christine lagarde : learning the right lessons from the past speech by ms christine lagarde, president of the european central bank, on the occasion of the awarding of the prix turgot 2021, paris, 2 june 2021. * * * it is a great pleasure to be here once again in bercy, which brings back so many memories. i am very grateful to jean - claude trichet and the cercle turgot for bestowing this prize on me. it is an honour to join such an illustrious group of recipients. anne - robert, jacques turgot himself said that “ the whole mass of humanity … marches constantly, though slowly, toward greater perfection ”. when i reflect on my career as a policymaker in paris, washington and frankfurt, these words resonate with me greatly. history never moves in a straight line. day - to - day, it can be hard to perceive any direction at all. but i do believe that, in retrospect, we can make out a clear path towards progress. after two decades working in the private sector, i have held public office throughout two decades of crises – a period when europe has been severely put to the test. but each crisis has taught us a valuable lesson – and we have had the humility to learn. it is thanks to those past lessons that we have been able to respond to the pandemic effectively. the sum of our crisis experience – as painful as it may have been at the time – has helped us to avert what would have been the greatest crisis of them all. there are three lessons from the past crises that i would like to reflect on today. first, the importance of effective financial regulation for sustainable growth. then, the importance of credible commitment in times of great uncertainty. and lastly, the importance of proper policy alignment. the importance of financial regulation the first lesson came by way of the great financial crisis, which was already brewing in 2007, just a few months after i took office here, and unfolded in 2008. this crisis laid bare many issues, but perhaps most relevant is what it showed us about why we needed effective financial regulation. before the crisis, some saw a trade - off between effective financial regulation and an innovative financial sector that supported growth. the belief was that keeping the financial sector reined in tightly would come at the cost of less innovation and slower growth of lending to the economy. that notion was shattered very quickly when the financial crisis plunged us into a deep

that, in a period of high uncertainty, being seen as fully committed could shift financial markets between polar opposites – from working against us to working with us. that is why the crisis abated very quickly in 2012 when – within a few months – the heads of state or government agreed to launch the banking union and the ecb acted to remove unwarranted fears in financial markets. it became clear that our commitment to the euro was beyond doubt. the euro is, of course, irreversible. the lesson was also that, in times of crisis, the most important signal for policymakers is their determination to act. and this lesson was absolutely crucial when the pandemic hit us last year. recognising the risk of self - fulfilling cycles, the ecb reacted quickly and forcefully by launching the pandemic emergency purchase programme. the message we sent was clear : there are no limits to our commitment to the euro. and that message holds true today. equally important was the response by governments. the decision to launch next generation eu ( ngeu ) was a clear demonstration of european unity that broke with the past in many ways. its size of €750 billion ; its structure, which benefits most those worst hit by the pandemic ; and its funding via european common debt – all represented a watershed. as a result, i believe that the intrinsic fragility of the euro area has now declined. europe has proven that it will come together and take decisive action when needed. this is what the euro crisis taught us about how crises must be managed : they require the commitment of all policymakers for the benefit of all europeans. the importance of policy alignment the euro crisis in turn led to a third, more slow - moving crisis. europe slipped into a period of what i termed at the time “ lowflation ” : a persistent low - growth, low - inflation environment. this gave rise to the third lesson i want to underline : the importance of a balanced policy mix. 2 / 4 bis central bankers'speeches when inflation is low and interest rates fall towards zero, the optimal policy mix changes. monetary policy becomes more effective in lifting demand when fiscal policy reinforces it. in the mid - 2010s, however, the euro area saw the opposite happen. monetary easing was met by a premature and uncoordinated fiscal tightening. between 2013 and 2018, fiscal policy tightened by around 2. 5 percentage points of gdp, while in the united states it loosened