Christine Lagarde is to head the European Central Bank
In the last few weeks, a consensus finally emerged over who will head perhaps the second-most-important financial institution in the world, the European Central Bank. Though her name was not prominent in the list of initial candidates for the job, after some lengthy negotiating and horse-trading between French President Emmanuel Macron and German Chancellor Angela Merkel, the leading forces in European politics settled on Christine Lagarde as their choice for the ECB presidency. The French Lagarde, currently head of the International Monetary Fund, is a unique but deeply-qualified choice to head the ECB, and will become the first woman to helm the institution on November 1 of this year.
Lagarde is a major name and player in international economics, despite having – in an odd similarity to America’s central bank chair, Jerome Powell – no traditional or technical economics schooling, instead bringing a legal background to the central bank. Nonetheless, she served as France’s Minister of Commerce; Minister of Agriculture; and Minister of the Economy, Finance, and Industry before being named IMF director in 2011. As IMF director, she presided over much of the extended IMF bailout for Greece during their sovereign debt crisis – an already rocky situation that was further complicated by the need to work in tandem with European institutions to handle the crisis. This supranational approach — which required delicate negotiation and consensus-building between the austere European North, international backers, and a debt-laden Greece — marks exactly the kind of leadership that is necessary as president of the ECB. In this episode, during which Greece became the first developed country to fail to repay an IMF loan in time, Lagarde was forced to buck pressure from key creditors, most notably Germany, and displayed the independence needed from a central banker in a Europe that is currently so politically and economically sensitive.
Lagarde lacks a scholarly economic background and technocratic experience helming a monetary policy body, which makes her unique for a central bank head. This is unfortunate but does not disqualify her, if only because she has acted as a major figure in international economics for nearly a decade and should still bring credibility to the bank’s independence and stability. She is largely expected to carry on the policies of the Italian Mario Draghi, who has served as the bank’s president since 2011 and worked extensively alongside the IMF and European leaders to deal with the fallout of the Greek sovereign debt crisis and the extended Eurozone crisis. Draghi’s tenure has been marked by bold and proactive monetary management of the Eurozone that owes much to his academic, political, practical, and technical understanding of economics. While there is no doubt that Lagarde has political and practical experience in economic management, she would be well advised to lean on the ECB’s executive board and on the governors of the European countries’ national central banks for the technical economic analysis that made Draghi’s term so effective. If she can manage to work closely with Phillip Lane, the chief economist of the ECB, and rely on other technocrats at the bank, her political and supranational leadership will make for a strong tenure, and she will be prepared to whether the storms Europe is sure to face in the next eight years.
But who should take her current job?
Lagarde’s track record at the IMF has covered two major sagas in the fund’s history: the Greek crisis and the Argentinian bail-out, the results of the latter of which remain to be seen.1And, as the largest loan in the history of the IMF, will be a major validator for the successes (or failures) of the institution and of Lagarde’s leadership. Maintaining the continuation of the Argentinian program will require navigating through tricky waters there, soon to get trickier if Argentina’s current president, Mauricio Macri (who has been willing to work with the IMF and impose reforms needed to straighten out the domestic peso), loses reelection to Alberto Fernández in October.2Alberto Fernández’s running mate is Cristina Fernández de Kirchner, Macri’s predecessor, whose policies, along with those of her predecessor (and husband) Nestor Kirchner, are to blame for many of Argentina’s current economic ailments. Other than Argentina, the IMF faces some daunting challenges to come: Turkey is undergoing its own rapidly deteriorating currency crisis, with the lira down over 30% against the dollar since the start of 2018 (though Turkey’s President Recep Tayyip Erdogan currently seems unlikely to seek IMF aide); resistance from the United States to raising IMF members’ quotas (financial commitments which also translate to votes within the institution) which has required the IMF itself to rely on borrowing to fund its loans; and a new loan to the persistently reform-hesitant Pakistan (it is now on its 13th IMF program in the last 30 years). Lagarde’s steady hand and ability to assuage concerns across the spectrum of contributors, while boldly embracing new goals such as income inequality and climate change, will be missed, and leaves the IMF in desperate need of a strong successor.
Due to a long-standing (despite recent hesitation with David Malpass’ nomination and subsequent approval to head the World Bank, what with him being nominated by acclaimed anti-internationalist Donald Trump) understanding between the United States and Europe wherein America selects the World Bank president and Europe selects the IMF Director, there is one European name that stands out above the others as the most qualified (and likely) choice to replace Lagarde. That is Mark Carney, the current Governor of the Bank of England, also formerly the Governor of the Bank of Canada. A British, Canadian, and Irish citizen with a wealth of experience guiding Canada through the financial crisis (he boldly slashed rates in 2008, even while the ECB raised them), Carney was later named to the Bank of England, where he has been an avid realist about the economic threats Brexit will pose on the United Kingdom. He’s worked diligently to guide a drop in the pound since the Brexit referendum, steer through fears of currency and trade-induced inflation, and attempted to provide forward guidance on the implications of Brexit’s uncertainty. His background also includes a lengthy stint as chair of the international Financial Stability Board, serving within the Bank of International Settlements, and work for Goldman Sachs on South African bond markets and on the Russian financial crisis of 1998.
Carney (and his Irish citizenship) will no doubt garner him support within “The Hanseatic League”, a group of Northern EU states that were unable to secure any of the big EU jobs, as they may feel they’re due some representation in international institutions. His cross-Atlantic experience, enviable resume, and internationally-renowned record despite his ostensibly domestic roles should more than make up for whatever he lacks in worldwide institutional management experience.
This is to say, Carney is a highly technically proficient central banker, which makes him a nice complement to Christine Lagarde. One will move from a key international role to a technocratic central bank, while the other might move from a technocratic central bank to a key international role. Both will be trading out of their traditional comfort zones, but in an era soon to be marked by new and increasingly interconnected global economic conditions, their experience and disparate backgrounds may be immensely useful when it comes to working together to build a cross-Europe and global consensus, and finding new solutions to the next economic crises they each may face.