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Lagarde puts green policy at the top of the ECB’s bond buying agenda

By on March 23, 2021 0

Christine Lagarde, President of the European Central Bank, has opened the door to the use of its 2.8 billion euros asset purchase program pursue green objectives, committing to study the evolution of all of its operations in the context of the fight against climate change.

This is the first time the ECB President has pledged to look at “greener” changes in all central bank operations, including asset purchases. “I want to explore all available avenues to fight climate change,” she told the Financial Times in a video interview. “It’s something that I hold very dearly.”

The move would make the ECB the first major central bank to use a flagship bond-buying program to pursue green goals.

The ECB “must look at all the trades and operations we are engaged in in order to tackle climate change, because ultimately money talks,” Ms Lagarde said.

Environmental activists have called on the ECB to change its asset purchase program by selling “brown” bonds issued by carbon-intensive companies and increasing purchases of green bonds. However, critics say it is up to politicians, not central banks, to decide which companies to favor and which to penalize.

The ECB will explore ways to fight against climate change as part of the strategic review that Ms. Lagarde launched at the beginning of the year. It recently restarted after being suspended when the pandemic hit in March.

Climate change activists at a Fridays for Future protest in Lausanne, Switzerland. ©Pierre Albouy/Reuters

Asked if the pandemic could dilute the importance of green issues, the ECB President said that “those who are tempted by this option will live to regret it”. She added: “I have children, I have grandchildren. I just don’t want to face those beautiful eyes that ask me and others, ‘What have you done?’ »

Other central banks are also under pressure to do more on green issues. Andrew Bailey, Governor of the Bank of England, said earlier this month it is reportedly considering including climate change considerations as a factor in its corporate bond purchases after the coronavirus crisis subsides. However, the US Federal Reserve remained largely out of the debate.

Warning that the pandemic was likely to leave a lasting impact on global trade and supply chains, Ms Lagarde said: “This particular crisis may well transform our perception of globalisation, of proximity, of supply chains. short supply [and] control over his destiny. »

In response, she said “the whole relationship and business models of countries will have to be revisited.” In an apparent nod to the heavy export dependence of European economies such as Germanyshe added: “Countries cannot be exclusively led and supported by trade and trade alone.”

Under Mrs Lagarde’s leadership, the ECB triggered a multi-billion euro monetary stimulus by increasing its bond purchase program and lending to banks at deeply negative rates to support the economy and prevent the recession from triggering a financial crisis.

These actions had “demonstrated their efficiency, their effectiveness”, she said, adding that financial markets had “tremendously calmed down” since suffering “a near crisis” at the start of the pandemic. However, she warned that recovery limited, uncertain and fragmented, with some countries recovering faster than others.

Ms Lagarde confirmed analysts’ expectations that the ECB was unlikely to announce further easing measures at its monetary policy meeting next week. “We have done so much that we have quite a bit of time to assess [the incoming economic data] carefully,” she said.

The EU’s planned €750 billion recovery fund to support countries hardest hit by the pandemic would be a game-changer, the ECB president said, especially if much of it comes under form of grants rather than loans.

However, Ms Lagarde said the fund could only be approved by EU member states after next week’s summit. “I wouldn’t put all my bets on July 18,” she said. “I would give him until the end of the month to make sure we have a favorable outcome.”