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Christine Lagarde agreement risks making the ECB weaker



Mario Draghi's move to shape the euro area's monetary policy beyond his retirement date – at least through 2020 – may prove to be the best decision he has ever made as president of the European Central Bank.

His nominated successor, current head of the International Monetary Fund Christine Lagarde, would come to work without any central bank experience, and of most non-grade accounts that allowed Draghi to pronounce his famous promise in 2012 to "do anything" for to keep monetary union together.

If, in the next few weeks, European leaders confirm their choice to give Lagarde one of the world's most important monetary-policy jobs, they will increase the fear that the eurozone will not be able to withstand the next serious financial shock, with the ECB stunted by the transformation of its governing body into a bickering and ineffective mini-parliament.

The first reason is that the ECB would be led by two personalities who hail from politics, without proper experience from the central bank or a serious academic background: Lagarde is a former minister under French Conservative Presidents Jacques Chirac and Nicolas Sarkozy, and ECB Vice President Luis de Guindos is a former conservative Spanish finance minister.

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Lagarde, 63, is a lawyer by training and served as a brutal finance minister under Sarkozy. She was later convicted of the resignation of duty by the French Supreme Court for overseeing the misuse of public funds while serving in that post. It did not prevent her from being renewed in 201

6 for the IMF post that Sarkozy had lobbied for and helped her come in 2011.

Although some European leaders greet her political hopes and ability to compromise divergent authorities in Difficult situations, Lagarde has never been interested in the fierce economic arguments that split governments through the euro area crisis. She has no visible fixed views on financial or monetary policy, except to adhere to consensus at the moment. At the IMF, she has proven to be a good bureaucratic operator, and an articulated defender of the policies perceived by the staff of the international organization.

That is precisely the problem she presents as the ECB's presidential election. Draghi knew where he was going and did not hesitate to venture far beyond the consensus that his central bank's colleagues had agreed or discussed. He led the way. Lagarde is likely to be one in which the ECB bureaucracy will lead, and the president follows after checking what other central banks in the euro area stand for.

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More concerned, Lagarde will lack the conviction of the deliberations of the Governing Council of the ECB, the governing body consisting of the 19 national governors and the six members of the board. The risk is that instead of being dominated by a president's deft to steer his debate, it will be turned into a deliberative congregation that is unable to make the kind of quick decisions needed in times of crisis.

Markets will have some reasons to fear the appointment of an inexperienced ECB president just as the eurozone is heading for a troubled economic future. Inflation expectations are the lowest in the years; the region's economy can be hit by trade wars and the slowdown of emerging markets; and European governments are either reluctant or unable to move towards the type of fiscal stimulus. Draghi has been advocating for months. Meanwhile, European leaders have given up anything but reforming the Eurozone, or strengthening their increasingly fragile banking supervision.

By choosing a consensus candidate that is unlikely to accommodate any feathers, European governments have at least ensured that their influence will increase on the ECB's policies. This is worrying for the central bank's ultimate independence. But in the short term, this should be an indication of markets that, after each year, the ECB can no longer be the strong trusted institution they have learned to respect.

To contact the author of this story with feedback or news, email Pierre Briançon


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