D.he head of the European Central Bank (ECB), Christine Lagarde, is known for covering up problems with a winning smile and lots of French charm. But neither is of much help if you simply cannot understand them despite your best efforts. That is why the most important woman in global finance appeared simply helpless on Friday. Due to technical problems, her attempts to make her voice heard at the European Banking Congress in Frankfurt initially failed miserably.
Their appearance should be a highlight at the annual summit of the financial world, the end of Euro Finance Week. In previous years, large parts of the Frankfurt financial elite had always gathered in the Alte Oper there, this time the meeting took place almost completely digitally due to the corona.
Deutsche Bank boss Christian Sewing was one of the few top managers who showed up in person and was able to fill the break that resulted from the technical failures of the ECB boss. Unscheduled, he chatted about the institute’s experiences with the home office, while Lagarde became increasingly desperate.
A banker who sets the tone and a central banker who is looking for her role – that was an unfamiliar picture in recent years. But apparently not only has the balance of power between central banks and commercial banks changed in the recent past. The head of the ECB is increasingly moving away from the role of her predecessor. Monetary policy was only a marginal issue at this important meeting.
Instead, the former French finance minister mainly gave advice on economic policy. She called for technical progress and digitization to be promoted more strongly. In doing so, it moved far from the traditional core theme of the guardians of interest. More must be invested in education, and more innovative companies are needed in Europe, said Lagarde.
They are crucial for progress, but also for jobs and growth. That is why it is important not only to support them when they are founded, but also to enable faster growth. This is only possible if sufficient capital is available. Because many of these projects are risky.
The fragmentation of the financial markets in Europe is one reason why start-up financing is often difficult for young companies. Funding high-risk technologies is said to be much more effective when there is a greater flow of new projects to compensate for the fact that most of them will fail. At least the Capital Markets Union, the standardization of financial and capital markets on the continent, had a place in her speech. In the post-pandemic world, completing it is a must. “If we want new, innovative companies to emerge after the pandemic, governments need to remove barriers to them,” Lagarde said.
The President of the Bundesbank has major reservations
The core of the Capital Markets Union is to remove bureaucratic hurdles between the individual states of the European Union in order to give companies more opportunities to raise money. Consumers should also have more options for cross-border investments. In Europe – in contrast to the USA, for example – loans and financing are mainly granted by banks.
The EU Commission’s plans for a capital markets union have been on the table since September 2015, but implementation has stalled. In September of this year, Brussels presented a new action plan to push ahead with the unification of financial and capital markets. Among other things, the EU Commission wants to simplify investments and the taxation of investment income in other EU countries. The bankruptcy law is to be aligned.
Lagarde said nothing about climate policy. Not without reason – the subject is sensitive, especially in Germany. The ECB President wants to align monetary policy with the fight against climate change and examine the central bank’s transactions – including the bond purchase program – to see whether they limit climate change. The ECB would then be the only major central bank that wants to achieve sustainable goals with a bond purchase program.
But Bundesbank President Jens Weidmann has major reservations. He also spoke at the congress. And through monetary policy – as is expected of a central banker. He emphasized once again how central the central bank’s independence is for the success of its work. Your most important goal is price stability. He did not mention economic policy. Instead, he made it clear: “It is not the job of the euro system to punish or support certain industries.” Central banks should also be careful not to overload themselves with tasks.
Weidmann fears that an active role in climate policy could undermine the independence of the ECB and thus its ability to ensure stable prices. The Bundesbank boss can imagine, however, that in future the monetary authorities will only buy or accept as collateral those securities for which their issuers meet certain climate-related reporting obligations. They could also consider only using ratings from agencies that take climate-related financial risks into account.