Piero Cipollone: Interview with Le Monde
Interview with Piero Cipollone, Member of the Executive Board of the
ECB, conducted by Eric Albert4 September 2024
Growth in the
eurozone is sluggish, the German economy is contracting and inflation
has been below 3% for six months. Are you not worried that you might
stifle economic growth by keeping interest rates too high for too
long?
In June, our projections for euro area GDP growth in 2024
were 0. 9%. Data for the second quarter are consistent with these
projections, but the most recent data – such as consumer confidence
and activity indicators (Purchasing Managers’ Index), particularly for
the manufacturing sector – have not been so encouraging. This poses a
risk to the euro area growth outlook. Investment remains weak, which
suggests that firms do not believe in a strong recovery. This also
weakens our future growth potential by reducing the capacity of our
economy to develop and adopt new technologies to boost productivity.
So does this mean that the ECB is keeping rates too high? Our
projections for inflation suggest that we will be back to our 2%
target in the second half of 2025. Until then, the inflation figures
will fluctuate, but we are broadly on track. These projections are
based on market expectations of rate cuts.
So are you implying
that the interest rate cuts that these projections are based on, so
from 3. 75% at present to 3. 25% by the end of the year, are correct?
We are not pre-committing to any path. We will take our
decisions on a meeting-by-meeting basis.
Of course, but at the
next meeting on 12 September, will you recommend a rate
cut?
The data so far confirm our direction of travel and I hope
that they will allow us to continue to be less restrictive.
Do
you agree with the ECB’s Chief Economist, Philip Lane, who has warned
that the risk of doing too much is now as real as that of doing too
little?
Yes, there is a real risk that our stance could become
too restrictive. We must ensure that inflation converges to our target
without holding back the economy unnecessarily, because we desperately
need investment and growth in Europe. Every delay in this area puts us
at a serious disadvantage.
Since 2008, Europe seems to have
lagged behind the United States economically. And the gap has widened
since the pandemic. Why is that?
Employment is no longer a
concern: the employment rate in the euro area has increased
considerably and that’s very welcome.
Our main concern is
productivity. Over the last 30 years, the increase in hourly
productivity in the euro area has been only half that in the United
States. Our firms do not invest as much as in the United States,
particularly in new technologies. That’s because they’re small. Europe
has not managed to foster the emergence of firms that are large enough
to be competitive at the global level. We are not making the most of
our key asset – the single European market. It’s a structural problem.
Our financial and product markets are fragmented along
national lines. This limits the financing and development of European
firms and thus their ability to compete internationally.
Take
the European Football Championship as an example. This was a European
event on European soil. But if you wanted to buy tickets online, you
had to use American (Visa or Mastercard) or Chinese (Alipay) payment
solutions. That’s one of the reasons why we are working on a digital
euro, which would be an electronic form of cash for digital payments.
On a similar topic, how is Europe positioned in the AI
revolution?
Artificial intelligence (AI) is a very powerful
technology, and we could benefit greatly from it. But we need to be
careful: if all AI providers come from one country, there is a risk
that they could impose such a high price that they amass all the value
added. We have already seen this in other sectors, like IT. To avoid
falling behind, we need to transform our research and training
capabilities – which are already of an excellent standard in Europe –
into a capacity to develop innovative products.
In this
context, is it wise to reinstate the European fiscal rules this year,
which require reductions in public spending?
First of all, the
new EU fiscal rules are compatible with maintaining public investment.
They include incentives to implement reforms and to invest, allowing
the budgetary adjustment period to be extended from four to seven
years.
But we do need to be mindful of the size of the debt. I
come from a country (Italy) which spends as much on debt servicing as
it does on education. The bigger the debt, the more volatile the
market, and the more difficult it is to implement an adjustment. When
you have excessive debt, your sovereignty is at risk.
So
should the solution come from an increase in common European
borrowing?
Given what is at stake, we need both private and
public investment. And in both cases, it needs to be on a European
scale. First, because these are investments that will benefit all
Europeans, and second, because doing it at the European level reduces
financing costs.
This means developing truly European capital
markets and a common borrowing capacity. We have been saying this for
a long time. This would make it possible to create safe assets. When
we talk to asset managers, they say that they would like to buy more
euro-denominated bonds. I think it’s a crucial aspect for the
international role of the euro.
But this call for more common
borrowing seems to have been ignored so far. . .
We know that
the EU can be slow to reach agreements. It’s a fact of life, but we
shouldn’t be discouraged.
Wage growth in the euro area slowed
to 3. 6% in the second quarter, compared with 4. 7% in the previous
quarter. This is good news for the ECB as it means a wage-price spiral
can be avoided. But do you not think that wages need to make up for
lost purchasing power?
Yes, absolutely. We shouldn’t be afraid
of wages increasing faster than inflation for a while, having risen at
a slower pace previously. Otherwise, I don’t see how we can sustain
the recovery and, in turn, the rebound in productivity. We are not
seeing a wage-price spiral. It’s a natural catching-up that is healthy
for the economy.