By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said on Thursday that she was not presently seeking any political office, while stressing that she remained committed to defending Europe in whatever role she could be most effective.

Asked in an interview with Euronews whether she herself should occupy a pro-European political space in France, Lagarde said she would continue to explain why the European dimension was critical.

“I will explain that in whichever capacity I will be most efficient,” she said.

“I’m not a candidate for anything,” Lagarde said. “But I’m very keen that Europe is protected, that Europe is the framework within which member states operate, including France.”

Asked about French political risks and the possibility of a presidential run-off between candidates from the political extremes, Lagarde said she tried to look at all member states without delving deeply into national politics.

Lagarde said that, as a French citizen, she naturally had her own views. “I keep them to myself,” she said.

The ECB would monitor risks carefully, Lagarde said, but in politics, eight months was an “eternity” and “so many things can happen.”

She said she hoped “reason will always prevail” and that France would recognize that Europe was the only framework in which even large member states could play a significant role.

On monetary policy, Lagarde gave no clear signal about the ECB’s near-term rate path, saying instead that the Governing Council would continue to assess the appropriate policy stance meeting by meeting.

Asked whether higher interest rates than Europeans had been used to only a few years ago represented the new normal, Lagarde said, “What was not the norm was a time when interest rates were in negative territory.”

“It was an anomaly,” she said. “It’s a total anomaly.”

The ECB had increased rates “slightly” to 2.25%, while the latest inflation reading stood at 2.8%, Lagarde said. But the central bank was not mechanically aligning interest rates with current inflation, given its medium-term objective, she said.

“We need to see inflation returning to 2% in about three years’ time,” she said. “And that’s what we have with the projections that we produce.”

Lagarde said the ECB assessed the appropriate stance at each meeting, roughly every six weeks, looking at projections; estimated inflation over one, two and three years; underlying inflation; and the propagation of inflation through the economy.

“It’s on the basis of all that that we say, we’re fine or we should go down a bit or we should go up a bit,” she said.

Lagarde also gave support to a debate on creating a European asset, after Spain this week presented a proposal for joint debt issuance to the Eurogroup.

Asked about the Spanish plan, Lagarde said the issue was not only economic but also financial.

“To have a strong, vibrant and deep capital market,” Europe also needed a European asset comparable to US Treasury bonds, she said.

How such an asset would be designed, how moral hazard would be addressed and how allocation would work remained to be decided, Lagarde said. But she welcomed the fact that Spain had put a proposal on the table.

“I think it’s great that a country like Spain, for instance, makes a proposal, puts it on the table for debate,” she said.

Lagarde said it was now for other countries to say which parts they liked, which they did not and what could be changed.

“It’s good to actually move forward,” she said.

Asked whether an amount of around €800 billion would scare her, Lagarde recalled the EU’s joint borrowing in response to the pandemic.

“Remember what we did for Covid,” she said.

That was “roughly the amount” put on the table for joint borrowing to finance the recovery fund, and the European Commission went to the market in a process in which the ECB acted as agent, she said.

“It was widely, broadly subscribed, oversubscribed,” she said.

“I’m not saying that this is the amount,” Lagarde said. “I’m just saying that to go with a capital market, you need depth, you need liquidity, and you need to entice the savings of Europe onto that market.”

Europe also needed “an instrument,” which could be the Spanish proposal or “an elaboration or an iteration of that,” she said.

Lagarde rejected an upfront refusal to consider new common borrowing on the grounds that the recovery fund had been legally designed as a one-off.

“That was said in certain circumstances,” she said. “I think the circumstances have changed.”

An ex-ante position of “no, over my dead body” was “not the best way to deal with it,” she said. The better approach was to analyze what risks were excessive and how they could be addressed.

Lagarde said the euro remained solid, but that monetary union alone was not enough to make the currency substantially more attractive internationally.

Asked why the euro had not gained more from uncertainty around the dollar, Lagarde said such shifts took time and declined to promise that the euro’s share would be higher in 20 years.

“I would never promise anything because there is so much uncertainty and those movements take time,” she said.

The replacement of sterling by the dollar had taken a long time, she said.

“What I’m saying today is that the euro is a solid currency,” Lagarde said. “It’s not dead on arrival. It’s solid and strong.”

“The European Central Bank is well established, credible, and highly respected,” she said. “The monetary union is a force, but it is not enough.”

Europe had to go beyond monetary union, Lagarde said. It needed to be credible on security, economically solid, active in trade agreements and institutionally strong, with respect for the rule of law, she said.

“I would contend that the euro has remained stable and slightly increasing in terms of support and attractiveness,” she said.

Lagarde also said Europe needed to accelerate reforms to become more competitive and respond to geopolitical fragmentation and technological change.

If she had two messages for European finance ministers, they would be “action more than words” and “accelerate more than procrastinate,” she said.

Asked whether reforms had to be pursued by all 27 EU countries together or could be advanced by a smaller group, Lagarde said unity remained Europe’s strength but that a subset of countries could move ahead first if necessary.

“We all need to move together,” she said. “That’s the strength.”

But if it took “a smaller number” to move forward and bring others along later, “so be it,” she said.