A Lagarde-Run ECB Might Mean a Very Different Kind of Presidency

(Bloomberg) -- Christine Lagarde's accession to the helm of the European Central Bank for the era after Mario Draghi might augur a very different style of leadership.

The International Monetary Fund chief, 63, who won the job as part of a fraught European Union selection process, will be the only woman ever to have run the Frankfurt-based institution -- and also the first person to do so without being a career central banker.

Instead, Lagarde will bring the star quality of a politician -- she thrived as French finance minister during the financial crisis before graduating to the fund in Washington. In an age where the EU establishment is frequently derided by citizens, her skills could help repair the image of central bankers. It might also mean relying more than Draghi did on the capacity of ECB staff to drum up imaginative solutions to the euro-zone economic challenges.

“She's really a political figure, much more so than an economist,” Alicia Levine, chief strategist at BNY Mellon Investment, said on Bloomberg Television. “She's very political, she's very wise, and I would assume she has the best economists that can help her with this. It is a little puzzling because she's not known as one of the leading economic minds out there.”

Until this weekend, the main contenders for the ECB job were male central bankers. From Bundesbank President Jens Weidmann to Bank of France Governor Francois Villeroy de Galhau, all were current or former members of the Governing Council who have previously participated in multiple decisions on monetary policy.

By contrast, Lagarde's hands-on experience is gleaned from her role leading an organization that scrutinizes economies throughout the world as a guardian of the global financial system. Eight years of managing the IMF, coupled with her stint as finance minister of a Group of Seven country, means she can still bring plenty of gravitas to the ECB.

What Bloomberg's Economists Say

“Monetary policy is just one part of a wider remit for the current generation of central bankers. The person with the best publications on theoretical monetary economics needn't make the best central bank chief. It may be that management experience is more important, and Lagarde has it in spades.”
--Jamie Murray. See his ECB INSIGHT

Unlike Draghi, a career economist who rose through the ranks in Italy's administrative class, Lagarde studied law and made her career as an attorney with Baker & McKenzie before switching to politics. That legal background is one she shares with Federal Reserve Chairman Jerome Powell, meaning that the world's two biggest currency areas will now be run by former lawyers.

Europe's economy is in a manufacturing slump driven by global trade tensions, and one that could yet spread into a broad-based downturn. Draghi is poised to restart stimulus before he leaves the ECB, perhaps in tandem with Powell, potentially leaving Lagarde to persist in that push.

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She has previously backed Draghi's initiative to embark on quantitative easing and might well want to maintain a monetary policy consistent with his approach. But that could put the onus on the institution itself to come up with ideas, while she focuses on the communication of them.

John Normand, JPMorgan's head of cross-asset fundamental strategy, says a politician might be useful in the presidency to help with the “salesmanship” of reactivating stimulus. But he also says that Draghi's successor at the ECB faces some challenging times -- and will need considerable skills.

“You need an ECB president who follows in the footsteps of Draghi, and I think it should be someone who is very skilled in thinking of new ways to implement and craft monetary policy,” he said told Bloomberg Television before the announcement of Lagarde's nomination. “I'd be concerned if the next ECB president is someone who doesn't have a lot of experience in monetary policy."

Lagarde can still perfectly well do the job, according to Sharon Bowles, a U.K. lawmaker who previously scrutinized the ECB as chair of the Economic and Monetary Affairs Committee of the European Parliament, and pressed for more senior female appointments there.

“Does the person speak with authority, does the person command the respect of the panel or board she is chairing?” is what matters, she said in an interview. “It's not a matter that one person is making the ruling. It's all done by committees.”

--With assistance from Catherine Bosley.

To contact the reporters on this story: Zoe Schneeweiss in London at zschneeweiss@bloomberg.net;Craig Stirling in Frankfurt at cstirling1@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

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