Christine Lagarde Takes Over as President of the European Central Bank
On Friday, Christine Lagarde takes over as president of the European Central Bank. Her experience as a managing director at the International Monetary Fund and a government minister in France should help her in this title. She will need political skills developed during that time to steer the ECB through a particularly vexing time for the bank. She will have to break a deadlock among eurozone policy makers over how to support the region’s faltering economy.
“Ms. Lagarde is a political heavyweight in a way that other ECB officials are not,” said Stefan Gerlach, former deputy governor of Ireland’s central bank. “She understands the constraints that politicians are under and is well-placed to find win-win solutions.”
It stands to note that 25% of the ECB’s rate-setting-committee members are former politicians, including her deputy, former Spanish Finance Minister Luis de Guindos.
“Central bankers have sometimes been working in an ivory tower,” Mr. de Guindos told a Spanish newspaper this week. “The ECB’s decision makers need to understand the context, make sound choices from among the alternatives and communicate appropriately. Ms. Lagarde will do this extremely clearly.”
ECB officials are divided over whether to continue sizable bond-buying program as permanent tools or only emergency measures and how aggressive to be with the inflation target of 2%—double the current level. Some senior officials view such action as an overreach.
“The review can give Lagarde an opportunity to calm the waves,” said Holger Schmieding, an economist with Berenberg Bank in London.
In an interview with French television this week, Ms. Lagarde said she would try to heal divisions within the rate-setting committee “by allowing dialogue perhaps a little more than the extraordinary President Draghi did.”
Ms. Lagarde has already shown her metal when she pointedly pressed Germany to aggressively reduced government debt levels to below 60% of economic output, roughly half the level in the U.S.
In October, she criticized Mr. Trump’s policy-making, saying that “market stability should not be the subject of a tweet here or a tweet there”—a contrast to Mr. Draghi, who studiously avoided responding to broadsides from the U.S. president on ECB policies.
Still, some critics might prove hard to win over. Isabel Schnabel, a German economist nominated to join the ECB’s executive board, questioned the idea of a noneconomist running the ECB, arguing that a nonlawyer would never be appointed to run Germany’s top court.
“It’s a very fine line,” said Lucrezia Reichlin, a former ECB research director who now teaches at the London Business School. “She mustn’t go too far.”