Christine Lagarde Prepares for the Post-Pandemic Future

The speed of change brought about by the COVID pandemic, as set out by European Central Bank President Christine Lagarde, is unprecedented. “There are possibilities for our economy in 2022 which seemed at least a decade away in 2019,” Lagarde told the Brussels Economic Forum.

“The pandemic has accelerated existing trends in ways we didn’t think possible,” the ECB President said. For instance, once the EU has emerged from the health crisis “one in every five workdays are expected to move to the home,” she said. Before the pandemic, the figure was one in 20.

The new normal looks set to affect more than our daily workplace, Lagarde said. “The call for greener lifestyles has become amazing,” she explained. “Having accepted tough restrictions to fight the pandemic, 70% of Europeans are now in favour of stricter government measures to fight climate change.”

The EU “has long wanted to shift towards a more sustainable, more productive economy – and we now have the very real opportunity to do so,” she said.

This means that “we need to shift the focus from preserving the economy to transforming it,” Lagarde said. “This will require us to redirect spending by both public and private sectors towards the green and digital sectors of the future.”

The transformation won’t come cheap, she warned. “We need to see investment of around €330 billion every year by 2030 to achieve Europe’s climate and energy targets, and around €125 billion every year to carry out the digital transformation.”

The NextGenerationEU recovery programme can help channel public investment towards transformative sectors like these. The ECB President said “it is currently less clear whether the private financial sector can do the same. Fragmentation across national financial markets in Europe might constrain our ability to finance future investments in sufficient volume.”

Lagarde said this is why she is calling for “a green capital markets union– a truly green European capital market that transcends national borders.”

“Europe already has a head start as the home of green capital markets,” she explained. For instance, “Last year, around half of all green bonds issued globally were in euro,” she said.

In case the speed of change seems too great, Lagarde offered words from economist Rudi Dornbusch to describe the new world emerging from a pandemic. “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”