The ECB raised interest rates to contain inflation at 3.3% in the eurozone, as explained by Christine Lagarde in an interview. The ECB president also described the idea of cancelling public debt as "absurd" and warned of a possible correction in assets linked to artificial intelligence.
The European Central Bank (ECB) raised interest rates last Thursday to curb inflation, which stands at 3.3% in the eurozone, well above the medium-term target of 2%. This was explained by the institution's president, Christine Lagarde, in an interview published this Saturday in Ouest-France, where she attributed the rise in prices to the conflict in the Middle East and the destruction of refining capacity worldwide, particularly in Russia.
Lagarde defended the decision against economists who consider it risky to raise rates when inflation stems from an external shock rather than from internal overheating: "It is true when the shock is short-lived. But the current shock is more enduring." The president added that volatility and pressure on energy prices are expected to continue, although she acknowledged that the increase also carries a risk of lower growth.
When asked about the impact on France, whose growth is moderate, Lagarde reminded that the ECB works for the entire eurozone and cannot focus on a single country. She mentioned that France has planned structural reforms and considered it important to implement them, including the unification of capital markets, administrative simplification, labour market flexibility, and pension reform.
"We cannot continue with the model of previous decades when life expectancy keeps increasing"
Regarding the rising financing costs for governments, Lagarde linked it to two factors: the state of public finances, particularly in the United States, and the financing needs of economic actors, especially in artificial intelligence, who compete with sovereign debt. However, she stressed that the situation is very different from that of 2008 or 2011 because the financial sector is now much stronger.
The ECB president flatly rejected the possibility of cancelling the French debt held by the central bank, an idea suggested by some presidential candidates. "If you borrow 1,000 euros and then go back to the lender to say that you are cancelling the debt but still need money, will that person want to lend you more?" she illustrated. Lagarde called the proposal "absurd", financially dangerous, and contrary to European treaties.
Regarding the risk of a stock market correction in the artificial intelligence sector, she admitted that valuations are "very high" and that there is an additional risk of circularity, where one company acquires a stake in another that in turn awards it a microchip supply contract. "A correction is entirely possible. When? We don't know," she said. European banks hold assets linked to AI, but Lagarde insisted on the greater strength of the current financial sector.
The interview took place during the Fête de la pomme in Normandy, where Lagarde attended as a "friend, neighbour, and Norman" to bring Europe's role closer to the French, without being a candidate for anything. The rate hike approved by the ECB will increase the cost of mortgages and consumer loans in the coming months.
You may also like
