European Central Bank President Christine Lagarde is sounding the alarm on inflation, even as she prepares to step down nearly nine months early, a decision driven by what she calls a “deep urge to speak more freely” about principles she sees under attack globally.
In a wide-ranging interview with the Yomiuri Shimbun, Lagarde offered a candid assessment of the eurozone economy, the challenges of being a woman in power, and her own regrets about the ECB’s response to the post-pandemic inflation surge.
On the glass ceiling and women in power – could you share your own experiences for Japanese women, not least because you know their situation as well?
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Lagarde recalled extensive discussions with former Japanese Prime Minister Shinzo Abe and his wife, noting that Abe was determined to drive change through his “One Million Women” program. That initiative, she explained, successfully brought one million additional women into the workforce by enacting policies such as giving municipalities more freedom to open childcare centers. “So thanks to Prime Minister Abe things changed a lot,” she said, adding that it helped women access positions of professional responsibility.
At the ECB you became the first female leader. Did you have any difficulties or challenges in terms of being the first woman to lead the ECB?
“It’s always challenging to be in a minority,” Lagarde admitted, describing the Governing Council meetings where, out of 27 people seated, only two are women—herself and Executive Board Member Isabel Schnabel, who is stepping down in early January. She acknowledged that at such a high level, people must accept her leadership as a matter of institutional strength and governance, but conceded that the dynamic remains challenging.
But the situation has not changed from seven years ago. I mean, seven years ago, there was…
“There was one single woman,” Lagarde interjected.
What do you think? Why did this happen?
She attributed the lack of progress to two factors: first, the pipeline of talented women is still building up, a relatively recent development; and second, because “people tend to choose other people who look like them,” noting that with many men in government, they tend to appoint other men.
I want to ask about monetary policy. Sorry to change to a serious question. How do you see the inflation outlook now?
“The other one was serious as well. Both questions are serious,” Lagarde responded.
She reported that headline inflation in October stood at 4%, higher than expected a few months ago but in line with market expectations. While acknowledging that figure “looks very high,” she urged a deeper look “under the hood.” The bulk of the increase, she explained, is attributable to energy, which surged to 20.8% from 18.9% in September, driven by the conflict in the Middle East and reduced global refinery capacity. Food inflation has also increased. However, underlying indicators remain stable: core inflation—excluding energy, food, alcohol, and tobacco—was 2.5%, unchanged from September, while services inflation edged up slightly to 3.3%, still within the range seen over the last four months.
Lagarde noted that the ECB still lacks a detailed inflation breakdown that would clarify whether services inflation is driven primarily by energy-intensive sectors like transport or whether broader indirect effects are emerging. “In any event, we know that inflation numbers will remain high in the quarters to come,” she warned. “The higher they are, and the longer they remain high, the greater the risk to our medium-term target.”
How about second-round effects? Are they still limited?
“Yes,” Lagarde confirmed. “We are currently not seeing signs of second-round effects beyond what we have incorporated in our projections.” She said the ECB is closely monitoring forward-looking indicators such as multi-year wage agreements and companies’ wage expectations, and has not yet seen evidence of a shift.
I understand, but can we expect you to revise the projections upwards because inflation is at 4%?
Lagarde declined to pre-empt the forecast, but acknowledged significant changes since the ECB’s September projections. Energy futures curves are higher, which will affect both inflation and growth, although oil prices have come down more recently. Long-term interest rates are also higher. “Our forecast exercise will determine how these different forces affect medium-term inflation,” she said.
Looking back to 2021, to the energy shock and the Russian invasion of Ukraine, some people have pointed out that the ECB was behind the curve.
“Yes. I know,” Lagarde said.
It’s so important for Japanese people to know what you learnt about that.
Lagarde reflected that the miscalculation was not unique to Europe. She vividly recalled discussions at the Bank for International Settlements where central bankers from the Federal Reserve, the Bank of England, the Bank of Japan, and the ECB all assessed that they were facing a transitory supply shock. “As a result we decided that it was appropriate to look through it and let supply-driven inflation come back down, just as it had gone up. That was, in hindsight, misguided because the situation was much more complicated.” She explained that a simultaneous demand shock occurred as economies reopened and consumers spent their built-up savings, leading everyone to revisit the assumption that inflation was entirely transitory.
So, learning from this, do you think there is a need for an interest rate hike before any secondary effects become apparent?
“I think what we have experienced recently, and are still experiencing, massively, is uncertainty. Unpredictability,” Lagarde said. She cited the fragmentation of the global order, trade disruptions, supply chain disruptions, and a shift in focus from efficiency to security, all of which are fundamentally changing the landscape for economic players. As a result, the ECB has committed to deciding monetary policy on a meeting-by-meeting basis based on data. “So, I cannot tell you today that we will for sure do this in December,” she said, though she added that based on current information, “it would take significant changes for the direction of travel to be different from what I expect.”
I want to change the subject and ask you about France. We are very worried about France as long-term interest rates have risen. So, how do you assess the risk of France’s fiscal problem spreading to the euro area? Do you have any concerns about this?
Lagarde noted that long-term rates have risen globally, not just in Europe, driven by factors including higher inflation due to geopolitical disruptions, higher sovereign debt issuance, and competition between sovereign financing needs and the hyperscalers and the entire AI sector. “In Europe, those Member States that have a high debt level are even more sensitive to these higher global rates, and that’s what we observe,” she said. She stressed that this makes compliance with the fiscal framework even more critical, reiterating the ECB’s message: “Please, Member States, apply the rules, respect the rules, play by the rules.”
Will you use the Transmission Protection Instrument if necessary?
“We have multiple tools. We have a big toolbox, and no tool is ruled out in advance,” Lagarde said. She explained that each tool corresponds to specific criteria and conditions and requires a judgment call by the Governing Council, adding that whatever is appropriate will be used under the applicable conditions.
You also mentioned AI. In Japan, there have been lots of cyberattacks using AI. I would like to ask about the risk of AI, especially for financial stability or payment systems. How do you prepare?
“Well, you’ve put your finger on something that is very important to all of us,” Lagarde said. While cyberattacks have always been on the radar, she noted that propelled by AI, they are becoming even more dangerous, making defense, its financing, and inter-institutional cooperation even more crucial. She emphasized that all central banks and governors need to work together—whether through the Financial Stability Board or the BIS—to ensure the highest level of response against malign actors, because “we all depend on each other.”
Including the Bank of Japan?
“Oh yes, of course, absolutely.”
I want to ask about the cooperation between the ECB and the Bank of Japan. At the Davos meeting – you were there – Canadian Prime Minister Mark Carney called for “middle powers”. Do you support this idea? And is it possible for Europe and Japan to build closer economic cooperation?
Lagarde called it “a wonderful project on the part of Prime Minister Carney,” a good friend of hers. While acknowledging that some find the term “middle power” offensive, she dismissed the semantics, arguing that Japan, Europe, Canada, and others—including the United Kingdom—can share the same principles and objectives and should join forces when the previous global order is disrupted to the point of insecurity.
So not words, but action.
“Yes.”
You decided to step down early. Of course this is a difficult decision on the personal level, but when you announced it to your colleagues, to the Board, to ECB staff, how did it make you feel?
“It has been seven years of my life, very active, difficult, with strong commitments in troubled times. It has not been a walk in the park,” Lagarde said. She described a period of one challenge after another, with intense work in close cooperation with her colleagues. She noted that the institution remains constant even as governors and presidents come and go. “It is always with some emotion that you decide to go, that it’s the end.” She added that the departure, happening less than nine months earlier than it otherwise would have, is a moving moment because she leaves behind seven years of hard work, cooperation, sacrifices, and sometimes very difficult times.
Yes, indeed, some wobbly years. So, can you share with us what you feel has been your biggest achievement, as well as what you would have handled differently in hindsight?
“Well, first of all, I don’t like to live with regrets. I’m happier with hope than with regrets,” Lagarde said, noting that history cannot be rewritten. However, she acknowledged that in retrospect, she would have liked to diagnose the simultaneous demand shock from reopening in 2021-22. “But you can’t roll back the clock.”
As for her biggest achievement, she pointed to bringing the ECB Governing Council together into a very cohesive group. “The ECB is not an extension of national central bank policy-making. We have managed to form a team that decides collectively what the outcome will be for the group, while also taking account of considerations at the national level.” She contrasted this with her experience as a finance minister, where decisions taken in Brussels would often be reframed at the national level. “We don’t have that and I think that’s valuable for the institution.” She added, with a touch of humor, “I think I’ve occasionally brought a little bit of fun as well. Because when I look around the room, sometimes I see serious thinkers with a smile on their face.”
That’s quite an achievement. Economists tend to be serious people. Now, on the reasons behind your decision to step down early. You explain that you feel a deep urge to speak more freely, which obviously makes us curious what is it that is so urgent for you to say. What are the values and the principles that you feel are under attack?
Lagarde painted a picture of global principles and values under assault: the rule of law, international cooperation, trade as a principle of prosperity and growth, and respect for all cultures and people. “These are ideas that have been very much part of how I grew up and that have been with me throughout my life. And now I see them being threatened.” She specifically cited the upcoming French presidential election, where she sees key issues either not being debated or being debated with wrong facts and principles. “When I hear one of the candidates who is relatively high in the polls say that sovereign debt should be burnt, I can’t just stay completely quiet and I want to be able to speak up, on the facts, the data, the truth, not silently listen to invented propaganda.”
Do you think that speaking up will be enough, or do you also envisage a more active role or even participating in the presidential elections?
“I know that I’m respected in many corners – not all corners, some people don’t like me at all, and that’s fine. But my voice is listened to and I think that I cannot just stay put, watching on comfortably from the sidelines, without speaking out.”
You have never stepped back from new challenges. Is there still drive enough for a new one?
“Energy and drive? Oh yes, plenty of it!”
That’s good to hear. Because you’ve ruled out in the past becoming a candidate for the French presidential elections…
“It’s not my plan. It’s not my future. But I want to be able to speak up in that debate.”
How about chairing the World Economic Forum?
“It’s one of the options. I have said that before and I’m still saying it: there is nothing definite or decided, but it’s one of the options.”
There have been big protests and demonstrations by students in France. What are your thoughts on this?
Lagarde drew a distinction between legitimate student protests—over practical issues like good buildings, replaced professors, and even toilet paper, as well as broader anxieties about debt, the climate crisis, AI, and job uncertainty—and those exploiting the situation to cause chaos. She acknowledged that for others, affordability is a concern as inflation eats into their income. “That’s one thing which is perfectly right and should be debated and addressed.” However, she condemned the other side of the protests involving riots, looting, stealing property, and breaking things, which she said “serves no purpose other than to create chaos.” That, she declared, “should go. This is not the rule of law as I understand it.”
On the digital euro, Japan is also considering a central bank digital currency, but the euro is more advanced on this front. Do you have any plans to share ideas or experience with Japan, also on cooperation and interoperability?
“Absolutely,” Lagarde said. While the digital euro is designed to work for people in Europe first and foremost, she emphasized that interoperability with other CBDCs around the world is a goal. This could involve interlinking the euro area’s Target Instant Payment Settlement system with fast payment systems in other jurisdictions, which could strengthen trade and financial relations with key partners and pave the way for CBDCs to be used for cross-border payments. “We need to have that dialogue and that cooperation.” She added that if the Bank of Japan wants to explore a digital form of central bank money, the ECB would be “very happy to compare notes and to share experiences.”
Do you have a message for Governor Ueda? You are quite familiar and friendly with him, it seems?
“I would tell him: keep up the good work!” Lagarde said, praising Ueda as “wonderful” and “a very strong man.” She noted that despite his reserved nature, “everybody listens to Japan when Governor Ueda speaks” at the BIS and Financial Stability Board, because of his analytical comments and openness in sharing his views.
He now has difficulties in view of normalising monetary easing policies.
“But he has raised interest rates. And he does not need my advice.”
Japan’s economic power has weakened in comparison to a few decades ago. Do you still think cooperation between Europe and Japan is important?
“Oh yes, of course,” Lagarde responded. She recalled Japan’s past as a thriving economy that suffered a terrible real estate and banking crisis, leading to a decade of fatigue. “You went through that, and now I think the country is coming back.” She noted that both Europe and Japan are aging societies, a problem that will persist for a long time and must be addressed through innovation, productivity, and carefully designed immigration policy, if society can accept it.
Japan and the United States had a foreign exchange intervention last July, do you remember?
“Yes, I do remember!”
Were you angry about it?
“No, because anger takes you nowhere,” Lagarde said, calling it a good opportunity to remember commitments on foreign exchange matters. However, she declined to comment further, stating, “I think it’s an area where we are better off staying quiet rather than speaking up.”
You always wear nice brooches and nice scarves. When leading a Governing Council meeting, how do you decide what to wear? I’m very curious if there is any meaning behind it, like today’s starfish brooch?
Lagarde explained that dressing properly is a matter of respect for others and oneself, conveying confidence, solidity, and serenity. She credited her mother for teaching her to be careful about what she wears, the colors she chooses, and the impression it makes. “As a central banker, you are expected to be calm and to be in control. To know what you are talking about. And I think certain colors or a certain combination of colors can carry that message.” She also shared a practical tip from her 30 years of constant travel: she always carries two or three scarves or shawls to protect her throat when moving between different climates and air-conditioned environments. “Scarves are a sign of color and a little elegance, but they are also quite good when you want to protect your health.”
What do you think about the US midterm election outcome and its impact on the global economy?
Lagarde expressed faith in the American people, paraphrasing Churchill’s quip that they eventually find the best solution after trying all the others. She described the US system of checks and balances—a Republican President, a Democratic Congress, and a judicial power serving justice—and expressed hope that this system will yield better results and foster more international cooperation.
Do you have fond memories of Prime Minister Abe?
“I really liked Prime Minister Abe,” Lagarde said. “I thought he was a wonderful representative of Japan, and he was courageous as well. You know, he said things to President Trump when Trump won that not many leaders said to him very openly. He was a strong leader.”
Now Japan has a female Prime Minister for the first time.
“I have never met Sanae Takaichi, but of course I am very happy that Japanese women now have a role model.”
Why it matters: Lagarde’s early departure from the ECB signals that one of the world’s most powerful central bankers believes the threats to democratic norms and economic stability are too urgent to address from within an institution constrained by protocol. Her warnings about persistent inflation, the fragmentation of global trade, and the dangers of AI-powered cyberattacks underscore the volatile environment that her successor—and policymakers worldwide—will inherit. For readers, the interview offers a rare, unfiltered look at how a key global leader assesses the risks ahead, from the next inflation spike to the erosion of the rules-based order.
