The President of the European Central Bank is visiting Bulgaria. On Tuesday, she will participate in a conference of the Bulgarian National Bank "On the threshold of the eurozone". Hours before the start of the event, Lagarde explained on the air of "Interview in NOVA News" important questions about the introduction of the euro in Bulgaria, about the experience of the countries before us with the adoption of the single currency and about the future of the European economy and finance.
Thank you for being here, it is a pleasure and an honor to welcome you to the "Interview in NOVA News"!
Thank you for the invitation, the show is particularly significant, and you are a very famous journalist!
You are absolutely right! Let's start with a little history, when France adopted the euro 23 years ago. Did you have any fears for the lives of people in the country?
When France joined the eurozone, we had two fears - first, that it wouldn't work. On January 1, everyone was very excited to go to the ATMs and see if they would give out euros or nothing, but everything worked perfectly. I know, because it's my birthday then…
Really?
Yes, as we celebrated, at midnight we went to the bank and at 00:05 we withdrew money – it worked. Everyone's second worry was that prices would jump due to the conversion from the old French franc.
The same fears as now…
With leva - exactly! You think that both wholesalers and retailers will take advantage of this to increase prices. We know that there will always be some small segments that will take advantage of this to slightly raise prices. It happens once, not twice. And if the government does what is necessary - to constantly require prices to be indicated in both leva and euros by next August, people will have to comply with this and convert accurately. The other thing is that the authorities need to enforce the principle of conversion with precision to the cent.
Do you feel that we are ready?
I know that the country has worked hard on this issue. I am aware that there is no full consensus at the moment, but I believe that Bulgaria is ready. I want to tell you that I have seen many new countries join the eurozone, as the Managing Director of the IMF, the Minister of Finance of my country - France, and now - as the President of the ECB. Before a country introduces the euro, there are fears, concerns - where are we headed? A year later, support and acceptance are certainly increasing, in any case. The question is to introduce it without fear and to expect the government to do what is necessary to prevent abuses.
And another question about France: have the French become poorer?
Not at all. As I said, there were obstacles - the price of coffee, for example, went up, hairdressing services also went up, but no.
What do you think are the main economic and institutional benefits that our country can enjoy after joining the single currency?
Two things: first, the added prosperity will soon be tangible, and secondly - added security. By prosperity, I mean exports from Bulgaria to the rest of Europe - it will now be in euros. There will be no currency risk, no hedging, because the invoices will be in the same currency - you invoice in euros and receive euros. Many risks will be eliminated. Second - think about the world. People love to come to Europe on vacation, but exchange rates fluctuate and they hesitate. If they know that in Bulgaria, where they travel and spend time, the currency is the euro and there will be no added risk of fluctuating exchange rates to the trip, this is another reason to visit your country. Just two examples - the currency risk and the hedging associated with it will be eliminated. As for security - I myself, as a Frenchwoman, and from the positions I have held, I have learned that as a member of the club, you have to adhere to its rules, which brings security. We are all in this together, there are no random players who do whatever they want. We are all bound by the same principles, currency, monetary policy, which will be a huge change. You have had a currency board for many years, but the security that comes from being in the same club... The rating agencies are also noticing. The risk of ignoring discipline disappears. This is a mechanism that brings more prosperity and security.
The introduction of the euro in new countries inevitably involves adaptation for business and prices. Which policies and mechanisms do you consider most effective for a smooth transition and protection of citizens in Bulgaria?
I would say that first and foremost are the preparations and the second implementation. A lot has been done in the preparations in recent years. In 2023, Bulgaria was close, but it was not ready yet. It is using the past two years to prepare itself also regarding legislative principles, anti-corruption principles, banking laws – preparation for the mechanics in the banking sector under the authority of the central bank, to ensure that banknotes, coins, machines and payment systems will be in euros from day one, from January 1. This preparation will have a positive impact. Then there is implementation, to protect citizens, to respect the direct reflection from leva to euro without abuse.
The ECB is actively working on the digital euro project. What are the main objectives of the initiative and how will it change the way citizens and businesses in Bulgaria use money? Will cash disappear soon?
Oh, no, cash will always exist. This is the promise of the Central Bank. 50 euro banknotes, 20 euro banknotes, 1 euro coins are equivalent to 50, 20 and 1 euro respectively and will be accepted as a means of payment. Cash will not disappear, but we must be ready for the digital era in the 21st century. People who do not like handling cash - I prefer it, you probably do too, but they prefer to pay by card, by phone. We must ensure that funds issued by the Central Bank also exist in digital form, because this is the root of the system. This is digital cash, but it will not replace banknotes and coins.
The world is changing under the pressure of technology and green transformation. What steps are being taken at the ECB to support the development of a sustainable economy and reconcile stable prices with climate challenges?
Price stability is our mission, a mandate, a contractual requirement, it is up to us. Climate change is for governments, the executive and the legislature, not for the monetary authorities. But we need to assess the impact of climate change, to anticipate the consequences on prices, for example. Possible floods or droughts have an impact on crops, transport, the cost of living, insurance premiums... We need to be aware of this and integrate it into our forecasts and macroeconomic models. In addition, we need to pay attention to the risk that is created. Let's assume that we have a house on our personal balance sheet that is close to a river. Insurers refuse to insure it for the current premium and will raise it by 200%. This is a risk that must be expected and managed. The same applies to banks, to collateral. The job of central banks is to manage risks, so in that sense we must also take climate change into account.
We have the US, Russia, China... What is the place of the EU, what will be the future of the European economy and finance?
We need to be aware of how strong we are, what a market the EU is - 450 million people more than the US. The EU has the talent and the capacity to innovate. Two things are missing - a capital market that keeps money here and invests in innovation and improving productivity. We also need to be aware of all the obstacles that we ourselves put in Europe, in front of entrepreneurs and young talents - to create businesses, to expand and to bring value. If we do better at these two things, we could be a real force to be reckoned with.
Do you think it will happen?
I sincerely hope so and I will work hard for it.