Christine Lagarde: Central banks in a changing world: the role of the European Central Bank in the face of climate and environmental risks

Speech by Ms Christine Lagarde, President of the European Central Bank, at the Maurice Allais Foundation, Paris, 7 June 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is an honour to be speaking to you today as part of your series of workshops in memory of Maurice Allais.

His contributions, in particular his work on general equilibrium theory and market efficiency, helped lay the theoretical foundations for the growth model that Western economies pursued after the Second World War.

As Maurice Allais once said, "what could be a better way of preparing for the aftermath of the war than to try to find a solution to the fundamental problem of any economy, namely how to promote the greatest feasible economic efficiency".

In many ways, his vision was borne out. Prioritising efficiency, both in our internal economic affairs, such as developing the single European market, and in our external trade, led to a period of unprecedented sustained economic growth.

And as economies advanced along a path of steadily increasing potential output, central banks like the ECB could focus first and foremost on stabilising inflation by managing demand, without having to worry too much about structural changes in the economy.

But Maurice Allais also predicted that widespread global integration without proper governance could "only create instability everywhere". And this prediction is now, regrettably, also proving to be correct.

Open trade has led to increasing tensions between major powers – although notably not within the EU, where we have had a suitable governance system in place. And as a result, multilateral trade is becoming more fragmented: the number of new global trade restrictions has been rising steadily, from about 650 new restrictions in 2017 to more than 3,000 in 2023.