Lagarde at the ECB?

IMF head Christine Lagarde has been proposed as the new leader of the ECB, replacing Mario Draghi. I don’t feel that I know enough about either Lagarde or the internal dynamics of the ECB to have a firm opinion on this nomination. But the following caught my eye:

Lagarde would bring the star quality of a politician — she thrived as French finance minister during the financial crisis before graduating to the fund in Washington. In an age where the EU establishment is frequently derided by citizens, her skills could help repair the image of central bankers. It could also mean relying more than Draghi did on the capacity of ECB staff to drum up imaginative solutions to the euro-zone economic challenges. . . .

“She’s really a political figure, much more so than an economist,” Alicia Levine, chief strategist at BNY Mellon Investment, said on Bloomberg Television. “She’s very political, she’s very wise, and I would assume she has the best economists that can help her with this. It is a little puzzling because she’s not known as one of the leading economic minds out there.” . . .

By contrast, Lagarde’s hands-on experience is gleaned from her role leading an organization that scrutinizes economies throughout the world as a guardian of the global financial system. Eight years of managing the IMF, coupled with her stint as finance minister of a Group of Seven country, means she can still bring plenty of gravitas to the ECB.

Unlike Draghi, a career economist who rose through the ranks in Italy’s administrative class, Lagarde studied law and made her career as an attorney with Baker & McKenzie Inc. before switching to politics. That legal background is one she shares with Federal Reserve Chairman Jerome Powell, meaning that if she clinches the ECB job, the world’s two biggest currency areas would be run by former lawyers.

Nothing new there; the entire world is run by lawyers.

It seems to me that this description dovetails pretty nicely with Tyler Cowen’s list of the qualities appropriate for a leader of a central bank:

The bottom line is this: A good candidate for the Fed should have at least some practical managerial experience. You don’t have to be the next Bill Gates or Steve Jobs, but you should be just competent enough to forestall internal crises of bad management and to avoid losing face. For a lot of potential candidates, that is actually a pretty tall order, especially if they come from academia or have unorthodox backgrounds unrelated to finance. . . .

Of course the next board member will also be expected to have well-informed views, however you might define them, on monetary policy and regulation. But it would be a mistake to start with a set of agreeable or required views, and then use it to build a short list of advocates. It bears repeating: For a board member to be effective, political and bureaucratic skills are paramount. Without them, a board member may well end up as counterproductive, even when correct.

So this will be a nice test of Tyler’s views. Based on the above I’m cautiously optimistic about Lagarde, while remaining rather pessimistic about the Euro project as a whole. If that confuses you then remember that I think the US economy is doing fairly well, even as I view Trump as the worst president ever.



6 Responses to “Lagarde at the ECB?”

  1. Gravatar of Benjamin Cole Benjamin Cole
    2. July 2019 at 16:03

    I wonder if TLTROS will work in the next recession, and if not, does Lagarde have a back-up plan?

    Long story short, if the only way central banks can stimulate economic growth is to try to get commercial banks to lend more… will central bankers be sidelined in future recessions?

  2. Gravatar of Garrett Garrett
    2. July 2019 at 17:19

    Off-topic: John Cochran’s response to Grew Mankiw on the Phillips Curve:

  3. Gravatar of ChrisA ChrisA
    3. July 2019 at 08:10

    You don’t have to love Trump but he isn’t powerful enough and capable enough to be any kind of long term threat to worry about. So in my mind that makes him a good president. What we have to fear is not trivial minded incompetent presidents but capable strong minded leaders with the wrong ideas.

  4. Gravatar of ssumner ssumner
    3. July 2019 at 09:11

    Thanks Garrett.

  5. Gravatar of Benjamin Cole Benjamin Cole
    4. July 2019 at 17:49

    I am sorry to harp on his again, but I have my tin foil hat on, and when i do that I just can’t stop.

    Public expectations and monetary policy and inflation and interest rates.

    Okay, here is what the financial media says about Christine Legarde and the markets:

    “Money managers and economists have offered their opinion on the nomination of Christine Lagarde as the European Central Bank’s (ECB) new president, noting her gravitas on the international stage but her lack of experience on monetary policy.

    Euro zone bond yields tumbled on the news, and defensive stocks rallied Wednesday morning as investors staked bets that the incoming head of the ECB will be a fan of low interest rates.”


    Okay, the literate public thinks Legarde will be “dovish.”

    So…long-term rates go….down?

    If the literate public believes that Legarde will usher in or maintain “easy money”…would not higher long-term rates prevail?

    You know, this business of “public expectations” and interest rates and inflation is…well, a squishy business, no?

  6. Gravatar of Matthew McOsker Matthew McOsker
    9. July 2019 at 13:54

    Maybe there is an ample supply of real resources relative to money savings etc…

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