A global currency requires ‘a reliable environment, a safe environment, where the rule of law is known and respected’ – ECB’s Lagarde
European Central Bank president Christine Lagarde delivered some significant statements about the policy direction of the United States in her press conference following the ECB rate announcement – some explicitly positive, some implicitly critical.
Asked about U.S. President Donald Trump’s nomination of former Federal Reserve Governor Kevin Warsh to replace Jerome Powell as chair of the central bank in the spring of this year, Lagarde was unequivocally supportive.
“I have known him for a long time – back in the financial crisis days where he was in public service and I was minister of finance [of France] at the time – so we go back a long way,” she said. “I very much welcome the announcement of his appointment.”
But Lagarde also used questions surrounding the international role of the euro – its potential to make gains against other major currencies and to make inroads as a reserve – to offer an implicit critique of the U.S. administration’s policies and their impact on the dollar.
“It is not because you have an international currency that plays a global role, that it necessarily implies that it is ‘strong’ relative to others,” she began. “There is currently a currency which is playing that role, but it does not necessarily come together with a currency being, as a result, strong. There is no fatality, if you will, or correlation between the two, being a strong international currency and being appreciated relative to other currencies.”
“For a currency to play an international global role, and to be powerful as a result, requires a few other elements that build over the course of time,” she added, “and it clearly goes with a reliable environment, a safe environment, where the rule of law is known and respected.”
“I have no doubt about that particular aspect, as far as the Euro and the Euro area is concerned.”
Lagarde also took the opportunity to discuss the balance of risks to the European economy, and the sentiment of the ECB voting members at the meeting.
“What I can tell you is that we are not seeing a reduction of the range of risks,” she said. “When I think of geopolitical risks, for instance, it's ebb and flow. When I look at uncertainty about tariffs, it's up and down, and out and back. So no reduction of the range.
“Equally, the sentiment around the table of the governing council [is] broadly balanced,” Lagarde said. “Now, are we still in a good place? I would certainly argue that we are in a good place and inflation is in a good place.”
