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From climate change to equality, Lagarde turns ECB more political

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Since taking the helm a year ago, Christine Lagarde (pictured) has turned the European Central Bank’s attention to social issues like climate change and inequality, broadening its horizons but also opening it to attacks that could test its independence, write and

Lagarde’s efforts to use the bank’s leverage to fight global warming, gender imbalance or income inequality may have been overshadowed by the coronavirus pandemic and the ensuing, deep recession.

But they could yet reshape the currency union’s most powerful institution and help redefine the role of central banking in an era where the threat of runaway inflation has faded into obscurity.

The ECB as an institution is one of a kind. Its president is uniquely powerful in swaying policy and the broader economic debate, as Lagarde's predecessor Mario Draghi demonstrated in 2012 when he said the bank would do "whatever it takes" to save the euro here, catching markets and some colleagues unaware.

The bank’s role is also open to interpretation because of a vaguely worded Treaty.

Unlike the Fed, which has a dual mandate of nurturing price stability and employment, the ECB must first keep prices stable, then support the “general economic policies” of the European Union.

In stark contrast to her predecessors - all men with degrees in economics and decades of central banking experience – the former politician Lagarde has demonstrated a willingness to use this leeway to promote the euro zone’s wider social good.

“In addition to the narrow angle from which we have historically looked at monetary policy over the course of previous decades, we need to enlarge the horizon and be courageous in tackling some of these issues, although they are not the traditional areas that monetary economists look at,” Lagarde said last week.

For the ECB, this is a new mission.

Former chief Jean Claude Trichet would say that fighting inflation was the only needle in the ECB’s compass, while Draghi often warned about the dangers of unelected bureaucrats going beyond a narrow definition of their mandate.

What it will mean in practice depends on the outcome of the overarching review the ECB is currently carrying out - its first in 17 years. But Lagarde has already hinted at giving up market neutrality in asset buying and giving climate risk greater consideration.

Her interpretation of the bank’s mandate is already irking some, however, particularly in Germany, who claim that the ECB is turning political by meddling in social policy without the authority or the right tools to do so.

That criticism could morph into an existential threat if it alienates the ECB’s biggest shareholder, Germany, where parts of the establishment have time and again challenged the central bank, including through the highest courts.

Nevertheless, Lagarde says the ECB needs to move with the times.

“There are issues that actually impact the work that we have to do that is defined by the Treaty, which were not sufficiently considered at the time,” she said. “Climate change was not lingua franca in those days.”

An ECB spokesman declined to comment for this article. For more Lagarde quotes on her interpretation of the bank’s mandate, click on:

The changes come just as the Fed tweaks its own focus, making an explicit commitment to benefit low- and moderate-income families when setting policy.

Lagarde’s supporters say that a narrow interpretation of the bank’s mandate never shielded it from political criticism and that ignoring social issues would only reinforce the perception that the bank is out of touch.

Members of the European Parliament, which oversees the ECB, also regularly ask why the ECB is not doing more for jobs or the climate, given its immense economic firepower and nearly 7 trillion euro (6.4 trillion pounds) balance sheet.

Some ECB policymakers have already started to follow Lagarde’s lead.

French central bank chief Francois Villeroy de Galhau has argued that employment and income distribution need to be considered when setting policy, while his Finnish peer Olli Rehn said that he could even live with a temporary inflation overshoot if social welfare considerations warranted it.

For some, embracing social issues is the only way to stave off the spectre of a political takeover down the line.

“If the central bank behaves like an ostrich, sticking its head in the sand, it’s going to lose its independence by default,” Latvian central bank governor Martins Kazaks told Reuters.

“If it wants to retain its independence and remain relevant to society, it needs to listen and demonstrate it wants to help.”

But his German colleague, Jens Weidmann, was sceptical, saying the ECB had “no mandate to pursue other aims in (its) own right or to play an active role in other policy areas”.

Only this spring, Germany’s top court ruled that the bank was exceeding its powers with oversized government bond purchases - an unprecedented conflict that has since been defused.

The ECB has already fought several legal battles over its powers in Germany, where hostility in conservative circles, the media and even among the broader public is not far below the surface.

Clemens Fuest, head of the influential Ifo Institute, has called out Lagarde, arguing that her climate change plans were undemocratic, while Friedrich Heinemann, a leading researcher at the ZEW, says the ECB has no mandate for many of these social considerations.

“At the moment there are signs of an over-politicisation of monetary politics,” Heinemann said, adding that consideration for fair wealth distribution must be left to elected officials.

Another problem is that any secondary objective should come on top of the inflation mandate, which the ECB has already failed on for most of the past decade.

A group of German academics and industrialists has already logged a legal challenge against the ECB’s pandemic emergency bond buys, suggesting an interventionist central bank would run the risk of more litigation.

Still, those in charge of overseeing the ECB appear content if not relieved with Lagarde’s shift.

“The ECB is not politicizing, it’s overcoming an incorrect doctrine on fighting inflation only,” Sven Giegold, a German member of the European Parliament said.

Afghanistan

2020 Afghanistan Conference: Sustainable peace, anti-corruption and aid effectiveness on the agenda

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The 2020 Afghanistan Conference kicks begins today (23 November) with the EU co-organizing and participating in number of events taking place ahead of tomorrow's (24 November) plenary session. Crisis Management Commissioner  Janez Lenarčič will co-chair, together with the Minister of Foreign Affairs of Afghanistan Mohammad Haneef Atmar an event on sustainable peace (livestream available), with a focus on promoting human rights and empowering women, and also on refugees and returnees.

International Partnerships Commissioner Jutta Urpilainen will deliver a speech at an event on anti-corruption and good governance, and in doing so will emphasize the EU's expectation that the Afghan government delivers on its reform agenda. EU officials will also participate in a third side event taking place ahead of the conference, on aid effectiveness.

Tomorrow, EU High Representative/Vice President Josep Borrell will deliver a speech at the opening session of the conference, when he will outline the EU's position on the ongoing intra-Afghan peace negotiations, as well as the conditions for the EU's support, which were presented in a recent paper co-authored with key international donors.

Later, Commissioner Urpilainen will deliver the EU's financial assistance pledge at the conference. Both interventions will be available on EbS. More information on EU-Afghanistan relations is available in a dedicated factsheet and on the website of the EU Delegation in Kabul.

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EU

Stop violence against women: Statement by the European Commission and the High Representative

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Ahead of the International Day for the Elimination of Violence against Women on 25 November, the European Commission and High Representative/Vice President Josep Borrell (pictured) issued the following statement: “Violence against women and girls is a violation of human rights, and has no place in the European Union, or anywhere else in the world. The scale of the problem remains alarming: one in three women in the European Union have experienced physical and/or sexual violence. Violence against women exists in every country, culture and community.

"The COVID-19 pandemic has shown once more that for some women not even their home is a safe place. Change is possible, but it requires action, commitment and determination. The EU is committed to continue to work tirelessly with its partners to investigate and punish acts of violence, ensure support for victims, and at the same time to address the root causes and reinforce the legal framework.

"Through our Spotlight Initiative we are already fighting violence against women and girls, in 26 countries across the globe. This week we will present a new Action Plan on gender equality and women and girl's empowerment in our external actions. We also call on member states to ratify the Istanbul Convention - the first legally binding instrument at the international level to combat violence against women and domestic violence. Our goal is very clear: to end all forms of violence against women and girls. We owe it to all the victims.”

The full statement and the factsheet are available online.

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coronavirus

Coronavirus: Commission to provide 200 disinfection robots to European hospitals

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As part of its continued efforts to tackle the spread of coronavirus and provide member states with necessary equipment, the Commission launched the purchase of 200 disinfection robots that will be delivered to hospitals across Europe. Overall, a dedicated budget of up to €12 million is available from the Emergency Support Instrument (ESI). Hospitals from most Member States expressed a need and interest in receiving these robots, which can disinfect standard patient rooms, using ultraviolet light, in as quickly as 15 minutes, and thus help prevent and reduce the spread of the virus. The process is controlled by an operator, who will be located outside of the space to be disinfected, in order to avoid any exposure to the UV light.

Executive Vice President Margrethe Vestager said: “Developing technologies can set up forces of change and we see a good example of this in the disinfection robots. I welcome this action to help our hospitals in Europe reduce the risk of infection – an important step in containing the spread of coronavirus.” Commissioner for the Internal Market, Thierry Breton, added: “Europe has remained resilient and solidary during the current crisis. From repatriating EU citizens stranded abroad to increasing the production of masks and ensuring that medical equipment reaches those who need it within the single market, we are acting to protect our citizens. Now we are deploying disinfection robots in hospitals so that our citizens can benefit from this potentially life-saving technology.”

The robots are expected to be delivered in the coming weeks.

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