Lagarde Is About to Be Europe’s Chief Lobbyist for Economies
Lagarde Is About to Become Europe’s Chief Lobbyist for Economies
(Bloomberg) --
Christine Lagarde’s future role as president of the European Central Bank is being transformed even before she takes office.
A job that was long the reserve of technocrats engineering monetary responses to the euro area’s economic challenges now increasingly requires the skills of a political campaigner who can encourage countries such as Germany to change their ways. That’s because much of the ECB’s ammunition is exhausted, so it will need help to stimulate growth.
“The situation is quite worrisome, and the big issue is that monetary policy has pretty much run out of road,” said Klaus Baader, global chief economist at Societe Generale. “So fiscal policy will have to jump into the breach.”
As a former finance minister, Lagarde is well suited to becoming the region’s chief economic lobbyist. She can probably pursue that role with more force than her predecessor, Mario Draghi, who has tended to limit his nagging of governments to set-piece occasions such as ECB press conferences.
Lagarde is also used to publicly engaging with governments on economic policies in her former role running the International Monetary Fund for eight years, with its function as an overseer of the financial system and its constituent members. They included all the 19 euro-zone countries.
“There’s a need for coordinated fiscal policy,” Andrew Balls, chief investment officer of global fixed income at Pimco, said on Bloomberg Television. “Most economists would agree with that. The problem is the political dimension in Europe, so the new ECB chair is not a monetary policy expert but somebody of great political experience.”
Draghi already set the tone last month, declaring that it’s “it’s high time for the fiscal policy to take charge.” In that regard, Germany presents a challenge for Lagarde, because of its long-held reticence about loosening budget purse strings, despite having firepower to do so, to everyone else’s benefit.
“Germany is the only large economy in Europe certainly that has that capacity,” Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development, told Bloomberg Television in Berlin. “Therefore it’s not just a German issue, it’s also a systemic issue for Europe -- and to a certain extent, for the world.”
It may be no surprise that Lagarde’s first week as president will feature a trip to Berlin for a speech lauding a guardian of the country’s fiscal prudence, former Finance Minister Wolfgang Schaeuble. That follows an appearance in August -- one of her first after being nominated for the ECB -- at an event honoring Chancellor Angela Merkel.
The strength of opposition against ECB policy in Germany is an added complication for Lagarde. A reminder of that came on Friday, when two German former ECB chief economists and an ex president of the Bundesbank were among signatories to a memorandum lambasting Draghi’s latest stimulus move.
Getting the Germans to loosen up isn’t her only challenge. She told the European Parliament last month that a majority of euro area countries have some fiscal room to aid growth.
Lagarde also highlighted a theme long pressed by Draghi and his predecessors, calling for growth-friendly policies to unlock economic potential in euro members such as Italy. “Structural reforms are in many, many countries ‘mission unfinished,”’ she said.
As ECB president, Lagarde will still need to lead from the front with stimulus suitable to the economic circumstances, while chairing the Governing Council after an unprecedented rebellion against Draghi. She has also pledged to start out with a review of the institution’s monetary policy strategy.
Her chief economist, Philip Lane, will still be able to take charge of much of the technical aspects of the job however, helping compensate also for her lack of experience as a central banker. She described him last week as “fantastic.”
Relying on Lane will allow her to play to her strengths as a communicator. Unlike Draghi, who was uncomfortable with broadcast interviews and rarely spoke directly to media outside his press conferences, Lagarde has much experience and visible self confidence with both.
Speaking to Bloomberg Television last week, Lagarde suggested that she knows just how much public lobbying will be expected of her in the new role, rather than monetary policy. She consulted former central bankers before accepting the position.
“The point that they made very clearly to me, and which I believe as well, is that a lot of diplomatic skills, political sense, understanding of the perspectives of finance ministers and euro country leaders -- all of that will matter probably more,” she said.
--With assistance from Francine Lacqua and Matthew Miller.
To contact the reporter on this story: Craig Stirling in Frankfurt at cstirling1@bloomberg.net
To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Fergal O'Brien, Zoe Schneeweiss
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