Mario Draghi’s move to shape eurozone monetary policy beyond his retirement date — at least through 2020 — may prove to be the best decision he ever made as European Central Bank president.
His nominated successor, current International Monetary Fund managing director Christine Lagarde, would come to the job without any central banking experience, and by most accounts devoid of the character that allowed Draghi to utter his famous promise in 2012 to do “whatever it takes” to keep the monetary union together.
If in the next weeks European leaders confirm their choice to give Lagarde one of the world’s most important monetary policy jobs, they will increase fears that the eurozone will not be able to withstand the next serious financial shock, with the ECB crippled by the transformation of its ruling body into a bickering and ineffective mini-parliament.
The first reason is that the ECB would be headed by two personalities hailing from politics, without proper experience in central banking or a serious academic background: Lagarde is a former minister under French conservative presidents Jacques Chirac and Nicolas Sarkozy, and ECB vice-president Luis de Guindos is an ex-conservative Spanish finance minister.
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Lagarde, 63, is a lawyer by training, and served as a lacklustre finance minister under Sarkozy. She was later convicted of dereliction of duty by France’s highest court of justice for having overseen a misuse of public funds while serving in that post. That did not prevent her from being renewed in 2016 to the IMF post that Sarkozy had lobbied for and helped her get in 2011.
Although some European leaders salute her political acumen and capacity to muster compromises from diverging governments in difficult situations, Lagarde has never seemed interested by the fierce economic arguments that split governments throughout the eurozone crisis. She has no discernible firm views on economic or monetary policy, save for sticking to the consensus of the moment. At the IMF she has proved a good bureaucratic operator, and an articulate defender of the policies conceived by the international organisation’s staff.
That is precisely the problem she presents as ECB president-nominee. Draghi knew where he was going and did not hesitate to venture way beyond the consensus that his central banker colleagues had agreed on or discussed. He led the way. Lagarde’s tenure is more likely to be one where the ECB bureaucracy will lead, and the president follows after checking what other eurozone central bankers stand for.
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More worryingly, Lagarde’s lack of convictions will weigh on the deliberations of the ECB’s governing council, the ruling body made up of the 19 national central bank governors and the six members of its executive board. The risk is that, instead of being dominated by a president deft at steering the debate their way, it will be turned into a deliberative assembly incapable of making the kind of swift decisions needed in times of crisis.
Markets will have some reasons to fear the appointment of an inexperienced ECB president just as the eurozone is heading towards a troubled economic future. Inflation expectations are at their lowest in years; the region’s economy could be hit by trade wars and the slowdown of emerging markets; and European governments are either reluctant or incapable of moving toward the type of fiscal stimulus Draghi has been advocating for months. Meanwhile, European leaders have all but given up on any pretence of reforming the eurozone, or strengthening their still-fragile banking union.
In choosing a consensus candidate who is unlikely to ruffle any feathers, European governments have at least made sure their influence will increase on the ECB’s policies. This is worrying for the central bank’s ultimate independence. But in the short term this should be an indication to markets that, beyond the next year or so, the ECB may no longer be the strong reliable institution they have learnt to respect.
To contact the author of this story with feedback or news, email Pierre Briançon
https://www.fnlondon.com/articles/christine-lagarde-appointment-risks-making-the-ecb-weaker-20190703
2019-07-03 09:52:50Z
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