I’m not going to pretend any of you care about Christine Lagarde’s “early” exit from the ECB, but I’m compelled to mention it and not just because this is a Big 4 central bank we’re talking about.
As you probably heard, Lagarde’s leaving in February, ending an arduous, but I’d argue admirable, run at the helm of an institution with an impossible charge: Conduct one monetary policy for a fractious confederation of countries with disparate fiscal regimes.
Lagarde did a decent job. More than decent. She made good on her promise to preside not as a hawk or a dove, but rather as “this wise owl,” as she put it upon taking the reins. She served with distinction, integrity and demonstrated resolve in the face of overlapping crises, including a pandemic and Europe’s first real ground war since a failed artist with a stimulus problem tried to conquer the world.
The ECB doesn’t get, nor does it deserve, all the credit for the moderation in eurozone inflation from the harrowing 2022 highs. But with allowances for the fact that any time inflation surges into the double-digits, the damage is already done (because the price level reset tends to be permanent), Lagarde presided over a picture-perfect policy response.
Before you scoff, note that by “picture perfect,” all I mean is that if you plot the depo rate with European inflation, you come away with renewed faith in the notion that price growth does respond to monetary policy adjustments, even when the inflation surge is primarily the result of a supply shock.
Of course, a lot of the inflation moderation came courtesy of lower energy prices and Europe’s notoriously moribund growth profile, but the point is just that things could’ve gone worse. That’s a very narrow claim, and I think it’s more than supported, particularly when you consider that things did go worse in the UK.
Inflation in Europe’s picked back up in recent months concurrent with the Iran war, which the GC lamented on Thursday while keeping rates on hold following last month’s hike.
There’s the chart. It shows you both Lagarde’s success and how the situation’s starting to deteriorate again as the war in the Gulf drags on.
The timing of Lagarde’s planned exit is obviously not a coincidence. The first round of France’s presidential election is in April. That means she’ll have two months to do whatever she can to rescue the country from extremist politics on both the right and left.
This looks like a page out of her legendary predecessor’s playbook. Mario Draghi, you’re reminded, tried to rescue Italy from populism after he left the ECB to Lagarde. Draghi’s intervention met with mixed results at best, and I personally doubt Lagarde can do much to derail the Le Pen juggernaut. But, well, what can I say? What can anyone say? “Here’s hoping.”
Lagarde should probably just run for president, but that’s not on the cards, or at least not that anyone’s aware of. She could very well be planning a return to government, though. The problem is, someone who’d appoint her to a senior role has to win an election first.
It’s also worth noting that by leaving in February, Lagarde robs Le Pen of the opportunity to influence who might replace her.
That’s probably enough on this for now. In the official statement announcing her departure date, the ECB said the Governing Council “gave her a long standing ovation” this week.
