New Year’s letter to ECB President Lagarde (Finrestra podcast episode 10 transcript)

Listen to this episode on Spotify, Apple or YouTube!


“Dear President Lagarde,

I wish you a happy and healthy 2022!

And maybe also a career change?

You see, I follow you on Twitter, and I have the impression that this central banking stuff isn’t really your thing.

For example, you tweeted about your friends 13 times in 2021.

You tweeted about women issues 19 times.

Climate change? No fewer than 25 times.  


Just 11 times.

I hate to bring this up on the first (working) day of 2022, but the primary objective of the ECB is still price stability.

With inflation close to 5%, it seems that talking and tweeting about the ECB’s secondary objectives is more important than delivering stable prices.

Within a year’s time, your economists have doubled their projections for inflation in 2022.

So you’ll understand that people don’t believe you when you say that inflation will go down this year.

If you do choose to stay ECB President in 2022, I wish you a firm hand.

On New Year’s day, the 20th birthday of the euro, you called the euro a “beacon of stability and solidity around the world”.

To keep it that way, the ECB will need your strong leadership.

Kindly yours,

Jan Musschoot

Hello and welcome to a special episode of the Finrestra podcast.

I wish you a happy new year! Stick around till the end, because I’m giving away 250 euros.

New year, new month, so here’s a quick recap of the European financial news of December.

Santander has to pay almost 68 million euros to Andrea Orcel. Santander had offered the former UBS banker the role of CEO, but withdrew its offer.

In other legal news, a French court has reduced a 4.5 billion euro fine for UBS to 1.8 billion euro. The Swiss bank was found guilty of money laundering.

Dutch green bank Triodos will set up a multilateral trading facility for its shareholders (technically certificate holders). Since the beginning of 2020, shareholders cannot sell their certificates. It is expected that trading will resume at a price that is 30 or 40 percent lower than before the pandemic.

There was also consolidation and divestment news.

BNP Paribas has agreed to sell its American subsidiary Bank of the West for 16.3 billion dollars. Listen to episode 9 of the Finrestra podcast for our take on this transaction.

ING announced that it is leaving the French retail market.

Cooperative bank Crelan acquires AXA Bank Belgium. The deal had already been announced in 2019, but was waiting for approval by the ECB. The new bank will be the fifth largest in Belgium.

Regular listeners know that I usually do an in-depth analysis of one topic after the news. However, today I want to tell you a bit about Finrestra and my plans for 2022.

I started this podcast because there are not many podcasts focused on European finance. My original goal was to do a weekly interview. But I quickly found out that this is easier said than done. Weekly episodes require more time than I have. And it hasn’t been easy to find people who want to come on the show. So I want to thank my first guests Uuree Batsaikhan, Koen Vingerhoets and Rik Coeckelbergs again!

For 2022, there will be two episodes per months. I hope that from February onwards, I will be able to interview a number of very interesting guests. Stay tuned!

If you’re listening to this podcast on Apple or Spotify, you may not know that there is also a Finrestra YouTube channel, where I post short videos about financial topics. For example, I have a series of bank profiles, including of Santander, Triodos, BNP Paribas and ING, which were all mentioned in the news recap. I also want to create more videos with short stories about European finance.

But neither the podcast nor YouTube pays my bills, and this is where you can help me. Don’t worry, I’m not asking for money, I’m giving you a chance to win money!

Finrestra stands for Financial Research and Training. So far, we have mainly worked for Belgian based clients. But I want to expand my activities to the rest of Europe. If you share my YouTube video with my two courses for 2022 on LinkedIn and tag a friend before 25 January, you can win 250 euro. I’ll put the link in the description.

This has been another episode of the Finrestra podcast. You can find my on twitter @janmusschoot. You can mail me at jan dot musschoot at finrestra dot com.

Thanks for listening and I hope you have a great 2022!”

Energy, inflation, and the impotence of the European Central Bank

This is the blog version of episode 12 of The Finrestra podcast: “What can the ECB do when inflation is driven by energy costs? Three proposals” (listen on Spotify, Apple Podcasts or YouTube).

Euro area inflation was estimated at 5.1% in January 2022. That’s mainly due to energy costs. Furthermore, businesses will try to pass on their higher costs (transport, heating, materials) to consumers.


According to Isabel Schnabel, “Monetary policy cannot reduce the price of oil or gas.

I disagree, as I told the ECB back in 2020. If instead of government bonds, the ECB had bought a controlling stake in oil & gas majors, it could force them to lower prices.

That’s probably too radical for conservative central bankers.

But there are other, more conventional paths.

Energy makes up about 11% of Eurostat’s basket of harmonized index of consumer prices.

File:Weights of the main components of the euro area HICP (‰) - 2022 (estimated).png

What if that percentage was lower? Volatile (fossil) energy prices would have less of an effect on inflation. This would make the ECB’s job easier.

To be clear, I’m not suggesting that the ECB interferes with how Eurostat measures inflation.

Rather, the central bank could reduce our dependence on (fossil) energy.

How? Years ago, in 2017, I wrote a proposal for green investments in Europe. A European Green Infrastructure Company (EGIC) would install solar panels, build energy-efficient schools, networks of charging stations for electric vehicles… All of this infrastructure would be funded by the ECB. Why? It’s hard to imagine now, but we’ve had years were inflation was too low, i.e. below the target of the ECB. In my proposal, the EGIC would build in countries with low inflation and high unemployment. In case of the economy is overheating, new projects would be put on hold, so real resources like workers, machines and building materials can be used elsewhere in the economy.

If the EU had done this, there would be an abundance of renewable energy. This would price fossil fuels out of the market, making international energy prices almost irrelevant for European inflation.

Of course, in the real world EU politicians and central bankers have wasted the opportunity of low inflation and low interest rates.

But it’s never too late. Even without a European Green Infrastructure Company, the ECB can reduce the weight of (fossil) energy in consumers’ expenditure. High energy prices make it attractive to make buildings more energy efficient. In fact, central bankers like Isabel Schnabel have argued that the slow transition to a carbon-neutral economy is a market failure (see also this video).

The ECB could correct this market failure by making loans for energy-efficiency cheaper, for example by charging a negative rate of -5%. Banks would pass this on homeowners and landlords. At the same time, the ECB could raise rates on other loans. This would stimulate investments in building improvements, and reduce the demand for consumer loans. Companies would respond by increasing the production of building materials. It would also alleviate the labor shortage, because workers would be attracted by higher wages in the renovation business relative to other jobs.

Further reading:

The ECB can help fix the energy price crisis: Play the long game

Inflation: raising rates is not the answer

The monetary-academic complex

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist.

U.S. President Dwight Eisenhower

Today, the military hardly has any influence on European governments.

In contrast, the European Central Bank (ECB) is a very powerful institution. Former ECB President Trichet put pressure on government leaders with (secret) letters. Former ECB President Draghi said “whatever it takes“, and the euro crisis was over.

What group of people has the greatest influence on the ECB?

Bankers? Lmao. A quick look at the share prices of European banks tells you everything you need to know about the “power” of private finance.

No, academics are the real rulers of the ECB.

Sounds absurd?

Three of the four Members of the Executive Board1 have PhDs in economics (Lane, Panetta, Schnabel). Two of them are professors.

Former President Draghi was a professor.

After your tenure at the ECB, you can pass the revolving door into a professorship.

For the lesser gods of economics, the ECB has conferences and research positions.

Maybe Europe should guard against the acquisition of unwarranted influence by the monetary–academic complex. The potential for the disastrous rise of misplaced power exists, and will persist.

Banking on YouTube

I’m trying something new. I’ve started making videos about banking, monetary policy and sustainable finance.

I’m still trying to figure out the best format. But I already like the ability to use graphs and pictures. Compared to blogging, video is less nuanced. For example, you can’t link to all sources. But maybe that’s an advantage.

Here’s the first one, let me know what you think!

Is climate change the job of central banks?

Background literature:

  • Conny Olovsson (Riksbank) argues that “monetary policy does not have the appropriate tools for counteracting global warming, but global fiscal policy is significantly better suited for this purpose.”
  • Isabel Schnabel (ECB) argues that climate risks are mispriced by financial markets. Central banks should not sustain market failures.
  • The fraction of bonds issued by carbon intensive companies in the ECB’s CSPP portfolio and accepted as collateral is far larger than the GVA of these companies, see e.g. Matikainen (figure 3) or Dafermos (figure 4).
  • Paris Agreement, Article 2, 1(c): This Agreement, in enhancing the implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by: Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
  • The European Green Deal is a priority of the European Commission.
  • Lagarde has said climate change is the job of the ECB: “[w]hether climate change (…) is to be considered as part of our primary objective. And the answer is yes.” (1:44)
  • A green mandate for the ECB? Dirk Schoenmaker says yes, Hans Peter Grüner says no.

Links spring 2021

Quantitative Easing Q&A

Who sold their bonds to the ECB?

Mainly non-resident investors, although there are national differences, as this graph by Marcello Minenna shows:

What did companies do with the money from the ECB?

Corporates used the attracted funds mostly to increase dividends, according to research by Karamfil Todorov.

Did QE ease financial conditions?

Yes. Karamfil Todorov found that the ECB’s Corporate Sector Purchase Programme (CSPP) “increased prices and liquidity of bonds eligible to be purchased substantially”1.

Can we trust central bank research on the effect of QE?

Central bank researchers face strong incentives to be positive on QE. Brian Fabo, Martina Jančoková, Elisabeth Kempf and Ľuboš Pástor found that “central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes.”


How can the European Central Bank (ECB) support a sustainable recovery? In a report for Positive Money Europe and Sustainable Finance Lab, Jens van ‘t Klooster and Rens van Tilburg propose that the ECB starts a Green TLTRO program.

Green TLTRO is a refinancing program for commercial banks. Banks can fund their green loans with longer term (several years) deposits from the European Central Bank (ECB). Green loans are bank loans that comply with the EU’s Green Taxonomy.

The figure below shows the balance sheet of a commercial bank with conventional (left) and green (right) TLTRO. Under TLTRO-III, the ECB funds 50% of a bank’s eligible assets. Under green TLTRO, the ECB funding is only available for green bank loans.

The interest rate on the Green TLTRO is determined by the volume of green bank loans. More green loans result in a lower interest rate on the funding from the ECB. With negative interest rates, banks have to pay back less to the ECB than they borrowed. This provides a strong incentive to banks to increase their lending to green projects, and to pass on the low rates to borrowers.

Is Green TLTRO a pie in the sky proposal? Only if you’re not keeping up with the times.

TLTROs are a well-established monetary policy tool. The ECB is currently doing TLTRO-III.

In a recent speech, ECB Executive Board Member Isabel Schnabel pointed out that climate change is a market failure. She said that collective action, including by the ECB, should correct this market failure and accelerate the transition towards a carbon-neutral economy.

Asked about the Green TLTRO report by MEP Bas Eickhout, ECB President Lagarde said that “climate change has to be part and parcel of our strategy review. Not because it is a secondary objective, but because of its impact on price stability, because of its significant impact on risk assessment and risk management. And the Green TLTRO, as you called it, is a matter that is of interest and that we will look at.”

What volume of green loans should the ECB target during the first 3 years? How low should the interest rate on Green TLTRO be? Should the eligible bank assets include loans to households for house purchases, a category that is currently exluded from TLTRO?

In a webinar on 12 October 2020, Jens van ‘t Klooster discusses the Green TLTRO proposal with Isabel Vansteenkiste (ECB) and Frederik Ducrozet (Pictet).

Update 2020/10/18: this is the video

Full disclosure: I have done consulting work for this report.

Random reads summer 2020