D.the head of the European Central Bank (ECB), Christine Lagarde, is well known for spotlighting problems with a winning smile and lots of French charm. But neither is of much help if, despite all your efforts, you cannot understand them. That’s why the most important woman in global finance appeared helpless on Friday. Initially, their efforts to make their voices heard at the European Banking Congress in Frankfurt failed miserably due to technical problems.
Their appearance should be a highlight at the annual financial summit, the end of Euro Finance Week. In previous years, large portions of Frankfurt’s financial elite had always congregated in the Alte Oper there, this time the conquest took place almost entirely digitally because of Corona.
Deutsche Bank’s boss, Christian Sewing, was one of the few top managers who appeared in person and managed to fill the break from the technical failures of the ECB’s head. Unscheduled, he chatted about the organization’s experiences with the home office, while Lagarde became increasingly desperate.
A banker setting the tone and a central banker looking for his role – that was an unfamiliar picture in recent years. But it’s not just the balance of power between central banks and commercial banks that has clearly changed in the recent past. The head of the ECB is increasingly moving away from the role of its predecessor. Monetary policy was only a peripheral issue at this important meeting.
Instead, the former French finance minister mainly advised on economic policy. He called for stronger promotion of technical progress and digitization. In doing so, it moved away from the traditional core theme of the guardians of interest. More investment is needed in education, and more innovative companies are needed in Europe, Lagarde said.
They are essential for progress, but also for jobs and growth. That is why it is important not only to support them in establishing it, but also to enable faster growth. This is only possible if sufficient capital is available. Because many of these projects are dangerous.
The fragmentation of financial markets in Europe is one reason why start-up financing is often difficult for young firms. Financing high-risk technologies is much more effective when there is a larger flow of new projects to compensate for the fact that most 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, its completion is critical. “If we want new, innovative companies to emerge after the pandemic, governments need to remove barriers for them,” Lagarde said.
The President of Bundesbank has serious doubts
The core of the Capital Markets Union is the removal of bureaucratic barriers between individual EU states to give companies more opportunities to raise funds. Consumers should also have more options for cross-border investments. In Europe – unlike the US, for example – banks provide mainly loans and financing.
EU Commission plans for a capital markets union have been on the table since September 2015, but implementation has stopped. In September this year, Brussels introduced a new action plan to promote the merger of financial and capital markets. Among other things, the EU Commission wants to streamline investments and tax investment income in other EU countries. 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 central bank transactions – including the bond buyback program – to see if they are limiting climate change. The ECB would then be the only major central bank wanting to achieve sustainable goals with a bond buyback program.
But Bundesbank President Jens Weidmann has serious doubts. He also spoke at the congress. And through monetary policy – as expected from a central banker. He emphasized once again how central the central bank’s independence is to 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 ECB’s independence and thus its ability to secure stable prices. However, the head of Bundesbank can imagine that the monetary authorities will only buy or receive as collateral those securities whose issuers comply with certain climate reporting obligations. They could also consider using ratings from agencies that adequately consider climate-related financial risks.