Well, it’s official (basically).
Christine Lagarde will be the next ECB President.
“I am honored to have been nominated for the Presidency”, she said Tuesday afternoon. ‘In light of this, and in consultation with the Ethics Committee of the IMF Executive Board, I have decided to temporarily relinquish my responsibilities as IMF Managing Director during the nomination period”.
This was tipped ahead of time and it will mark a break with precedent in that Lagarde is more politician than economist. That might be the point. After all, part of the problem with the monetary policy transmission channel in the eurozone is that it’s expected to work across disparate economies operating under a hodgepodge of fiscal regimes. In her capacity at the IMF, Lagarde has all manner of experience dealing with that.
The political landscape in Europe is more fraught than ever. Although the worst-case outcome (defined here as a populist/euroskeptic wave) was averted in the EU elections, League’s performance in Italy and Rassemblement National’s showing in France underscored the lingering appeal of nationalism and suggested centrists have failed to stem the populist tide that swept across the bloc in 2015 during the migrant crisis.
In Lagarde, the ECB will get a seasoned political operator and something of a consensus builder. That may prove especially useful going forward in the event the eurozone economy careens into a downturn, raising the stakes in contentious relationships between, for instance, Rome and Brussels. (Matteo Salvini was quick to comment on the new appointments, noting that no matter who heads the EC and ECB, “the rules must change regardless”.)
Over the past year, the IMF (and, by extension, Lagarde) has repeatedly warned about the perils of protectionism and the mounting headwinds to global growth. In April, Lagarde described the global economy as being at a “delicate moment”. “The most recent US-China tariffs could further reduce investment, productivity, and growth”, she wrote early last month, on the way to warning that “there is strong evidence that the United States, China, and the world economy are the losers from the current trade tensions”.
Obviously, Lagarde will be seen as more likely to carry on the legacy of accommodation than someone like a Jens Weidmann. In other words, this is ostensibly a dovish development.
Lagarde will be the first woman to run the ECB and hers will be the first tenure marked by a president who is, for lack of a better way to put it, not a central banker. Like Jerome Powell, Lagarde is a lawyer, but, as noted, she’s better known to the world at large as a high-profile politician.
Invariably, there will be concerns that a non-central banker will face an uphill battle when it comes to crafting the kinds of innovative policy prescriptions that will be necessary in the event the ECB is forced to embark on another full-on stimulus push (now the most likely scenario). But Lagarde can always rely on the GC for that. The read-through is presumably that Philip Lane will now hold all kinds of sway, although that’s just an on-the-fly assessment.
Ultimately, Lagarde’s role will lean heavily on her skills as a communicator and, to a certain extent, as a saleswoman, assuming policy becomes especially “creative”, so to speak.
Wish her luck, she has big shoes to fill.
I was hoping she would be nominated and hope she wins the nomination. She has been ‘a steady hand’ at the IMF. She will have a staff replete with many economists, like Powell has, and likely benefits from her broader view of reality in Europe and the world at large.
Ms. Lagarde survived and prospered serving two terms as the mayor of Paris
She will use all of those well honed political skills to deal with the folks at the Puzzle Palace in Frankfurt
When the EU formerly acknowledges their recession be assured Ms. Lagarde will shine!