Christine lagarde, president of the ecb, moderated by Francine Lacqua. Francine what a great pleasure to be here with Christine Lagarde, president of the European Central bank, and welcome to the forum here at bloomberg. Everyone is talking about the vaccine. How will that actually change your forecast and the economy if we do get a vaccine early next year . Ms. Lagarde it is lovely to see you and to participate. To your question, i am not sure it is going to be a major game changer for our forecast, simply because what we had anticipated in our baseline was that some stage in the first half of 2021, there would be a vaccine, and that it would be rolled out in the course of 2021. So it might be a little back celebrated a little bit accelerated given the news we are receiving from the various horizons, germany, the u. S. , but i dont think it is going to be a game changer, so to speak. I think that our forecast is being revisited all those times we speak, and we will be releasing on december 10, so i dont want to anticipate what the outcome will be. Had this great news about vaccines, we had some pretty negative news concerning the second wave that came about earlier than anything we had anticipated, and together with that second wave, we have also that list of containment measures in lockdown measures that have affected one country after the other in the euro area. We had a combination of those developments that affected negatively the situation, and that also has an impact on the outlook. Francine what kind of economy do you see for europe and the world because of the extra restrictions . Is it a doubledip . It is something that is so uncertain at the moment that we dont know exactly what shape it will take or how consumers behave . Ms. Lagarde i dont want to downplay the very good news that the vaccines were, but i think that as a central bank, we have just thedful of not short term the news impact, we have to be mindful of the overall situation. In that vein, i think the second wave we saw prevents risks. The first risk i would point out is the fact that consumers and employers do not regard the pandemic as a oneoff, this vshaped that we all aspired to, but i something that will recur over the course of time, and would lead them to completely change their behavior. In other words, how about if they start saving again for precautionary purposes . How about if they continue to freeze and hold investment plans because of the uncertainty generated by this situation . The second reason i see is this real financial spillover which we have managed to avoid so far. We have not had the financial amplifying the downside that has weighed on the real economy, and we need to really stay clear of that because that would be an aggravating factor. What suppresses you the most in the economy given the pandemic . Is it productivity . Is it how quickly people actually started working again when some of these lockdowns were lifted . Ms. Lagarde what surprised me most from this part of the world how in have relocated is the face of this massive, exalting us this massive, exogenous shock, all of these players up to their game. I think we were first out of the gate, putting together a very large package in the first half of march, and we were soon followed by the european commission, the decision to apply the escape clause, to remove the state aid qualifications, the decision to but on the table a massive package that was agreed in july. That surprised me because i had ofe through a lot procrastination and laborious process 10 years ago, and the speed at which we moved certainly surprised me. That was a strong encouragement in working together, which we did. Francine you have been pretty blunt about using asset purchases, but also longterm loans, to provide stimulus in december. Which is your preferred tool . [laughter] ms. Lagarde back in march, we decided to use two key tools, one that was specially designed for the special circumstances, and that was the pandemic emergency purchase program, and a second one, which was not as innovative because there had been longerterm refinancing operations, but certainly we changed the terms. We focus particularly on making sure that the credit channels would stay open and would continue to flow credit to the economy. We had those tools that were intended ultimately to make sure that we would stabilize financing, and that we would make sure that credit was stable, the second, which was really intended to but look what he and mick sure available liquidity was available to sustain the economy despite the heavy shock. Those were the key tools added. N the collateral front those came off the back of an existing situation which all of your listeners im sure know better. Clearly, as we have indicated after the last Monetary Policy governing council, we will be repaired to recalibrate in the second wave, and i have indicated last week that just as pepp and tltros, which are the two tools i have just described, had been efficient in midmarch and then later on in june, when we recalibrated pepp and increased its volume and expanded its maturity, that those tools would be certainly regarded as essential come but that everything would be debated and this recalibration and dynamic recalibration would be discussed in the governing council. Francine given what you have just said and your speeches in the past, because duration is so important, is it your way of signaling that there could be stimulus extended for longer than the market currently expects . Ms. Lagarde i think what is really important is that the stable,g conditions are are conducive to economic recovery as it comes, and the economic operators not only know that the level of financing is going to be there, but that it will be available for a period of time that will last long enough to actually cover the period during which the pandemic and the various waves will affect the economy. Likely to see that second wave affecting the economy well into 2021. We will be looking at all of these options, which have to do with levels, which have to do with durations, and which will take into account the specific benefits of the tools we have and that we have used to good effect under the unusual circumstances we faced in march, and that we are still facing today. Last week you get a pretty powerful speech about the coordination between fiscal and Monetary Policy. How confident are you that more can be done . Ms. Lagarde you know, i think what has really been extraordinary during that crisis how fiscal is actually operated fast and big and focused. I think what is remarkable is that the first package of 540 billion was rapidly agreed, and has already been rolled out under that first set of supports , and how that additional one, the next generation eu, which the recovery and Resilience Fund for a period of time, how that actually was combined, together with the monetary support that our Monetary Policy provided. It is not a question of one leading over the other on who was first out of the gate, but it is a question of how we were capable of supporting on the monetary front, and how fiscal was able to give a very strong message, and the joint borrowing is a clear, strong message that europe is together on that, and that the fiscal arm can actually operate in a much more targeted and much more efficient way in that regard, given that the recovery was anything but solid, consistent, and even. It was uneven, fragmented, and incomplete, and the fiscal arm in that regard is clearly operating to better effect than the monetary arm, which has to be around and supporting them. Francine then again, you have been in charge for just over a year, and in that we have had the pandemic and quite a lot going on. What surprised you the most about the european economy or european institutions trying to come together to find a solution . Are certain there things that did not change. , tould say the long nights a degree, the laborious process that it takes. Waswhat surprised me nonetheless, the efficiency that was divvied out among 27 member ,tates with 27 sovereignties and understanding that we had to face the situation altogether. Re were some pickups situation all together. There were some hiccups, but it was a sort of coming together of europe at that point in time that was, in my view, exceptional. Francine does climate reporting ms. Lagarde sorry, i missed the beginning of what you said. Francine i was going to ask you about climate change. I know you have been a big proponent on trying to get companies to do better, but does disclosure have to be mandatory if we are going to see real change . Ms. Lagarde this is a personal position, not the ecb, but i think disclosure should indeed be mandatory, and i am very pleased to see how progress is being made in terms of reporting requirements, in terms of normalization of principles, the way in which the way in which the imf is coming on board, Accounting Firms are moving along, and the ngs, the network for the green the ngf, the network for the greening of finance, is involved in that, and the chair of that and work that network is going to join the executive board of the ecb. It is certainly going to enforce our capacity to analyze and to where, withto see our objective of price stability, we can actually include permanent change imperatives in both how we measure price and inflation, how we define the room that we have, depending on whether the natural Interest Rate is moving as a result of climate change, and how we can better analyze the situation in terms of the climate impact. But actually, it is being done at quite a rapid pace. Is this the good thing that comes out of the covid pandemic, that actually a lot more has been done on green sustainability . Ms. Lagarde i think in many ways, covid19 has accelerated trends that were there that were latent, that were slowmoving. Certainly the momentum about climate change, the imperative to participate within the remit of our respective mandates, that has been xl rated. I have no doubt about it. That have been accelerated. I have no doubt about it. In a way, that has been a blessing in disguise. Francine do you think the mandate to only focus on inflation is now too narrow, given everything that is happening around us . Francine our mandate at the ecb is not inflation. It is price stability. I think that we have to be smart about the components that go into price stability, and how we define inflation, how we analyze the situation, how we determine the room that we have two maneuver. All of that requires that we have a larger horizon then simply looking at harmonized index consumer prices. That is something we will be debating is part of our strategy review, but price stability is more than just that, and i hope we can explore all of that in the weeks to come. Francine francine what is your central x petition for 2021 your central expectation for 2021 . A seconda danger of wave getting bigger, a third wave . How do you view the world . Ms. Lagarde i would suspect that we will have a little less uncertainty than what we had in 2020. I would hope that progress, technology, biotechnology discoveries are going to help going forward, but i still believe that 20 to anyone is isng to be that 2021 going to be a difficult certainly first half of the year, and we will not have caught up to where we were prepended before the end of the year. Francine Christine Lagarde, thank you so much for joining us today. That was, of course, the president of the European Central bank. Guy that was Christine Lagarde, and conversation with bloombergs Francine Lacqua at the Bloomberg New economy forum. You can continue to follow those panels taking place throughout the day. On youro to live lagarde had to say. Ecb forecasts are quite gloomy at the moment. The ecb is prepared to recalibrate measures. And tltros have been an efficient way of providing support. Joining us is stephen king, hsbc senior economic advisor. Nice to talk to you. Over the last few days, Financial Markets have completely repriced on the back of both the pfizer news and the moderna news. Christine lagarde says the vaccine is not a major game changer for ecb forecasts. Can both of those two things be right . Stephen just about, i think. I think what Christine Lagarde is getting at is that the forecasts they have for next year imply a quarter by quarter recovery during the course of next year, and if that is the case, then they have already effectively secondguessed the idea of a vaccine coming through. I think it is important to remember that most of the forecasts, whether from the ecb, from other international bodies, most of them would think there is going to be some sort of vshaped recovery going through into next year, and the reality of lockdowns if that some of the ws, andturned into one should be more cautious about the nearterm economic outlook. But having said that, on the assumption that we have an effective vaccine, on the assumption that the vaccine is as effective as possible, one could imagine that yes, during the course of next year, things will get better. But on the other hand, it is also worth stressing that the level of activity even at the end of next year relative to what would have been the case in the absence of the pandemic are going to be a lot more depressed. So one way to thing about it as we are likely still a long way short of where we would like to be, and therefore the case will still be for continuous support at this stage is very high. Epp, just that include p and is that enough . She mentioned that being efficient, providing support. Is that going to do it for the ecb . Stephen the ecb is limited in what it can really do. I think if you go back to her speech from last week, where she was talking about the importance of physical as well as monetary support. There are limits to what Monetary Policy can achieve. Once you are into the arena of intos, qe, youre experiment or policies where into experiment or policies where perhaps things dont work so well with negative Interest Rates, and the reality is the most obvious support at the moment is really fiscal authorities. We are talking about massive pentup savings, excess savings from households. That pentup savings has created something that can very cheaply debarred at this stage, and there is room for continued fiscal expansion. Debt levels are very high by recent standards. I think the reality is not so much what the Market Forces can do, but rather whether they fixed on the limit they can achieve in fiscal policy instead. Guy why are we there now . As you say, we are entering a winter that is going to be very dark. Clearly, policy is getting bdp yields lower, assisting economies like spain and italy to be able to deliver fiscal support. Ecbhat point do using the is going to turn around and have that conversation with those governments . That is a really big moment. All it is going to take is all it is going to take one political accident . Say italian politics take a turn for the worse. Do you think the ecb is brave enough to step forward and deliver that kind of commentary . Stephen it depends on how the commentary is delivered and what the ecb promises by way of a backstop. I think if there is an agreement that fiscal policy should be used in a more aggressive way, then actually one roll the ecb could potentially play is to try and stabilize the bond market in that one of them blew up a bit. We saw the eurozone crisis was resolved in part because of the ecb providing promises and a level of confidence that hasnt. Een there previously so it has been done before. The bond vigilantes we talked , bond spreadso wont necessarily widen out in the way we might have seen five or 10 years ago because the ecb is there to provide that support. But i do think that there is no a strong sense not just in the euro zone, but also in the u. K. , the u. S. And elsewhere that it is fiscal policy that has to do the heavy lifting. Alix with that in mind, what economy recovers best . Is it u. K. , europe, and economy in europe, the u. S. . Stephen as an epidemiologist, i would not rely on my forecast too much. What we do know so far is that the cost of the covid crisis economically has all what he varied has already varied quite a lot from country to country. If you look at the European Countries compared to where they france,2019, germany, and italy arent looking too bad. They look terrible, but not as bad as others. Spain and the u. K. Look particularly poor by european also ins, and comparison with the u. S. And much of asia. Looking for who has come out of the pandemic well so far, the answer frankly is the countries that have had the best track and trace systems, the best way to of thelimit the spread virus, and that is mostly in asia. It is japan, china, south korea. They have had a mostly good experience compared with others, and it is the west which is found it more difficult to suppress the virus in recent months. Guy in terms of what happens next year, say we end up with a doestion where the ecb have a bit of more money. We will hear from the fed leader on. Does that money find its way to the right part of the economy . How do they ensure that the actions they are taking actually deliver for the people who can use the resources best . Theres 3 trillion in the Banking System that arent being used. I wonder how the ecb delivers that. Stephen that is one of the limitations of Monetary Policy, frankly. This was discovered in japan long before any problems in europe or the u. S. You can certainly fill the Banking System with money. Theres no difficulty in doing that. It might be difficult to make sure the money gets out of the Banking System into the greater economy. One reason for that might be ks not performing loans might be banks not lending nonperforming loans during the time of the pandemic. U. S. Er possibility is the alix weve got to leave it there, stephen. This is bloomberg. Businesses today are looking to tomorrow. Adapting. Innovating. Setting the course. But new ways of working demand a new type of network. One thats more than just fast. You need flexibility to work from anywhere. And manage from everywhere. Advanced technology. With serious security. And reliable coverage, nationwide. Forwardthinking enterprises, deserve forwardthinking solutions. And thats what we deliver. So bounce forward, with comcast business. Guy stocks wrapping up the day in europe. We are nearly done. Compared to the recent sessions,