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In internal meetings, the head of the ECB Lagarde holds back and moderates the debates. In public appearances, after taking office a year ago, she initially underestimated the impact of her words.
By Lothar Gries, boerse.ARD.de
After taking office on November 1, 2019, it initially seemed like a quiet time for Christine Lagarde. The economy was booming, unemployment had fallen across Europe and his predecessor Mario Draghi had opened the monetary locks just before leaving.
A favorable opportunity for Lagarde to devote herself first to internal affairs, for example to raise the mood of central bank governors after Mario Draghi’s rude management methods had aroused anger. The French woman, born in Paris on January 1, 1956, also launched a charming offensive aimed at the German public.
No experience in monetary policy
She performed at a banking congress, flew to Berlin for a ceremony in honor of Wolfgang Schäuble and didn’t shy away from being photographed with the mayor of Frankfurt over a plate of “green sauce”. It is not known whether he consumed the dish, which is rather unusual for the French palate.
But unlike diplomacy, Lagarde is less knowledgeable about monetary policy. In fact, he has no experience in banking or interest payments, as it was primarily a policy. From June 2007 to June 2011 he worked as the French Minister of Economy and Finance. Moreover, unlike his predecessor, he is not an experienced economist, but a lawyer.
Unfortunate statements
This doesn’t have to be a disadvantage, but Lagarde tends to hold back and listen in internal monetary policy meetings, insiders report. Leave the explanation of the subtleties to his chief economist Philip Lane. Lagarde herself assumes the role of maximum moderator. But at press conferences after the central bank interest rate meeting, it has to show its colors and occasionally reveal its weakness. At first, he also didn’t seem to be aware of the effects of his statements in front of cameras and microphones.
In March, for example, he unintentionally made debt more expensive for Italy, saying that it is not the job of monetary policy to dampen risk premiums for the bonds of highly indebted countries. He was right on the matter, but the claim was a serious mistake, because risk premiums for Italian government bonds increased immediately afterwards. The ECB boss had made funding more expensive for the already hard hit country.
Become more careful
Although yields subsequently fell again, the incident shows that investors are putting every word of central bankers on the gold balance. More recently, Lagarde gossiped at the September press conference. His statement that the ECB is not pursuing an explicit exchange rate target caused the euro to rise sharply. The markets readily interpreted the statement as if the ECB did not care about the strength of the euro that had been observed for months. Subsequently, the economist Lane had to correct the claim.
Learn more about the exchange rate for euros to US dollars
Since then, Lagarde has become more cautious when appearing in public, according to the central bank. However, it prescribed a new opening to the ECB and initiated a dialogue with citizens. Unlike his predecessors, he wants to make monetary policy more understandable for all citizens.
Monetary policy receives a lot of criticism in the dialogue with citizens
At the hearing of various interest groups in October, from trade unions to environmentalists, however, the central bank met with considerable criticism and even open hostility. The zero-rate policy in particular is apparently a thorn in the side of many citizens, as it has meant that their savings no longer generate interest. And, according to economist Lane, that won’t change in the foreseeable future.
Spring proved that Lagarde can act quickly and decisively when in doubt. At the start of the March pandemic, for example, it announced a € 750 billion bond purchase program, which has since grown to a staggering 1.35 trillion. And this sum could also prove insufficient in view of the second corona wave that is currently coming.
Economists draw conflicting conclusions
So what conclusions can be drawn after Christine Lagarde spent a year leading one of the most powerful institutions in the world? According to the assessment of economists and monetary policy experts consulted by the “Börsen-Zeitung”, the results are mixed.
The management of the crown crisis and Lagarde’s first strategic review since 2003 is particularly recognized. However, an overly offensive monetary policy has met with criticism. For example, Friedrich Heinemann, chief economist at ZEW, complains that Lagarde now gives the impression that she also wants to do climate and social policy in Europe. “If he continues to be so aggressive here, it will be tantamount to overstepping the limits of the monetary policy mandate – and ultimately endangering the independence of the ECB.”
No further easing expected for the moment
Another opening of the monetary blocs this Thursday is considered unlikely. Economists do not expect the PEPP bond purchase program to be completed and extended until the end of 2021 in December. Furthermore, no further cut in the reference interest rate is envisaged for the moment.
The economy grew in the third quarter faster than the ECB expected. In view of the growing number of new infections, there are risks of growth. “It is not easy to make a global judgment on this confusing situation, especially since the results of the US presidential elections and the Brexit negotiations are not yet clear,” writes Jörg Krämer, chief economist at Commerzbank.
Those: boerse.ard.de
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