IMF Managing Director Christine Lagarde is on course to become the European Central Bank’s next president in November. If she replaces Italy’s Mario Draghi, a huge change in the eurozone lender’s policy seems unlikely.
Following several rounds of horse-trading in Brussels, EU leaders nominated France’s Christine Lagarde to replace Mario Draghi as president of the European Central Bank. The decision put Germany’s more hawkish Bundesbank president, Jens Weidmann, out of the running.
Lagarde, the 63-year-old managing director of the International Monetary Fund, was the first woman to head the Washington-based body, and she would be the first woman to be at the helm of the ECB. Before joining the IMF, Lagarde served as finance minister in her home country.
If the European Parliament approve her nomination later this year, Lagarde would have to leave Washington for Frankfurt some 18 months before her official IMF mandate ends.
Up to the mark?
Most analysts agree her job in Washington qualifies her for the ECB’s top post, although she’d be the only president who’s not a professional economist. She was first appointed as IMF managing director back in 2011 and was able to start a second term in 2016.
Under her tenure there, she experienced the impact of the eurozone debt crisis, dealt with huge emerging market risks and the repercussions of a full-blown US-China trade war. Lagarde hasn’t tired of warning that trade disputes and the imposition of higher tariffs on goods are putting global growth in jeopardy and urged nations around the globe to fix global trade.
If she starts at the ECB later this year, Lagarde will find a eurozone that has not yet been weaned off massive fiscal stimulus. Financial pundits expect outgoing ECB President Mario Draghi to cut interest rates in September in the hope of fueling lackluster inflation.
A hefty change in monetary policy is not on the cards. Investors would most likely see Lagarde as sharing Draghi’s taste for aggressive and innovative policy tools.
Call for reforms
On the other hand, Lagarde is not known for supporting any overreliance on monetary policy. Instead, she’s frequently called on eurozone nations in particular to do their homework and set up a rainy day fund big enough to head off another major financial crisis.
“Greater risk-sharing combined with larger national buffers would allow countries to avoid having to raise taxes and cut spending when the next downturn comes,” Lagarde noted. She wants economies to become more resilient and productive, emphasizing that this can only be achieved by implementing the required structural reforms.
“More fiscal integration and true banking and capital markets unions will not address the structural weaknesses holding back growth,” she warned recently. Looking at Italy, people will most likely hear her repeat these warnings when she takes over in Frankfurt.