(Bloomberg Opinion) -- It is not easy being in Christine Lagarde’s shoes. The incoming president of the European Central Bank has not yet presided over her first Governing Council meeting, but she will have to face down a revolt over the central bank’s decision to restart quantitative easing before she even starts.
Lagarde may want to thank Mario Draghi for pushing through such a momentous decision in the face of widespread opposition. But the former managing director of the International Monetary Fund will now need all her political skills to ensure that the ECB does not become unmanageable from the very beginning of her term.
The intellectual case for pushing through such a comprehensive package — which also included a rate cut and easier lending terms to banks — was compelling. The euro-zone economy is slowing and inflation is widely off the central bank target of just below 2%. As Draghi said, it would be a lot better if governments with fiscal space — such as Germany and the Netherlands — took the lead in spurring a recovery by increasing investment spending or cutting taxes. But in the absence of a sustained fiscal stimulus, the ECB has no option but to unleash its monetary might.
Still, the decision came at an awkward time and was overshadowed by disagreements. On Oct. 31, Draghi will step down at the end of his eight-year presidency to make way for Lagarde. The decision to restart quantitative easing reportedly faced opposition from the governors of the central banks of Germany, France and the Netherlands, and from executive board members including Benoit Coeure. The head of the Dutch central bank, Klaas Knot, took the unusual step of criticizing the decision in an official statement.
Draghi could have left it to Lagarde to form a broad consensus, but he clearly isn’t a man for compromise. In 2012, when he announced in London that the ECB would do “whatever it takes” to save the euro, he took many of his fellow members on the governing council by surprise. The “Outright Monetary Transactions” scheme — which spelled out the technicalities behind “whatever it takes” — went ahead in spite of fierce opposition from Jens Weidmann, the powerful president of Germany’s Bundesbank. On that occasion, Draghi’s judgment was correct. His solitary style of leadership served the euro zone well. The hope must be that time will prove him right again.
Lagarde will have to deal with the inevitable fallout. At a hearing at the European Parliament this month, she pledged to act with “agility” and to continue with Draghi’s loose monetary stance for a “prolonged period of time.” These comments suggest she’s probably comfortable with the actions the ECB took last week. But it will be far harder to defend the new scheme of net asset purchases when she takes the central bank’s top seat in November. To make things worse, the rebellion at the central bank is far larger than anything Draghi has had to deal with before.
The transition at the ECB was always going to be difficult. Throughout his term, Draghi has managed to paper over the divisions at the heart of an incomplete monetary union, but the cracks remain. The irony is that last week’s decision to relaunch QE could make these splits come back with a vengeance. Lagarde should be nervous about Draghi’s last hurrah.
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Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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