Draghi Should Replace Lagarde at the IMF

(Bloomberg Opinion) -- Christine Lagarde's nomination as president of the European Central Bank takes Mario Draghi a step closer to the end of his term. The Italian academic will step down in October after eight momentous years, during which he made the ECB the most important institution in the monetary union.

That doesn't mean, however, that he should retire from front-line policymaking. A job swap with Lagarde, which would see Draghi become the managing director of the International Monetary Fund, would be a boon for the global economy.

The departing ECB president is certainly qualified. He has a strong background in economics – something that Lagarde lacked but which many IMF bosses had before her. He also has a track record of managing crises effectively and building political consensus around his decisions. The euro's survival amid the sovereign debt crisis at the start of this decade was due largely to Draghi's promise to do “whatever it takes” to protect the single currency.

The IMF could certainly use a leader of Draghi's standing to carry on Lagarde's work. In her eight-year tenure she has restored the credibility of the institution, which took a battering after the sex scandals that brought down her predecessor Dominique Strauss-Kahn. She has helped improve the reputation of a fund that was traditionally associated with stubborn fiscal austerity. The IMF was the first institution involved in Greece's rescue to recognize that Athens needed debt relief rather than more swingeing cuts. 

Draghi has proven that he can fight his corner politically (not least in standing up to the Germans), an attribute that would help the IMF manage its fraught relationship with its main shareholder, the U.S. government. Under Lagarde, the fund has been a critic of President Donald Trump's flagship policies such as his tariff war with China and his tax giveaways to the rich. Hiring Draghi as managing director would test Trump's newfound admiration for the ECB chief. (Last week the president tweeted that he would rather have the Italian as chair of the U.S. Federal Reserve than Jerome Powell).

Unfortunately, there are several obstacles to appointing Draghi, the chief one being geographical. The Americans and Europeans have traditionally stitched up appointments at the two main international financial institutions, the IMF and the World Bank (David Malpass, an American economist was recently appointed president of the latter). But the big emerging market nations aren't happy about that, given their own economic strength. Indeed, China is building a parallel system of institutions, including the Asian Infrastructure Investment Bank, to provide alternative funding to poorer countries.

There's a strong argument for having an Asian, South American or African boss of the IMF. Tharman Shanmugaratnam, a senior minister in Singapore and chair of its Monetary Authority is competent and well-regarded. Yet in a purely meritocratic contest it would be difficult to trump Draghi.

Recruiting the 71-year-old would also require the IMF to change its age rules, which demand that incoming managers are no older than 65. The fund's directors have applied this rule strictly in the past. In 2011, the highly respected Stanley Fischer, then governor of Israel's central bank, had his bid to replace Strauss-Kahn rejected because he was 67. 

Most important, Draghi may have had enough of big international jobs and might prefer a quieter life. He could return to academia or join a think tank – as former Fed chairs Janet Yellen and Ben Bernanke have done – or perhaps try to become the next president of his native Italy when that post is next free in 2022. Still, at a time when global cooperation is under threat, it would be useful to have Draghi sticking around on the world stage. 

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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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