Lagarde: ECB set to fight climate emergency

New ECB president quizzed by the EP Economic Affairs Committee for the first time

Christine Lagarde

The European Central Bank (ECB) should do more to help tackle the climate emergency, new ECB president Christine Lagarde said on Monday during a hearing at the EP Economic Affairs Committee. Questions on how the ECB is responding to the threat of climate change were a recurring subject during the hearing. In a strong hint that as president she would move the ECB beyond its traditional remit of controlling inflation, Lagarde said the bank would incorporate the climate threat into both its economic forecasts and in its capacity as watchdog of the financial system.

The ECB, like all central banks, uses models to forecast how the eurozone economy will work. “These models need to incorporate the risk of climate change,” Lagarde said adding that the climate issue, while secondary to protecting price stability, would be included in the ECB's macroeconomic models and taken into account when assessing risks and supervising EU banks. She also reminded MEPs that the ECB is the main buyer of European Investment Bank bonds, which committed to phase out investment in fossil fuels.

The former IMF managing director came under pressure by MEPs over the ECB's failure to support the greening of the Eurozone economy through the purchase of bonds in environmentally friendly companies. She said the ECB's bond portfolio, bought under its quantitative easing programme, contained “multiple shades from green to brown” because the bank operated a policy of market neutrality that ruled out stimulating a particular sector.

With the planned strategic review of the ECB monetary policy in mind, MEPs asked about inflation forecasts, limits to the asset purchase programme and the prospects for the Eurozone budget. Lagarde agreed that, during the strategic review, all the above-mentioned issues should be looked into, including the present inflation target of close to 2%, as well as the fiscal capacity of the Eurozone.

MEPs were also concerned with the ECB's slow reaction to disruptive global technological developments, such as 'stablecoins', which present an opportunity to make cheap and fast cross-border payments, but at the same time pose risks to consumer protection. Lagarde replied that the ECB is attentive to technological developments, conducting research projects into digital coins, including the risks they might pose to stability, safety and the security of the monetary system and individual customers.

Finally, Lagarde reiterated her commitment to dialogue with the EP, and the Economic and Monetary Affairs Committee in particular, stating that such two-way communication brings her closer to understanding how the ECB's policy decisions affect ordinary citizens that MEPs represent.

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