Christine Lagarde an inspired choice to head European Central Bank
IMF boss's public-private experience and many abilities will help her navigate the region’s many challenges
Christine Lagarde, nominated to lead the European Central Bank (ECB), will need all her proven attributes, and help from others, to succeed as the new leader of one of the world’s three most systemically important central banks.
An inspired choice, she is uniquely well placed to build on her accomplishments as MD of the IMF. In tapping Lagarde for Europe’s most visible economic post, the continent’s political leaders established several precedents:
- Lagarde stands out in being the first non-economist to hold the post, the first woman, and the first combining such deep public-private experience, as well as a combination of national and multinational policy-making.
- Able to engage seemingly with many audiences, she has star quality that few if any of her predecessors possessed.
- She has already acquired significant crisis management experience, first as France’s finance minister during the global financial crisis, and then at the IMF, where she played a pivotal role in rescue operations for several countries, including euro-zone members and Argentina.
- To overcome her lack of formal academic economic training and central banking experience, Lagarde is likely to repeat a game plan that worked extremely well during her tenure at the IMF: surrounding herself with experts, working hard, showing extraordinary command of briefs, and asking the right questions at the right time to iterate solutions.
Interacting with the external world has become a key requirement for central bankers at a time when their operation, and political autonomy, face increasing scrutiny. Here, Lagarde stands to benefit from her strong communication and interpersonal skills, as well as her ability to navigate political cross-currents.
She will need all this, and more, inheriting from Mario Draghi a euro zone facing considerable challenges:
- Eroding policy flexibility and effectiveness after too many years of the ECB being “the only game in town” policy-wise;
- A weakening regional economy that risks slipping back into stall-speed economic growth, excessive disinflation, and renewed pockets of debt instability;
- A more fragmented regional, and less stable, political landscape for members of the euro zone that already have differentiated and complicating economic and financial conditions;
- A tricky global environment, on account of trade tensions and technological disruptions.
In addition to her considerable political skills, Lagarde will need to draw on the deep knowledge of her advisers and staff to ensure the technical expertise and dominance needed to establish consensus from a governing council consisting also of the heads of the national central banks of member countries.
In communicating to markets, she will need to combine her engaging plain-speaking style with the sort of “constructive ambiguity” that provides central banks with sufficient policy flexibility during an unusually uncertain time for the regional and global economies.
Finally, she will depend on the help of others. For the ECB to remain effective and credible Europe’s politicians must come together not only to progress on the much-delayed policy hand-off from excessive reliance on monetary policy to a more holistic combination of pro-growth measures, but also to complete the euro zone’s economic and financial architecture.
© BloombergView 2019
• El-Erian is chief economic adviser at Allianz SE, parent company of Pimco, where he served as CEO and co-CIO. He is president-elect of Queens’ College, Cambridge, senior adviser at Gramercy and professor of practice at Wharton. His books include The Only Game in Town and When Markets Collide.