: No, I don't think I'm a quitter. I can move, I can escape. But I'm not a quitter, no. [00:13:33] Speaker 2: Lagarde had developed a reputation as a crisis pro and a consensus builder at a time when the EU faced deep divisions. That's why she was appointed to lead the ECB in 2019. [00:13:45] Christine Lagarde: It was a challenge. It was Europe. I was always under the impression that it was a five-year term. And I hadn't checked. So, having said yes to Macron and Merkel, I said, oh, okay, well, I'll be in Frankfurt for five years. And at that point, Macron said, no, for eight years. But it was too late. [00:14:08] Speaker 2: Soon after becoming president, she faced the global pandemic. Supply chains froze, demand collapsed. Then, Russia launched a full-scale invasion of Ukraine. Energy prices soared. Food prices too. Inflation rose to five times the ECB target across Europe. Today, Europe's yet to bounce back. Inflation is under control, despite what some saw as a delayed ECB response. And now the economy is growing more slowly than global competitors. It feels like it's a difficult moment for Europe. Europe used to be the industrial prowess of the world. And now Europe finds itself between the US and China, with many challenges on competitiveness, on productivity. How do you fix it? [00:14:58] Christine Lagarde: So, the beauty of Europe is also the plague of Europe. Beauty of being together, being tolerant, respecting views, elaborating consensus, just moving the needle a bit, respecting the democratic foundations, and being in all this together. That's the beauty of it. But if you have to, you know, keep all that, and yet make very fast decisions, and implement and conduct change, this is hard. [00:15:29] Speaker 2: In the valleys outside Stuttgart, winter mornings start quietly. But at the Bosch Car Parts factory, workers are protesting. This is one of several Car Parts factories in the region, preparing to shut down. [00:15:55] Speaker 8: The auto industry makes up almost a quarter of Germany's exports. [00:16:15] Speaker 2: But the global trade ties it once relied on are starting to fray. [00:16:23] Speaker 9: Asian suppliers are exporting large volumes of equivalent cheaper parts to Europe, [00:16:46] Speaker 2: squeezing the margins of local manufacturers. Bosch said its Weiblingen plant isn't competitive, and plans to cut 13,000 jobs company-wide, adding it seeking solutions that are as socially acceptable as possible. Almost 100,000 German auto jobs are expected to be lost by 2030. [00:17:18] Speaker 10: But if they stand here today, they know this town will really go down if that factory closes its doors. [00:17:28] Speaker 2: Europe's shrinking industrial base is reshaping its politics. Disillusioned workers are part of a wave of voters turning to populist parties, which are gaining ground across the continent. How much do you worry about populism in Europe? Societies that actually have stopped talking to each other because of polarization, because of social media, because of strong personalities. [00:17:54] Christine Lagarde: Social media is a really important point that you mentioned, because they operate as a reductor and an accelerator. A reductor because there's no time for consideration, thinking, rationalizing, explaining. Too long, too complicated, forget it, simplify, get rid of all that. And an accelerator of the forming of the opinion, the coalition, the conspiracies. That is vastly accelerated by social media. And populism is certainly growing. And in many European countries, we have populist leaders, right and left, who are going for the easy target. Easy target, easy reasoning, easy voting. [00:18:34] Speaker 2: Is it also a lack of leadership in maybe the, you know, the 80s? [00:18:38] Christine Lagarde: I think you're right to mention the 80s. That's, you can pretty much date back to the 80s, the time when the share of wages and labor declined relative to the share attributable to capital. [00:18:55] Speaker 2: Wages rose in the 80s, but profits grew even faster. Owners and investors earned more than their workers. Inequality increased sharply. Then globalization poured fuel on the fire. Companies moved jobs to countries with cheap labor. [00:19:14] Speaker 11: The accession of China and Chinese Taipei is a momentous event. Having these major traders inside will truly show us at last to be a world trade organization. [00:19:32] Christine Lagarde: Clearly the role that China played as of its entrance into the WTO made this issue of distribution of revenue more acute. No question. And these are the targets for populism. People who feel that they have been left out. That they have not benefited from those movements. That nobody pays attention to them. And this is something that leaders in their respective capacity all over the world need to address. Because we cannot function with societies that are deeply divided. And where a large majority feels left out. This cannot be. [00:20:14] Speaker 2: These political changes are bringing new pressures to central banks. Both in Europe and beyond. [00:20:21] Speaker 3: We have a real stiff at the Federal Reserve. I can't help that. But he's going to be leaving soon. Elected leaders from Donald Trump to Turkey's Erdogan to India's Modi have been steadily attacking the independence of their nation's central banks. [00:20:38] Speaker 2: Do you worry about central bank independence? Real central bank independence? [00:20:42] Christine Lagarde: I think we have to earn that independence. And I think we have to be accountable for this independence. But the independence is critically important to make sure that the decisions are as unbiased as possible. And only determined by the macroeconomic analysis and the anticipation of what monetary policy will do. [00:21:04] Speaker 2: Yeah, because it can't be based on an election cycle. [00:21:07] Christine Lagarde: There is a very good reason for that. Typically, monetary policy decisions have an impact down the road. If I hike, cut or hold, it's not going to have an impact now, nor in six months' time, and probably not even in a year's time. So the passing of time is something that we have to take into account. And if in between you have an election cycle and somebody who says, "Oh, no, no, you should do this, you should do that," it will be completely counterproductive and counter-cyclical. That's the risk. So central bankers need to have time on their side, which is why most of them have long-term mandate and take decisions that have a target in the medium term, not in the immediate short term, because it's not going to work. [00:21:54] Speaker 2: The Fed has a different composition to the ECB. Does it make the ECB stronger because you have one mandate, it's inflation, and that's it? [00:22:03] Christine Lagarde: At the European Central Bank, we are privileged in the sense that the independence is engraved, embedded, if you will, in the treaty. I have never received a phone call from any of the leaders in Europe because they know that they cannot do it. It's in the treaty. I don't think that it is as strongly established from a legal point of view for the United States or for the UK or for other countries. [00:22:32] Speaker 2: You're the woman that they call in a crisis. [00:22:34] Christine Lagarde: Yes, I'm Mrs. Crisis. [00:22:35] Speaker 2: You're Mrs. Crisis with a great sense of humor. Does that help? [00:22:38] Christine Lagarde: Always, yes. In times of crisis, you can sort of go so deep and deep and deep and you sort of dig the hole in which you are burying yourself. And a sense of humor and a good love can just put things in perspective. [00:22:52] Speaker 2: Would you consider going back into politics? [00:22:56] Christine Lagarde: No, I don't think so. [00:22:57] Speaker 2: Why not? You said you wouldn't be suited to be French president. [00:23:01] Christine Lagarde: You know, I've seen presidents come and go and I've seen them age and change and it's past my bedtime. [00:23:13] Speaker 2: What will you do next? I mean, there's always rumors. Do you think about what you do next or are you focused more in the here and now? [00:23:19] Christine Lagarde: I'm here and now, but the truth of the matter is that I've always taken risk. I've never sort of secured my position to make sure that the pension was there and that the comfort was guaranteed and that I was on an unlimited term. No, sometimes you just have to jump. [00:23:38] Speaker 2: Madame Negaal, thank you so much for joining us. [00:23:40] Christine Lagarde: Pleasure. [00:23:49] Speaker ?: Thank you.