Lagarde (ECB), from the 2% inflation target to -1.5° global temperature
The other day in Paris, thanks to the expert questions of the number one of Amundi, the French asset management giant, Mario Draghi had the opportunity to go back to talking about the ECB. The former prime minister from the seat of Palazzo Chigi certainly could not indulge in judgments about his successor, Christine Lagarde. Draghi confirms his total support for Lagarde and his moves. The former prime minister is well aware that current inflation is also produced by third-party factors and by elements implicit in the ecological transition.
Persevering on the line evidently means that it was decided to carry forward – whatever the cost – the change of traditional powers from the point of view of traditional industry and finance. Even if all of this keeps inflation sky high, it will stick with it the goal of making all ESG financial products sustainable and green. It doesn’t matter if families will suffer, if a huge piece of the bourgeoisie will disappear. It doesn’t matter if we lose hundreds of thousands of jobs. Draghi’s imprimatur towards Lagarde in a certain sense produces a first effect. The number one of the ECB speaks, again in Paris, and this time she does it without inhibitions.
Target: 2% inflation. At any cost
In the long speech given yesterday on the occasion of the summit for a New Global Financial Compact Lagarde confirmed that the priority for the ECB is the protection of the environment, the fight against climate change and the reduction of greenhouse gas emissions. The owner from Frankfurt has also set a precise target: from inflation to 2%, the priority now is to reduce the temperature of the “planet of 1.5 degrees Celsius“.
“The way forward is clear: we need to drive through a global transition to ensure our economies are future-proof. This means not just reducing net zero greenhouse gas emissions and adapt our economies to protect them from climate change, but also address the root causes of the grave destruction of nature,” explained Lagarde.
“ECB research shows that in Europe alone over 70% of the economy it depends heavily on ecosystem services, a figure that is likely to be much higher in developing economies. In addressing this challenge, there are at least three tools we can use to increase the funding needed for a green and just transition on a global scale.”
The first tool is the socialization of economies. The various governments will have to make five-year plans on the model of Brussels. Secondly, he continued, “governments can push for reform of the multilateral financial architecture. The G20 can play a key role in unlocking more funding. Reviewing the capital adequacy frameworks of multilateral development banks may provide such an opportunity. More broadly, we need to identify and remove public and private barriers to green finance around the world where possible.”
Without transition, no credit
Translated in other words, those who do not align themselves with the transition will have serious problems accessing credit and debt systems. Finally, the third tool devised by Frankfurt is the green rating. “We adjusted our corporate bond holdings and changed our guarantees and risk management to better reflect climate risks. As a supervisor, we make sure that banks take climate risks into account when making business and lending decisions,” concluded Lagarde. We also highlight the impact of climate change on the economy and financial stability. Through our advice, analysis and actions, we aim to manage the financial risks arising from climate change and provide evidence to support the need for the transition.”
A real admission of the mandate entrusted to Frankfurt. In the United States, or rather in the Republican states, it is underway a heavy discussion of ESG finance. The governors maintain that the Esg acronym (which stands for Environmental, social, and corporate governance, therefore for the protection of the environment, society and workers) does not bring any benefits to the local economy.
The answer is that they are forced to pay even higher interest rates or have less attractive returns on funds. The reality is that in Texas or Montana they balance finance and industry. Higher rates or fewer jobs? The intervention of Draghi first and Lagarde after are two heavy stones in the first pan, whoever is in government will have to put others in the second pan of the scale. Otherwise the experiences of derivatives and other financial crashes will have taught us nothing.