On Tuesday night, the current International Monetary Fund (IMF) President Lagarde was nominated by the European Union to become the next ECB president. She will take over from Draghi in November this year. Lagarde became the first female European Central Bank governor. Unlike its predecessors, Lagarde has no economic background, but with many experiences in different positions. She has a large audience and a wide range of influence. Lagarde is an unexpected choice for Europe and will bring a new leadership style to the European Central Bank.
Lagarde’s star experience
Lagarde is not an economist. She was a lawyer before she was in public office. Compared with past presidents’ image of the of the central bank, Lagarde is more like a political star, which can change the image of the central bank governor. During the Financial Tsunami, she was the French Finance Minister. Then she became the President of the International Monetary Fund. These public positions have made her well known in public and have close ties with EU countries and even global leaders.
Lagarde has a huge media exposure and is also willing to accept media interviews and share his personal experiences. During his tenure as French Finance Minister, Lagarde successfully handled the Lehman Brothers crisis with her diplomatic skills and negotiation skills, successfully reconstructed a good financial environment. In 2009, Financial Times said she was the best finance minister in the Eurozone.
During his tenure as president of the IMF, Lagarde successfully solved many international dilemmas. In 2011, the euro zone has fallen into a debt crisis, and the Greek debt crisis broke out soon. As one of the biggest holders of Greek debt, the IMF led by Lagarde needs to negotiate with different parties. She urged Greece to accept fiscal austerity measures to stay in the euro zone for assistance. On the other hand, she persuaded the euro zone leaders to accept a relaxing debt ceiling. In the end, the Greek debt crisis turned to safety. Lagarde also successfully resolved the debt crisis in Argentina. Recently, she is also constantly mediating the parties and striving for the impact of the trade war on the world economy.
European Central Bank’s future policy direction
Lacking of economic background, Lagarde will rely on her teammate, especially the chief economic adviser, to envisage more creative methods of monetary policy. However, Lagarde will be seen as the second round of leaders to rescue the European debt crisis. The defeat of the hawkish candidate German Weidman means that Europe tends to continue the current monetary policy. Lagarde will inherit Draghi’s easing monetary policy and continue to lead the European Central Bank fighting against a low inflation environment. The market expects that Lagarde’s appointment as the European Central Bank will increase the probability of a rate cut in September and a restart of the asset purchase program.
Lagarde will attribute her effort as a coordinator. The central bank governor is no longer an independent academic decision maker, but needs to face various pressures from the government and other aspects. As the president of the European Central Bank, Lagarde needs to solve the problem of insufficient fiscal expenditure. With the experience of the French finance minister, Lagarde may have made a breakthrough.
Relationship with the United States
Similar to Lagarde, Powell, the current chairman of the Federal Reserve Board, also has experience as a lawyer. A similar background between two top policy governors may increase the efficiency of communication. At the end of last year, Lagarde also expressed his support for the Fed’s policy direction, safeguarding the independence of the central bank and countering Trump’s accusations against the Federal Reserve.
In conclusion, Lagarde joined the European Central Bank to bring fresh air to global monetary policy governors. Her legend experience may be able to touch structural issues within the euro zone. However, in the short term, Lagarde ECB president nomination can be interpret that Europe will continue its monetary easing policy.