WHEN: Interview Airing today, Monday, September 23, 2019
WHERE: CNBC's "Squawk on the Street"
The following is the unofficial transcript of a FIRST ON CNBC interview with Incoming European Central Bank President and former IMF Managing Director Christine Lagarde and CNBC's Sara Eisen that aired in part on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Monday, September 23rd. The following is a link to a video clip from the interview on CNBC.com: https://www.cnbc.com/video/2019/09/23/lagarde-trade-is-the-biggest-hurdle-for-the-global-economy.html.
All references must be sourced to CNBC.
SARA EISEN: So, it's hard to believe eight years ago you came into this office and IMF was facing a little bit of turmoil. Dominique Strauss-Kahn obviously on trial, the European debt crisis. What do you remember most about when you came in?
CHRISTINE LAGARDE: I remember thinking to myself it's going to be easier than what I had to do as Finance Minister for France. Because the crisis is really over. Because we didn't have a European debt crisis yet. It came about a month later. So, when I walked into this building on July the 4th, I thought, "Hmm. This is going to be more pleasant. Less pressure, less tension."
SARA EISEN: And then what?
CHRISTINE LAGARDE: And then the European sovereign debt crisis came about. And it was, you know, one crisis after the other, one country after the other. And a lot of tension, a lot of work. And a fantastic staff at the IMF, but there-- I think there was a leadership issue, obviously. And we all came together and-- and I think did a fantastic job in those eight years.
SARA EISEN: Was just going to say, as you look back on all of the programs for Greece and then the other countries, was it successful?
CHRISTINE LAGARDE: You know-- it's very funny that you should mention Greece. It's not the only European program that we had at the time. We had Ireland, we had Cyprus-- we had—
SARA EISEN: Portugal.
CHRISTINE LAGARDE: --Spain, we had Portugal. All these countries went through the program and are doing a lot better. Cyprus actually just recently repaid back the IMF earlier than it was supposed to. And they had exchange control. After two years, they were able to remove the exchange control. Now, Greece, of course, was a very difficult program. And it's not-- it wasn't one program – it was two programs, one after the other. And eventually, the Europeans decided to carry on. And-- and we managed out of the Greek program because they actually mend that program by themselves.
SARA EISEN: Yeah. How do you think back on—so, the European debt crisis was harder than you expected. Were the ultimate bailout programs that you participated in as IMF managing director successful?
CHRISTINE LAGARDE: Well, the European sovereign debt crisis erupted just a month after I started-- my mission here at the IMF on July the 5th. I remember the middle of August which normally is a quiet month, was not quiet at all. And then we had a flurry of programs. You know, Portugal, Ireland, Cyprus, Greece, of course. And-- and some of those were difficult. Others went a lot more smoothly. Certainly, the most difficult one was Greece-- which was in a much more difficult position and not as well placed as other countries to recover from the sovereign debt crisis.
SARA EISEN: Is Greece fixed?
CHRISTINE LAGARDE: Greece took a long time and three iterations of programs, one after the other to stabilize completely, to re-access financial markets, and to be able to operate on its own. But-- it's-- it's a constant effort for governments in that country to continue the reforms and to make sure that they pick up the winds of growth. And manage their public finance.
SARA EISEN: Anything you would've done differently now that you have hindsight in terms of the programs?
CHRISTINE LAGARDE: Well, one thing I certainly learned is that no country is the same. And each country has its characteristics and specificities and social fabrics and different unions, different political parties. What I certainly learned from a country like Latvia, for instance, is that-- or Ireland was a good point in case, is that when there is a social compact, when you have people behind it, when programs are well communicated and when governments are onboard to say, 'This is our determination. We are going to do that for the country,' it works a lot better than when governments say, 'Oh, the IMF is telling us to do this,' or, 'Brussels is requiring this or that,' because then there is no ownership. Ownership and communication are critical components of a successful program.
SARA EISEN: Where was that the attitude? Was that in Greece?
CHRISTINE LAGARDE: What, ownership?
SARA EISEN: No, the attitude where it was sort of anti-IMF—
CHRISTINE LAGARDE: Oh, it was somebody else. I think in-- in a country like Greece, there was very much an approach of, 'It's not our fault, it's theirs.' And whether it was Europe, or whether it was Germany or whether it was the IMF, didn't matter. But there was an element of scapegoating. Yeah.
SARA EISEN: There's still a feeling, I think, among economists and on Wall Street that this problem could creep back up again. A lot of people look at Italy as a ticking time bomb, debt problems, political problems. Is that something that you're concerned about?
CHRISTINE LAGARDE: You know, the situation has changed massively since those days. When you look at the financing costs, they are much, much lower now than they were in those days. If you look at the strength of the financial players and the strength of the supervision, completely different. Much stronger, much more capitalized. Much better supervision, better equipped, as well. So, on that front, it's a lot, lot better. And I think there is that, you know, risk apprehension which also comes into play. What is not as good as it was in those days, it's the fiscal and the monetary space that the policy makers have. Because in those days, many, you know, Finance Ministers had space, had room within which to inject stimulus. In the same vein, Central Bank Governors had some leeway and some space, in terms of interest rates or in terms of quantitative easing, which was yet to be invented at the time. So, different situation. And-- we're probably better equipped on financial markets. But risks will come from somewhere where we don't anticipate them.
SARA EISEN: I guess I'm just wondering, do you think it's possible for another European sovereign debt crisis to happen?
CHRISTINE LAGARDE: You know, the-- if the Euro area can strengthen-- and there are indications that this could be on the short-term horizon with a real banking union, with—better capital markets, which has euro area dimension and good depth. And if there is more of a joint effort to stir the economy of Europe, I think that that region of the world will be in good shape.
SARA EISEN: Do you think there's political will for all of that?
CHRISTINE LAGARDE: It looks like it. You know, it's often the case with Europe that you despair of Europe and you think, 'Oh-- when are they going to get their act together?' Things happen at a different pace in Europe because you simply have, for the Euro zone only, 19 governments that have to come together. And it takes time and it takes leadership and it takes consensus building. So, it is much longer than when you have one single government, one single Finance Minister and one single Central Bank Governor.
SARA EISEN: Do you worry about the politics in Europe with some of the populism on the rise—
CHRISTINE LAGARDE: I worry about—
SARA EISEN: --and extreme—
CHRISTINE LAGARDE: --politics all the time. Because it can be unpredictable eventually.
SARA EISEN: What do you think is your biggest legacy at the IMF?
CHRISTINE LAGARDE: I think I leave the IMF stronger financially. Very respected around the world. Reliable. And probably with a broader horizon. You know, it's more solid financially because it does-- you know, it is a one trillion dollars institution and it better stay that way, if not more. Which was only half of that when I joined.
SARA EISEN: I remember, you walked around with your purse.
CHRISTINE LAGARDE: Yes. Yes. I got on my bike, with my bag, and I said, "We need more money to be stronger to defend you." That is—
SARA EISEN: And you raised it.
CHRISTINE LAGARDE: --that is correct. And I raised half a trillion dollars. Nearly half a trillion dollars. It is respected. You know, we served 90 countries with programs during those eight years. So, we often talk about one single program. Ninety programs in eight years. And I think it is reliable because people know what to expect. They know that we can provide advice, we can provide financing, we can provide capacity development. And we can engage both the brain, the wallet and the heart, in order to help people. My real additional legacy is this horizon that I try to broad by adding macro critical dimensions, which include gender. Do women contribute to the economy? Can they contribute more and better to growth? The answer is yes. Should there be better financial inclusion to make sure that women are included, to make sure that those that do not have access to banks are included? Yes. And I think we discuss that extensively. Is climate change important for fiscal purposes? Of course, it is important. And we've discussed that. And we've made recommendations. In the same vein, we looked at the relationship between growth and inequality. We looked at how corruption can actually erode growth going forward. So, all these dimensions, which were a little bit like, you know, ancillary, are now regarded as macro critical. And I'm glad that I was contributing to that.
SARA EISEN: Are there any moments that stick out? I mean, you were in so many G20 meetings, met with so many governments, been to so many crisis areas. Is the most memorable that we haven't heard about?
CHRISTINE LAGARDE: There is one moment that I remember vividly, which is the Ebola crisis. When suddenly the world realized that what was happening in three countries of Western Africa could actually travel the world at the speed of an airplane. Because it only took one person to get on that airplane to travel anywhere in the world, and to infect many countries that felt they were protected. I think at that moment, there was a sense of, 'Goodness me, we are in it together. And we'd better make sure that we help resolve this issue.' For the first time ever, there was one single response from the board of the IMF. Whereas normally, I have 24 different responses from the various chairs. On that one, they all came together with one single response. 'Yes, go for it. Put the money in the bank as quickly as possible so that doctors and nurses be paid to do the job they have to do.' So, yes, that was. But I have lots of other little funny memories.
SARA EISEN: I know. I want to-- I would love to hear about them. I mean, you've-- you've-- world leaders, anything extraordinary stick out?
CHRISTINE LAGARDE: I think what people don't appreciate is that in those G20 and G7 meetings, there are lots of very intimate and exclusive moments when two leaders will isolate themselves in a little corner of a room to have a chat about something in particular that they care most about and that they don't want to discuss at the broader table, that they will not mention to the media, and that sometimes will not even be shared with advisors. And I have seen many of those moments between leaders which, you know, I would not reveal. But I think the public should know that their leaders, when they attend those meetings, there're two sides to them. There's the public face. There is what's available for the media and for communication purposes, the PR side of it. And then the communicate when there is a communicate. But then there's about 80% else happening, going on in between those people in trying to resolve issues. And, in the main, that has been their purpose and their mission from what I have witnessed.
SARA EISEN: No photo ops I guess. Are you going to miss that? I mean, it's a very different vibe when you do G20 meetings of Finance Ministers and Central Bankers.
CHRISTINE LAGARDE: It's a different atmosphere. And there is less spotlights, less excitement, less security around. But I would say that a lot of technical background work is done there, that is then put on a tray for the leaders to approve and then to-- communicate about. So, a lot of actual work gets done in those meetings.
SARA EISEN: So, I've covered you obviously over the years. I think our first interview was when I accompanied you to Sendai, Japan, near Fukushima—
CHRISTINE LAGARDE: Oh my gosh, yes.
SARA EISEN: We actually talked about Europe. But what I was going to say is that I think one of the contributions and the common themes of your leadership has been bringing Asia in closer to the IMF, especially China. SDR as one example. How do you think about whether that was productive? And did you set out to do that?
CHRISTINE LAGARDE: You know, when I joined the IMF, I was convinced that the institution had to be for the entire membership. It could not be regarded as the tool of the Americans or the tool of the Europeans. It had to be an institution whose mission was stability, prosperity for the entire community. And clearly, one of the large, rising economic powers in the world was China. And, I've always also taken the view that you're better off including than excluding. So, I reached out to China, that is true, to bring them to the table to make sure that they were participants in the decision-- making processes. That they would be willing to play by the rules. That they would gradually open up their capital account. We're not there yet, but it's something that is, you know, making progress. But the currency, the Renminbi, would be part of that basket of internationally traded currencies that are regarded as, you know, international currencies really by Central Banks. And, I think that-- that was-- I think that was positive. So rather than have somebody who is sitting across the table and not prepared to participate and cooperate, we had a very active partner and a solid relationship with the second largest economy in the world.
SARA EISEN: Does China cheat?
CHRISTINE LAGARDE: You know, nobody cheats and everybody cheats. Let's face it. Because while everybody plays the global tune and will talk about international trade, every country is also in that game for themselves because at the end of the day, people will look after their constituents. So, it's not a question of cheating or not cheating. It's a question of adopting sets of rules that everybody can play with, and that will not be damaging for their domestic base.
SARA EISEN: Because often, and it's ramping up again going into an election in the U.S., we hear China in this country and we hear about an economic adversary. So, I'm just wondering, after you've brought China in—
CHRISTINE LAGARDE: You know, I think—
SARA EISEN: --you've tried to—
CHRISTINE LAGARDE: --I think all--
SARA EISEN: --create these reforms.
CHRISTINE LAGARDE: --all countries are competitors. They're competing with each other. They're trying to be more productive. They're trying to be more efficient. They're trying to be more innovative. They're trying to have strong research and development. All of them. So, of course, when you get to the point where you have two very large economies, these two are regarded as strong competitors. But all countries compete with each other.
SARA EISEN: Is China manipulating its currency?
CHRISTINE LAGARDE: This is something that, you know, the IMF looks at very carefully. And, you know, we don't do it on the back of an envelope. We do it with very thorough analysis of all the components-- of all the-- the attributes of the balance of payment and the fundamentals of those economies. The latest article for that we did about China, and we do that on each and every country-- concludes that-- it's generally aligned with the fundamentals of the Chinese economy.
SARA EISEN: Sounds like no.
CHRISTINE LAGARDE: Hmm?
SARA EISEN: It-- no, it's not. It sounds like the IMF has concluded, no. That China has actually made a lot of progress on this front.
CHRISTINE LAGARDE: You know, I don't want to sort of say yes, no. Because it's far more sophisticated and subtle than that. And it takes into account masses of elements and data and numbers and comparatives. And it's, you know, it takes-- it's a whole system that is taken into account. And-- clearly, there is a good alignment with the fundamentals of that economy at the moment.
SARA EISEN: You've also-- advocated heavily for free trade and fair trade, open trade. Have-- are we making progress--
CHRISTINE LAGARDE: Mutually beneficial--
SARA EISEN: --toward that?
CHRISTINE LAGARDE: --trade as well.
SARA EISEN: So, are you optimistic or pessimistic about where that's going right now?
CHRISTINE LAGARDE: You know what concerns me at the moment is that trade, instead of being that sort of big window of opportunities for those economies that want to compete with each other-- it weighs like a big, dark cloud on the global economy. And based on the latest calculation of the IMF, if the tariffs that are either here already or threatened to be applied were to apply, we're talking about reducing global growth by 0.8%. That's a massive number. You know, growth forecast for next year is 3.5%. You take out 0.8%, that hurts. It's fewer jobs. It's less business going on. It's less investment. It's more uncertainty.
SARA EISEN: Could it take us into a global recession?
CHRISTINE LAGARDE: Recession is not in our base-- in the IMF baseline. But the longer this lingers, the more uncertainty sinks in. And if you're an investor, if you're an enterprise, whether small, medium size or big, you're not going to invest. You're going to wait. You're going to sit and wonder where the supply chains are going to be organized. Where the big market opportunities will be and how much the tariffs will apply.
SARA EISEN: So, you've been at a lot of these meetings at G20. There have been breakthroughs, there have been setbacks, there have been tariffs. What's your expectation at this point of whether we'll see a deal between the US and China by the election next year?
CHRISTINE LAGARDE: Well, first of all, you're comparing a multi-lateral dialogue at G20 level and a bilateral discussion that is taking place between the two largest economies in the world. I very, very much hope that there is a deal, whether it's partial, whether it's complete, whether it's in process-- between the United States and China because it would not necessarily yet remove entirely the cloud. But it would give hope to all operators that the cloud is being addressed and that, hopefully, it will be removed.
SARA EISEN: Do you feel that trade is the biggest hurdle right now for the global economy, the biggest risk?
CHRISTINE LAGARDE: I think trade-- threat against trade at the moment is the biggest hurdle for the global economy, yes, indeed.
SARA EISEN: You know, President Trump has also threatened Europe and has accused Europe of protectionist measures. If he moves on from China and goes to Europe and starts a fight with tariffs to try to get better terms, would the European economy be able to handle that?
CHRISTINE LAGARDE: You know, what's comforting is that ever since last July, there has been this ongoing dialogue between the United States and Europe in order to address some of the issues that they have in terms of access, in terms of protectionism, in terms of whatever. Each party sees as preventing it from accessing the market. And I hope that that continues and that is a fruitful and productive dialogue. Europe and the United States have been friends for decades and centuries. Have often, you know, been on the same side of the battlefield and have rescued each other on many occasions. And I'm very grateful to the United States for that. it's not a relationship that should turn into any kind of trade war at all.
SARA EISEN: And that's another thing that you've done is actually, you've managed to keep the IMF off of President Trump's radar and off of his Twitter feed, where he's often gone after multilateral organizations like it. How have you done that?
CHRISTINE LAGARDE: I think that authorities in general, and President Trump is included, see value in what we do. You know, we don't brag about the fact that we are a multilateral institution. But I like to brag about the fact that we are helpful to the membership. That we have addressed special circumstances. That we stand ready to help countries like Ukraine, like Jordan, like Egypt, or like any country that is a member of the IMF and needs help. The fact that we are fighting corruption, that we are fighting-- anti money laundering, that we're providing technical assistance for those countries that need it to that effect-- actually is valued by authorities. And I think President Trump appreciates that we also do that.
SARA EISEN: You've had relationships with both administrations over your tenure. How was it different?
CHRISTINE LAGARDE: You know, my direct contact has always been the Treasury Department. And we have enjoyed a very, very good relationship with Treasury Department over the course of the administrations. You know, I dealt with Tim Geithner, I dealt with Jack Lew, I dealt with Steve Mnuchin. And with all three, and their direct reports, I've had excellent relationships. I think we appreciate each other, we share the same objective when it comes to stability and prosperity. We have different tools to go about it. They have a domestic agenda, clearly. But when you are the largest economy in the world-- you also have the responsibility to make sure that it works out across the planet.
SARA EISEN: It's been helpful lately that in, in WEO and we've seen this in the numbers, that the US has been outperforming global growth and has been a relative bright spot. Do you see that dynamic continuing?
CHRISTINE LAGARDE: Well, I think we see the U.S. economy continue to grow above potential. And, you know, it's the longest period of growth in the history of the country. The unemployment-- numbers are at rock bottom. Unemployment rate is at rock bottom. So, it's-- it's in a very good place.
SARA EISEN: The IMF has been very supportive of Central Bank action that we've seen-- from the crisis, coming out of the crisis, and now this new period of easing. I wonder if you worry at all, though, that Central Banks are running low on bullets.
CHRISTINE LAGARDE: Central Banks have been able to invent new tools when nobody suspected that they would. You know, whether you look at quantitative easing in its different incarnations, whether you look at forward guidance, whether you look at macro credential measures. It's incredible how much has been designed, invented and created, in order to adjust. I'm sure that they're going to continue doing so. My hope is that it's not just about monetary. It's also about fiscal. It's also about structural reforms, in order to unleash the potential. In order to help, you know, enterprises, in order to help households to develop, to hire, to invest, to employ. Yeah.
SARA EISEN: Did you ever think you would be a Central Banker?
CHRISTINE LAGARDE: No. But did I ever think I would be head of the IMF? No. Did I ever think that I would be a Finance Minister for a G7 country? No. The only thing I was certain of is that I would be a lawyer.
SARA EISEN: Do you think the head of the ECB is going to be a tougher job than the head of the IMF?
CHRISTINE LAGARDE: I wouldn't bet on anything now because I thought when joining the IMF it would be easier than being Finance Minister. I don't think it was.
SARA EISEN: I think you are walking into a very difficult job and I think that that is what most people think. Europe is on the brink of recession. It's gone all in in terms of monetary tools. I know you don't want to talk too much about the ECB, but I'm just wondering how you're feeling and whether it's a daunting task, being one of the most powerful Central Bankers in the world at a critical time.
CHRISTINE LAGARDE: But, you know, I like daunting tasks. And I'll do the best I can. And we'll-- we'll see from there.
SARA EISEN: What do you think is going to be our biggest challenge?
CHRISTINE LAGARDE: What I want to bring is my capacity to develop teamwork. To instill team spirit. To speak with one voice. And to inspire confidence in whatever we do. So, I'll do that the best I can.
SARA EISEN: Do you think that there will be policy continuity with Mario Draghi before you?
CHRISTINE LAGARDE: To be seen.
SARA EISEN: You were the first woman head of a major law firm. You were the first female to lead the IMF. First now female to lead the ECB. Do you think your experience would be different if you were a man? I mean, do you think you were treated differently on these global stages because you're a woman?
CHRISTINE LAGARDE: I have not experienced the-- you know, the man's position.
SARA EISEN: Of course.
CHRISTINE LAGARDE: But I know that I've been asked over the course of my life questions that would not have been asked from a man. You haven't asked me any question about my children, but I have often been asked, you know, whether I could manage actually having children and having a tough job, exactly as you do.
SARA EISEN: Yes. No, people don't ask me that, but if they did, I would—
CHRISTINE LAGARDE: But that's because—
SARA EISEN: --roll my eyes.
CHRISTINE LAGARDE: --the situation has improved a little bit over the course of time. Twenty years ago, it was constant.
SARA EISEN: What's there left for you to do? What glass ceiling is left to break?
CHRISTINE LAGARDE: I'm not in the business of breaking glass ceiling. I'm in the business of doing the best job I can.
SARA EISEN: Well, thank you—
CHRISTINE LAGARDE: And I will do that.
SARA EISEN: --for all of the years of interviews that we have done together. And I hope we'll continue it at the ECB.
CHRISTINE LAGARDE: I do too. Best of luck, Sara.
SARA EISEN: Thank you so much—
CHRISTINE LAGARDE: Best of luck.
SARA EISEN: And to you. Thank you.
CHRISTINE LAGARDE: Thank you.
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