Frenchwoman Christine Lagarde is set to succeed the long-shadowed Italian man Mario Draghi as the next European Central Bank (ECB) President.
Lagarde resigned from her role in mid-July as the Managing Director of the International Monetary Fund (IMF) weeks after European Union heads of states and governments agreed on the initiative by the French President Emmanuel Macron’s bid to nominate her for the ECB presidency.
Her resignation will be effective as of September, coinciding with plans at the European Parliament to put her nomination to vote for confirmation either that month or later in October. It could be a tough process as the left-wing alliance of the Greens is inclined to bargain so to get political concessions from the center-right figures, notably on the issue of climate change. Her predecessor Draghi’s tenure officially ends on 31 October 2019, exactly eight years after he took the helm at the Frankfurt-based central bank.
Questions over Lagarde’s experience in banking
There is a caveat to the name, Lagarde. She is not an economist but a lawyer by profession. True, she served in her country in the 2000s as both the Minister of the Economy, Finance and Industry and Minister of Commerce but her lack of experience in the banking industry is raising questions about skills needed to direct monetary policy, and particularly control inflation and interest rates for the supranational, large Eurozone economy.
Draghi’s inescapable legacy
As such markets do not expect Lagarde to stray from the loose monetary control course Draghi drew throughout the years after the Great Recession. The shadow he cast in the “will do whatever it takes” quip in 2012 to save the euro stands long even today. It will take time, maybe years, for Lagarde to put her own mark on the monetary policy.
In a 2011 interview with the American fashion magazine, Vogue, Lagarde defined her views on economics as “liberal with Adam Smith,” that is minimal government intervention in business and free trade, values today largely defended by the Western Conservatism.
Challenges she is to face
She will start steering the Eurozone at a time of protracted trade wars, especially that of China and the US, that is already having far-fetched ramifications across the globe, including Europe where economies grapple with a growth slowdown.
The Eurozone economy is facing increasing risks from the trade tensions, the Brexit mess in Britain and Italy’s budgetary issues. Indeed, those points were listed in the IMF’s latest annual report just days before Lagarde’s resignation from the institution.
The report supported one of Draghi’s last signature policies, the ECB’s most recent plans of fresh stimulus to protect the Euro economy from the risks, external and internal. According to the IMF, the Eurozone inflation is most likely to remain far from the ECB’s close-to-2% target at least until 2022, long into Lagarde’s presidency at her new job.
“The undershooting of the inflation objective calls for prolonged monetary accommodation,” the IMF wrote while welcoming the ECB’s plans to keep the easy-money policy in place for some time to come.
Given the wide alignment of the IMF with the ECB policies, we can safely assume that no major changes will happen at the bank once Lagarde begins her tenure.