Crisis-fighter poised to tackle next test
IMF head Lagarde picked to become first woman to run ECB
Christine Lagarde is set to swap the helm of the International Monetary Fund for that of the European Central Bank, becoming the first woman to run euro-area monetary policy just as the bloc’s economy looks in need of fresh stimulus.
Lagarde was nominated to succeed Mario Draghi as president of the ECB when his eight-year term ends on Oct. 31.
She was chosen because she took on an indisputable leadership role at the IMF.
European leaders turned to the 63-year-old one-time lawyer and former French finance minister on Tuesday after hours of negotiations in Brussels over a package of top EU jobs.
In a statement, Lagarde said she was “honoured to have been nominated” and would temporarily relinquish her responsibilities at the IMF while EU lawmakers look to ratify her appointment.
“She was chosen because she took on an indisputable leadership role at the IMF and I think whoever can do that can also lead the ECB,” German Chancellor Angela Merkel said.
French President Emmanuel Macron said “she has the qualities and competence for the ECB. She has credibility with the markets.”
In moving from Washington to Frankfurt, Lagarde will be tasked with driving monetary policy in a 19-nation economy that Draghi has already signalled will need more help, likely in the form of lower interest rates and possibly with the resumption of quantitative easing.
Inflation is running at barely half the ECB’s goal of just under two per cent despite years of negative rates and 2.6 trillion euros (US$3 trillion) of bond purchases.
Investors will likely bet that as a seasoned crisis-fighter, Lagarde will share Draghi’s taste for aggressive and innovative monetary policy, especially as her appointment means the more hawkish Bundesbank president Jens Weidmann misses out.
Financial markets are already pricing an ECB rate cut by September, in line with predictions by ECB watchers at Bloomberg Economics and Goldman Sachs Group Inc.
Morgan Stanley said the choice of Lagarde increases their “conviction” that the ECB will eventually resume buying bonds.
Lagarde last week described the world economy as hitting a “rough patch” and advised central banks to continue to adjust their policies in response.
In June 2014, she said she would “certainly hope” the ECB would conduct QE if inflation stayed sluggish — months before it announced it would do so.
She also praised Draghi’s 2012 commitment to do “whatever it takes” to save the euro and recently echoed his call for governments to do more to battle future downturns.
In March, she linked the need to fortify the euro area to the words of playwright Moliere: “The trees that are slow to grow bear the best fruit.”