In a sprawling interview touching on everything from inflation mechanics to the fate of democratic norms, European Central Bank President Christine Lagarde offered a rare glimpse into her thinking as she prepares to step down nearly nine months early. The conversation, conducted with the Yomiuri Shimbun, is significant not just for its monetary policy insights but for Lagarde’s stark warning that core values she holds—the rule of law, international cooperation, and trade as a driver of prosperity—are now “under attack.”
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?
Lagarde recounted extensive discussions with former Prime Minister Shinzo Abe and his wife, noting that Abe was “determined to make a change for Japan.” His “One Million Women” initiative, she explained, brought one million additional women into the workforce by implementing policies like giving municipalities more freedom to open childcare centers. “Thanks to Prime Minister Abe things changed a lot,” she said, adding that it helped women access positions of professional responsibility.
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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 Governing Council meetings where, among 27 people seated, only two are women—herself and Isabel Schnabel, who is stepping down in early January. She argued that when you reach the level of President, institutional strength and governance demand acceptance, but acknowledged the challenge remains real. When asked why the situation hasn’t changed in seven years—when there was just one woman—she pointed to decisions made by member state governments. “Governments go for a man,” she said, citing both a still-building pipeline of talented women and a tendency for people to “choose other people who look like them.”
I want to ask about monetary policy. Sorry to change to a serious question. How do you see the inflation outlook now?
Lagarde pushed back on the framing, asserting that the previous topic was equally serious. On inflation, she reported that headline inflation in October hit 4%, higher than expected a few months ago but in line with market expectations. She stressed the need to “look under the hood,” attributing the high number largely to energy inflation, which surged to 20.8% from 18.9% in September, driven by the Middle East conflict and reduced global refinery capacity. Food inflation also rose. Yet underlying indicators remain stable: core inflation—excluding energy, food, alcohol, and tobacco—stood at 2.5%, unchanged from September. Services inflation edged up slightly to 3.3%, remaining within the range seen over the past four months. Lagarde cautioned that without the detailed breakdown, it’s unclear whether services inflation is driven by energy-intensive sectors like transport or broader indirect effects. “In any event, we know that inflation numbers will remain high in the quarters to come,” she warned, adding that the higher and longer they persist, the greater the risk to the ECB’s medium-term target.
How about second-round effects? Are they still limited?
“Yes,” Lagarde confirmed. She stated that the ECB currently sees no signs of second-round effects beyond what is already incorporated in their projections, and that forward-looking indicators like multi-year wage agreements and companies’ wage expectations show no evidence of a shift yet.
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 September’s projections: energy futures curves are higher, which will affect both inflation and growth, though oil prices have recently come down, and long-term interest rates are also higher. “Our forecast exercise will determine how these different forces affect medium-term inflation,” she explained.
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.
Lagarde did not dispute the criticism, recalling discussions at the Bank for International Settlements where all major central banks—the Federal Reserve, the Bank of England, the Bank of Japan, and the ECB—assessed the situation as a transitory supply shock. “That was, in hindsight, misguided,” she conceded, noting the simultaneous demand shock from the reopening economy as consumers spent built-up savings made the situation “much more complicated.”
So, learning from this, do you think there is a need for an interest rate hike before any secondary effects become apparent?
Lagarde framed the current environment as one of “massive uncertainty and unpredictability,” citing fragmentation, trade disruptions, supply chain disruptions, and a shift from efficiency to security. “All of that is completely changing the landscape,” she said, explaining that the ECB now decides monetary policy “on the basis of data and meeting by meeting.” While she could not say definitively what will happen in December, she noted 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 placed the rise in long-term rates in a global context, citing higher inflation from geopolitical disruptions, higher sovereign debt issuance globally, and competition between sovereign financing needs and hyperscalers in the AI sector. In Europe, she noted that member states with high debt levels are “even more sensitive” to these higher global rates, making compliance with the fiscal framework “even more acute and stronger.” She reiterated the ECB’s call: “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,” Lagarde responded. “We have a big toolbox, and no tool is ruled out in advance.” She stressed that each tool corresponds to certain criteria and conditions, requiring a judgment call by the Governing Council, and that whatever is appropriate and called for will be used under those 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?
Lagarde acknowledged that cyberattacks, “propelled by AI, 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 in the context of the Financial Stability Board or the Bank for International Settlements—to ensure the highest level of response against malign actors, because “we all depend on each other.” When asked if that includes the Bank of Japan, she replied, “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 described Carney’s project as “wonderful,” noting that while some find the term “middle power” offensive, the words don’t matter. She argued that Japan, Europe, Canada, and others—including the United Kingdom—can share the same principles and objectives, and join forces when the “previous global order is disrupted to the point where we don’t feel secure anymore.” When pressed on words versus action, she simply replied, “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?
Reflecting on her seven years at the helm, Lagarde described them as “very active, difficult, with strong commitments in troubled times.” She said it has “not been a walk in the park,” but rather “one challenge after another, intense work in very close cooperation with my colleagues.” She noted that while the institution stands constant, governors and presidents come and go, and leaving is always emotional. “It is a moving moment because you leave behind seven years of your life. Seven years of, as I said, 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?
Lagarde said she doesn’t like to live with regrets, preferring hope. However, she acknowledged that in retrospect, she would have liked to “diagnose the simultaneous demand shock from reopening” in 2021-22. As her biggest achievement, she pointed to bringing the Governing Council together into “a very cohesive group,” where decisions are made collectively for the group while accounting for national considerations. She contrasted this with her experience as a finance minister, where decisions taken in Brussels were often disowned at home. She also added, with a touch of humor, that she has “occasionally brought a little bit of fun” to the serious room of economists.
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 outlined a set of principles she holds in the highest regard: “the rule of law, international cooperation, trade as a principle of prosperity and growth, respect for all cultures and people.” She said these ideas, which have been with her throughout her life, are now “being threatened.” In France, with a presidential election approaching, she sees key questions either not being debated or being debated with “wrong facts, based on the wrong principles.” She specifically cited a candidate who is “relatively high in the polls” saying that sovereign debt should be burnt. “I can’t just stay completely quiet,” she declared, wanting 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,” Lagarde said.
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!” she replied enthusiastically.
That’s good to hear. Because you’ve ruled out in the past becoming a candidate for the French presidential elections…
Lagarde confirmed that it’s not her plan or future, but reiterated her desire to speak up in the debate.
How about chairing the World Economic Forum?
“It’s one of the options,” she said, repeating that nothing is definite or decided, but it remains among the possibilities.
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—about practical things like good buildings, replaced professors, and toilet paper, as well as anxieties about their futures, debt, the climate crisis, AI, and job uncertainty—and those exploiting the situation to cause chaos. She described the latter as “riots, looting, stealing property and breaking things,” which she said “serves no purpose other than to create chaos” and should be banned. “This is not the rule of law as I understand it,” she added.
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 responded. She explained that while the digital euro is designed to work for people in Europe first, 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, strengthening trade and financial relations, and paving the way for CBDCs to be used for cross-border payments. “We need to have that dialogue and that cooperation,” she said, adding 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, whenever he speaks at the BIS or the Financial Stability Board, “everybody listens,” because he is “very analytical” and open to sharing his views.
He now has difficulties in view of normalising monetary easing policies.
Lagarde pointed out that Ueda has already raised interest rates, adding, “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 affirmed. She recalled Japan’s “terrible real estate crisis” and its decade of economic fatigue, noting that it always takes a long time to resolve such crises. She sees Japan as “coming back.” She highlighted a common challenge: both Europe and Japan are ageing societies. “We need to address that from an innovation and productivity point of view, and with a very carefully designed immigration policy, if society can live with it. I know it is complicated.”
Japan and the United States had a foreign exchange intervention last July, do you remember?
Lagarde confirmed she remembered. When asked if she was angry about it, she replied, “No, because anger takes you nowhere.” She called it “a good opportunity for all of us to remember the commitments on foreign exchange matters,” but 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 about respect for others and oneself, conveying “a feeling of confidence, solidity and serenity.” She recalled her mother’s advice to be careful about what you wear and the impression it makes. As a central banker, she noted, you are expected to be calm, in control, and knowledgeable. “I think certain colours or a certain combinations of colours 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 climates and air-conditioned spaces. “Scarves are a sign of colour 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?
Quoting Churchill, Lagarde said she has “always had faith in the American people,” who “eventually find the best solution after having tried all the other ones.” She described the US system of checks and balances—with a Republican President, a Democratic Congress, and a judicial power serving justice—and expressed hope that it “will give better results and will help foster more international cooperation.”
Do you have fond memories of Prime Minister Abe?
“I really liked Prime Minister Abe,” Lagarde said. She called him “a wonderful representative of Japan” and “courageous,” noting that he said things to President Trump that “not many leaders said to him very openly.”
Now Japan has a female Prime Minister for the first time.
Lagarde said she has never met Sanae Takaichi, but expressed happiness that “Japanese women now have a role model.”
Why it matters: Lagarde’s early departure from the ECB signals a leader who believes the battles ahead—over democratic norms, fiscal discipline, and global cooperation—require a different platform. Her candid reflections on the ECB’s missteps during the inflation surge and her warnings about AI-driven cyber threats underscore the complex, interconnected challenges facing central banks worldwide. Her next move, whether at the World Economic Forum or in the French political arena, could reshape the debate on these critical issues.
