Welcome back. This week this newsletter comes to you from Brussels, but I will keep it short and sweet as the Spain vs Belgium game is on, and I am watching. 

By the time Off the Record hits your inbox, we'll know who the winner is, but you know where my money's on. For the record, usually with this newsletter, I end up making changes, going back and forth, adding and cutting paragraphs, pondering what's the best title until I realise I have to cancel my Friday night plans because I am late, but this game is critical. So I hope you'll forgive me.

This week, the President of the European Central Bank, Christine Lagarde, was in our TV studios on Rue de la Loi, where we had a long sit-down interview. Lagarde is a power player in European circles — influential, very well-connected — and has the final say on something that ultimately affects us all: monetary policy, and therefore interest rates, aka the cost of money. 

Compared to previous ECB presidents, Lagarde is also unusual: the first woman, and the first non-economist, to do the job (she was head of the International Monetary Fund, but is a lawyer by training). And she doesn't really do langue de bois by Brussels standards. When it comes to Lagarde, if she has something to say, you will hear it straight.

From our conversation, three things stood out to me. The first: she is openly — dare I say pushing — a debate on a European safe asset. This is crucial. 

To take away the jargon, by a joint European safe asset, she means an instrument that would include common European debt. In theory, this would fund common strategic projects and develop an asset class that could rival the powerful US Treasury market. The idea itself isn't new, and joint debt is, in essence, a political matter in Europe. 

But for the head of the central bank to call a proposal presented by the Spanish government this week — a permanent financing instrument worth €850 billion a year — a 'great' starting point for a serious debate is remarkable and worth listening to attentively.

Lagarde's words matter, and they are heard in Berlin and The Hague, the two countries leading a camp opposing more joint debt. The EU de facto is issuing eurobonds for defence already and did the same to reboot the European economy after the Covid pandemic, but the so-called frugals viewed this as a strictly one-off. 

To make this permanent, its backers will have to demonstrate it is efficient, saves money, and will be offset by lower national deficits. Still, Lagarde told me that 'over my dead body' positions aren't the best way forward on a debate that many — from the IMF to Mario Draghi — consider legitimate.

Secondly, she told us the relationship between the EU and China needs an 'adults in the room' moment as Brussels sets an October deadline to rebalance its trade ties with Beijing. Last year, the Chinese commerce surplus with the world surpassed one trillion dollars and the EU's trade deficit with China reached another record at roughly €359 billion. This is simply unsustainable.

Lagarde told me the Chinese are good at talking around the problem, but they have to walk the talk now, on a sector-by-sector basis, looking at everything: grants, subsidies, pricing and financing. This echoes concerns that the Chinese currency is severely undervalued and gives China a leg up on exports. 

The Europeans have put themselves in a position in which they will have to make tough choices. If there are no signs of a rebalancing by October, they will have to trigger defensive measures or risk looking weak if they do nothing.

We also talked French politics, bien sûr. Speculation that Lagarde will leave the ECB early (her mandate comes to an end in October next year) to play an active role in the French election campaign — which enters a hot phase next February before an April ballot — is rife in Paris and Brussels. For good reason.

In our interview, she told me she is 'not a candidate for anything' but is keen on explaining why Europe matters for France, and vice versa, as ultimately, that is the only way a single country's voice can stay relevant in a world of big powers.

After the interview, which you can watch in full here, a good friend of mine who has been covering the ECB for more than a decade asked me: so what do you think — is she leaving to enter the campaign? And it is a good question. By now, it seems clear she won't run as a presidential candidate, but that doesn't mean she won't run at all. Just look at Marine Le Pen and Jordan Bardella.

Le Pen, whose conviction for embezzlement of EU funds over fake jobs in the European Parliament was upheld on appeal this week, has nonetheless been cleared to run — with an electronic tag — and is pitching a binôme.

She would be president, and Bardella her prime minister. Le Pen is betting on a duo. Would Lagarde do the same if she gets a call from the right candidate? It would be a coup d'éclat in a French election that is already extraordinary.

Polls indicate there is a scenario in which Le Pen and Mélenchon could make it to the second round and force a choice between two parties outside of the European consensus (after all they sit on the extremes at the European parliament, that's not an opinion, it's a reality). That would have enormous ramifications for France and beyond, as Paris is a founding member of the EU, its second-largest economy and a systemic country for the euro.

At a dinner party recently, a guest told me that, if it gets to that point, choosing between Le Pen and Mélenchon would be like asking which arm you want cut off first. Granted, it's dramatic. But it also reflects a stark (and plausible) choice for a nation. And yet, one cannot help but see it as a demonstration of the deep dissatisfaction among Europeans with an elite they perceive as disconnected from their problems. For many, Lagarde represents that elite.

Lastly, I cannot end this newsletter without a debrief on the NATO summit.

The meeting ended with a salvo, as all allies — including the US — reiterated their commitment to mutual defence under Article 5 – an attack on one is an attack on all – despite a bumpy start in which Donald Trump lashed out at Spain and reiterated that the US should control Greenland. In our Euronews special from Ankara, his former national security adviser John Bolton told us Trump is basically an internet troll who brings up Greenland because "it drives them (the Europeans) crazy — that's what it's about." But what happened with Spain? On his arrival in Turkey, Trump called Madrid a wasteland and ordered a trade embargo. On his way out, he said Madrid was "so generous."

Why? I'm told two versions of the same event.

One official suggested the Spanish rocked up with a bunch of documents and big charts (some of which I've seen) and bold letters to prove that they do pay. That did the trick. The Spanish economy minister, Carlos Cuerpo, seemed to confirm that, telling me on the sidelines of the Eurogroup meeting this week that Spain was able to show that it is a "good ally" and ruled out an escalation.

However, a second official told me that Spain, in fact, committed in private to spend more, which would contradict the defiant tone struck by Prime Minister Pedro Sánchez. It wasn't a PowerPoint presentation that got Madrid off the hook, but a promise of cash. And that sounds a lot like Trump.

When you cover politics, you often find the truth is somewhere in between, and it comes with many shades of grey. In the end, both countries will spin a win.

That's it for me this week, and happy Bastille Day to our French readers. We, and by that I mean Spain, will beat you next Tuesday in Texas. I'm taking bets!

As always, if you have any comments, email me at Questo indirizzo email è protetto dagli spambots. È necessario abilitare JavaScript per vederlo..

— Maria Tadeo