Nicolai Tangen: Hi everyone, I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund and today we are in particularly good company because we are in Frankfurt with Christine Lagarde, president of the European Central Bank.

Christine Lagarde: Lovely to see you, Nikolai.

Nicolai Tangen: Fantastic. Now Christine, you've had a tremendous career. You were running a global law firm. You've been the finance minister of France. You ran the IMF for a decade and now you are steering the monetary policy over Europe. So thanks for seeing us. It's a great pleasure. I heard you recently say that the world now looks a bit like 1929. What is similar?

Christine Lagarde: I think the analogy I made was with the 20s because it's a time when there were major technology breakthrough. That of course we take for granted but which were new at the time. You know, the combustion engine, the manufacturing line, all sorts of things that just came about together at a time when fragmentation started to also significantly change the way the world worked because it was preceded by a period of open trade and the first globalization if you will. And we are seeing a bit of that at the moment technological breakthrough which I would associate with the development of AI and the diffusion of AI on the one hand and fragmentation challenges to the international world order as we have known him for decades. So that's the analogy and I think that we have to be informed by history and try to avoid what came after those developments in the 20s that ended up with number one financial crisis, bankruptcies of banks in Europe and eventually because the matter was not handled very well at the time a global conflict that destroyed many of the advanced economies and made all of us at the time poorer and fewer.

Nicolai Tangen: What do you think are the implications for financial markets then? Because we know what happened at the end of the 20s.

Christine Lagarde: I think there are implications for policy makers of all stripes. So it means putting the onus on diplomacy rather than war, the onus on good financial management of public budgets and being attentive to the real transformation and not so much hype. That's what I would see as favorable developments.

Nicolai Tangen: The fragmentation we are seeing in the world just now, how does it impact Europe?

Christine Lagarde: Europe is of all advanced economy is probably the most open. This is very true for some of the Nordic countries that you know well, but it's true for the whole of Europe. So any shock to trade for instance is going to impact an open economy more than an economy that you know is not self-sufficient but not particularly vulnerable to trade whether export or import. Added to that, Europe has very limited own resources and own energy sources with the exception of the renewable energies that we are pushing and the green transition that we are also trying to finance as a continent. But other than that, sources of energy are rare and that exposes us even more. So it's openness on the one hand, rare fossile energy sources on the other hand and the two combined exposes us significantly in the current situation.

Nicolai Tangen: What's the added complexity from what we are seeing in the Middle East?

Christine Lagarde: Well, I would say the constraint, apart from the horrible drama that afflicts the life of people, the situation of families, the civilian population that eventually end up being the target of those wars. So putting that aside which is a big put aside, it impacts the global economy in that energy sources, oil, gas are under threat in terms of transportation, shipping, the straight of Hormuz comes to mind right away and as a result of that we see prices increasing significantly and we see a volatility that is unprecedented in the last few decades where suddenly the price of oil can go up by 30% and go down by 30% in a matter of one day. So that's what the Middle East current war development is creating for the rest of us. Disruption in shipping, disruption in insurance cost and obviously significant increases in the price of energy which as we know is necessary for all economies and has ripple effects in a matter of months.

Nicolai Tangen: What's the right way of Europe to dealing with all this uncertainty?

Christine Lagarde: I think you have to distinguish between the short term and the long term. In the long term it is in Europe's best interest to focus on that green transition that has been identified a few years ago by the European Commission and the European Council which comprises all the leaders of Europe. It's actually fascinating to see how only a few weeks ago this was almost put on the back burner as if it was not a priority. Clearly what has happened in the Middle East is bringing this priority back to the front of the mind of leaders and this green transition that would increase the volume of renewable energies versus the dependency on fossil energy is a long-term objective that has to be pursued and at an accelerated pace. In the short term you know obviously every effort should be made in order to reopen the straight of Hormuz and facilitate the passing of this 20-25% oil traffic that goes through that particular straight. I think there is, you know, it's neither nor, but the focus on nuclear energy is also one that we will see developing faster in Europe as well.

Nicolai Tangen: Yeah. Now there's been some changes in policy in the US and we attended the same opening dinner in Davos and you were sitting at a table next to where I was and you didn't seem very happy at the time. So what went through your mind?

Christine Lagarde: You could see that. I'm very bad at covering up and having a poker face. So what I thought was not acceptable is the fact that a US government representative without contradiction and without any kind of dialogue could in at the end of a dinner which had the participation of many European leaders including royalties and representatives of those countries that he could just bash Europe in the way he did and I thought okay well all opinions are welcome as long as there is a debate but the way in which this came about was to me not acceptable so I left the room.

Nicolai Tangen: Do you think we can afford the type of system that we've had in Europe for the last decades going forward?

Christine Lagarde: I think it's imperative for Europe and for the Europeans to appreciate value and vote for the value delivered by social democracies. Does that mean that the entire social benefits can be maintained as is with the same financing and the same benefits that is to be assessed, determined and possibly modified over the course of time given the demographic challenge that we are facing. But the principles of democracy, the independence, the freedom of speech, the individual rights, the economic development at entrepreneurial level that it facilitates. I think those are precious precious principles that we have to secure and if it requires reduced benefits in some areas I think we should be prepared to consider that if we have to referee and trade off between military expenses because we want to secure that precious treasure that has been acquired over the course of time and generations and if we have to have less of those social benefits that of which cost increases as the demographic changes take place in Europe, aging societies, less working population. I think we should face it and decide what we want collectively.

Nicolai Tangen: So to which extent has your job become more complicated or the job as the president of the ECB become more complicated with the change in geopolitics, demographics, defense spending. There are just a lot more things going into the mix than in the past.

Christine Lagarde: Well, we are lucky that we have driven by a mandate. Which I regard as the mission of the ECB which is price stability. That's our duty to the people of Europe. We have to make sure that prices remain stable and that people can decide to invest, to consume, to be employed in a landscape where prices are stable. That's the mission. And to deliver on that mission, we have to take into account all the developments that affect European economies and that has internal elements and external elements. The geopolitical shocks is an external elements that has ramification in our economies. the internal element such as demographics for instance, such as the impact of artificial intelligence, such as the rise in productivity, we have to take more and more factors into account in order to determine how we deliver on the mission. That is true and it makes our life more complicated and it requires a very strong focus and strong analytical skills in order to deliver.

Nicolai Tangen: So we've had some quite weak numbers in terms of productivity in Europe including recently in Germany. How just how did we get to this point?

Christine Lagarde: This is not a recent phenomenon. It goes back to, you know, I would say that we in Europe have missed the internet revolution and when you trace back the evolution of productivity between Europe and the United States it's pretty obvious that this is where it started diverging but the US continued to increase productivity not at a very fast pace but increased whereas we remained stable and low and we never caught up with that. The real question we need to ask ourselves now is is the use of artificial intelligence not in a pioneer way as the US does... but the real question for us is will the diffusion and use of that help us move our productivity up? We're beginning to see some of that.

Nicolai Tangen: Do you think we realistically can compete with the US in AI?

Christine Lagarde: Not in the pioneering phase. Whether you look at chips manufacturing and sophistication, whether you look at accumulation of data, whether you look at the price of energy, I think the US has a very significant advantage. But the pioneering is one thing, the diffusion is another one. And when we look at the diffusion, even at memes levels, Europe is not lagging behind. Europe is actually a little bit ahead of the US in terms of penetration of AI in the manufacturing process in the services elaboration.

Nicolai Tangen: When do you think we could start to see the AI effect on productivity?

Christine Lagarde: Hard to say because this AI creation, diffusion, penetration is so much faster than anything we've seen before. You know when you compare electricity and AI, AI it new iterations and changes come about in 3 weeks, well maybe I'm exaggerating let's say 3 months... electricity the diffusion of electricity 30 years. So when do we see the productivity impact how do we measure it probably a lot faster than what we think. Will AI be deflationary? I wouldn't say at this point in time it will to the extent that It improves significantly productivity. It should. But you know what other factors do we need to take into account? Energy. Well, you know, to teach an LLM at the pioneering edge where they are now cost an absolute fortune, right? And it consumes masses of energy as well.

Nicolai Tangen: Why is a digital euro so important when it comes to making the euro an important or continue to keep euro as an important currency?

Christine Lagarde: If I talk to my children and my grandchildren, do they carry bank notes? Not much. Do they pay digitally? Yes. So, do I think that central bank money is critical in order to structure, organize, and hold the financial system? Yes. So my conclusion from those two elements is we should have a central bank currency which is available in digital form. Added to which I think that the the rail guards on which digital currencies and digital assets travel is a public good and I think that we should be building it. It will be in pilot phase in 2027 and then complete roll out in 29.

Nicolai Tangen: How are you as a leader?

Christine Lagarde: Oh, you have to ask the other people not me. But what are your principles? I believe in listening, in learning, in working, and ultimately in leading as a result. But am I an inclusive leader rather than a sort of I'm on the top of the hill, follow my flag. I'm more of an inclusive leader. Don't take personal pleasure out of, you know, I instruct, I order, I exercise power. This is not something that I find neither satisfying nor particularly productive.

Nicolai Tangen: To which extent are you a different leader now compared to when you led the law firm?

Christine Lagarde: Um, I think I'm more impatient than I was. Passing off time, you see. And how does that materialize itself? I have to sometimes refrain my frustration and my annoyance with things moving too slowly.

Nicolai Tangen: Forbes rank you as the second most powerful woman in the world. Do you reflect on that?

Christine Lagarde: Not at all. But the first time it happened, my youngest son said to me, "Only second. Why aren't you first?" And I thought, "Oh, bloody hell. This is not bad." And he said, "Well, now you know how it felt when we brought back a B and you say, why not an A?"

Nicolai Tangen: You talk about when I listen to your podcast and so on, you talk about the age 16 17 as being very formative. You lost your father when you were 16. You moved to the US, spent time there when you were 17. Tell me about that.

Christine Lagarde: It's a crucial time in anybody's life. Um it's I mean your body is transforming, your social network is different. Uh you suddenly are moving very close to adulthood and all the responsibilities that go with it. And to to lose her father at that point in time as I did was hard, was very unsettling. And in many ways at that point in my life I was rescued by that year that I spent in the United States at a time when there was no cell phone, no emails, no fax machine and you know in the scholarship that I received where there was very little money available to stay in touch with the family. So you have to you suffer a big loss and you have to sort of strengthen up and be a little bit yourself in a different environment. So it shapes you as a different person. It certainly shaped me as a different person with a capital of love that I cherished but a level of attention that disappeared.

Nicolai Tangen: What's been your driving force in life?

Christine Lagarde: Love for all those that I love. So it's it's it's the family circle. It's the people that I respect that I cherish. It's what you me we can give to others that just helps them to rise and to and to accomplish what they can accomplish.

Nicolai Tangen: What would be your advice to young people?

Christine Lagarde: My advice would be take risk in your life. Life is beautiful and you have to embrace it and you have to take risk and you have to give and receive love as much as you can.

Nicolai Tangen: Beautiful place to end. Big thank you.

Christine Lagarde: Thank you, Nikolai.