Christine Lagarde’s appointment as president of the European Central Bank is by far the most important of the many pieces that had to fall into place in the EU top jobs puzzle.
After eight years as managing director of the International Monetary Fund and four as French economy minister, Ms Lagarde has become a superstar of international finance. She would, if confirmed, be the first woman to lead the heavily male ECB. The question is whether the ECB would be better off with a more conventional monetary expert to succeed Mario Draghi for what will no doubt prove to be difficult times ahead.
Ms Lagarde is a gifted communicator, although her ease with English produces the occasional gaffe. She is a skilled negotiator. She has rebuilt confidence in the IMF after the strains of the Greek debt crisis during which the fund bent its own rules and stretched its credibility, especially with its emerging market shareholders. Back in shape, it then embarked on its biggest rescue programme, with a $57bn bailout of Argentina.
She has given the IMF a fresh voice on issues such as female empowerment and licence to revisit some of its dogma, as with its 2013 mea culpa on underestimating the effects of austerity.
The only recent blemish on her career was a 2016 conviction for negligence over a fraudulent compensation payout to businessman Bernard Tapie that was made during her tenure as French finance minister.
Sceptics doubted whether a lawyer with no economics training was qualified for the job of IMF chief. Ms Lagarde proved them wrong. It may be harder to do the same at the ECB under the intense glare of Europe’s politicians and the financial markets. She has no monetary policy experience at all. Jay Powell, another lawyer, served on the US Federal Reserve’s board of governors for five years before taking the helm.
Ms Lagarde will be able to rely, as she did at the IMF, on expert officials to do the technical work. But the job of ECB president is inherently a policymaking role. She will have to go toe-to-toe with other governing council members who have different views on monetary policy, in person and in real time. Mr Draghi battled with his arch critic Jens Weidmann, the Bundesbank president, over the bank’s push into unconventional monetary policy. Ms Lagarde will have to do the same. And Mr Weidmann, who has sounded more conciliatory in recent months, may be less so now he has missed out on the ECB presidency.
The ECB’s monetary toolbox is looking quite bare, if not completely empty. Mr Draghi has put the central bank on course for a further bout of bond purchases and further rate cuts. This may not be enough. Inflation is stuck well below target and the central bank needs some bold new ideas if it is to fulfil its mandate.
Ms Lagarde is well-regarded in Germany where there is respect for the rigour of the IMF. She is a dependable partner, less inclined to grandstanding than other French politicians.
But it is France and its southern eurozone partners who will be truly happy with Ms Lagarde at the ECB. Inculcated with French Treasury and IMF thinking about the merits of activist monetary policy, Ms Lagarde is likely to follow in Mr Draghi’s footsteps.
Like him, she will press for reinforcement for a precarious, half-built eurozone house. Too much strain has been placed on monetary policy. The eurozone will remain prone to crises without a banking union with common deposit insurance or a some kind of budget to help cushion downturns. These plans have foundered on German and Dutch resistance. One can only hope Ms Lagarde is more persuasive than her predecessor.
Mr Draghi spearheaded the transformation of the ECB from a young body that inherited the orthodox characteristics of its Bundesbank parent into a mature institution, more like the US Fed. Ms Lagarde is unlikely to achieve such a feat. She may not need to. But the ECB will need to keep developing new skills and tools.
During the financial crisis, a pillar of France’s banking establishment was asked about Ms Lagarde’s role and replied: “She is a lawyer. She explains. She advises. But she doesn’t decide.” In the highly centralised French system where the president calls the shots, it was probably true. Since then, she has built her authority as an alliance builder and conciliator. She has sold it convincingly to the world. If she can do the same at the ECB, perhaps her lack of monetary expertise may not be such a problem.