Lagarde promises to paint the ECB green – POLITICO

The European Central Bank’s next president could put a green tint onto the gray world of monetary policy.

Christine Lagarde is pledging to throw the weight of the Frankfurt institution into the fight against climate change, as she seeks confirmation to be the successor to Mario Draghi come November 1.

The silver-haired Frenchwoman spelled out plans for an environmentally-minded ECB within a 48-page set of answers to questions from the European Parliament. Her responses were circulated last Wednesday to lawmakers on the Committee on Economic and Monetary Affairs (ECON), which published the document — previously reported by POLITICO — on Thursday.

“The discussion on whether, and if so how, central banks and banking supervisors can contribute to mitigating climate change is at an early stage but should be seen as a priority,” Lagarde said. “Climate change is one of the most pressing global challenges facing society today.”

The Q&A is a rehearsal for a hearing in ECON on September 4, when lawmakers will grill the International Monetary Fund (IMF) boss on her credentials for the most powerful job in the eurozone. Their recommendation would be a nonbinding but politically necessary step toward her formal appointment by EU leaders.

Lagarde's responses point to continuing the policies of monetary stimulus that Draghi embraced through his tenure.

The former finance minister, a lawyer by training in a field seen as the preserve of economists, is arriving at a tricky time for the ECB. Analysts expect the central bank to resume cutting interest rates and adding to its €2.6 trillion easy money program in mid-September, amid concerns about weak if not negative economic growth in the 19 countries of the eurozone.

Lagarde's responses point to continuing the policies of monetary stimulus that Draghi embraced through his tenure. That includes low interest rates and bond-buying programs to lift the eurozone’s inflation rate to just under 2 percent, helping spur the economy.

“Significant monetary accommodation will be needed for a prolonged period of time” to mitigate economic uncertainties stemming from global trade tensions and low inflation, the 63-year old said in her written responses, aligning with comments made during her tenure atop the IMF.

“It is therefore important to keep all policy tools on the table in order to respond appropriately and proportionately if the medium-term inflation outlook continues to fall short of the ECB’s aim,” she added.

Outgoing President of the European Central Bank Mario Draghi | Stringer/AFP via Getty Images

A green touch

Her comments on monetary policy came as little surprise to ING Chief Economist Carsten Brzeski, who expects the ECB to unveil a stimulus package on September 12 that includes a bond-buying program — called quantitative easing (QE) — of €30 billion a month.

“Judging from these answers, Lagarde will continue the Draghi legacy,” Brzeski said. “And, indeed, we could get a green touch to future ECB policies, particularly when it comes to any restart of QE.”

Draghi's ECB has so far avoided favoring green over brown when buying bonds. The central bankers have insisted on what they call “market neutrality,” meaning debt from a coal mining company is treated the same as that of a wind power producer.

Lagarde suggested that could change in her answers to the Parliament questionnaire, which included several queries on climate matters.

But first the EU must figure out what it considers as green assets, in a taxonomy now being prepared for use by companies and investors to steer money toward low-carbon business.

“The ECB is supporting the development of such a taxonomy,” Lagarde said. “Once it is agreed, in my view it will facilitate the incorporation of environmental considerations in central bank portfolios.”

Green lawmaker Sven Giegold responded to Lagarde's answers that he is “happy on a lot of the points and I’m glad that the greening of central banks will continue under her leadership.”

“She’s asked directly on this and she shows no understanding of the risks and they have to be managed, taken seriously” — Green MEP Sven Giegold

Negative effects

But Giegold, a German member of ECON, stopped short of full praise for the French candidate. He called her answers “a bit scary and evasive” on questions about dangers to the economy from years of monetary stimulus and low interest rates.

Giegold said rising house prices, attributed in part to Draghi's easy money, has set back some people from being able to afford property.

The ECB’s holding of corporate and government bonds also has brought down debt yields, to the point that pension funds are investing in riskier assets to seek the return needed for future retirement payouts.

“All things considered,” Lagarde said in the questionnaire, without the ECB's “unconventional monetary policy ... euro area citizens would be, overall, worse off.”

Giegold isn't convinced.

“She’s asked directly on this and she shows no understanding of the risks and they have to be managed, taken seriously,” the MEP said. “I’m not one of those Germans that say it’s all the ECB fault, but she takes no [aspect] of the negative side seriously.”

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