“no, no, no, no, no, no”
Christine Lagarde was adamant last year that she wasn’t interested in running the European Central Bank. Now she stands nominated, and while many of the British public neither know who she is, nor what bearing this news has on them, the significance of the individual entering the position is certainly worth discussing.
A determined and poised character, you do not have to agree with either her views or her approach to the tasks she undertakes to admire her drive. Ms Lagarde’s father passed away when she was only seventeen, and she notes that the strength her mother bore to raise four children by herself was something she drew inspiration from.
As anyone familiar with Ms Lagarde’s work will know, this latest ‘honour’ is just one of many which has seen her acquire taglines and accolades such as the ‘rock star of finance’, and perhaps more significant, ‘first ever female’. That latter accomplishment has become something of a motif for Ms Lagarde, who after failing to be accepted into her chosen college three times went on to become the first woman to chair the international legal firm Baker McKenzie, the first female Finance Minister of France (or any G8 member nation-state) and most recently the first female managing director of the International Monetary Fund. In spite of this impressive list of credentials, she has already faced questions over whether she is suitable for her new role.
“I’m not a super-duper economist”
A quote taken from an interview with The Guardian in 2012. Her rivals’ supporters have raised the issue that Ms Lagarde has neither extensive academic or professional expertise in economic theory and practice. This issue being raised is of particular importance because her predecessor – incumbent ECB president Mario Draghi – was chosen for being exactly what she isn’t; well versed in economic theory. In the crisis period post-2008, Draghi was chosen for his creativity and it was thought his ingenuity in applying economic theory made him well-suited to tackle the monetary challenges faced by the eurozone.
What should be considered though, despite the fact that Ms Lagarde herself confessed her lack of economic experience, is that she would not be the only major monetary policy player without a background in economics. The US Federal Reserve chairman, Jerome Powell, is also from a legal rather than financial background. Further, having an ECB president with more in-depth legal insight could be of use. If one appreciates that a large proportion of the movement of capital around the world is done either using legal mechanisms, or done because of the relative advantages offered by different legal systems, then having someone who is familiar with the legal procedures pertaining to trade and the movement and storage of capital, could prove useful. This is not to say that Ms Lagarde would be able or be interested in changing the way capital flows, rather, knowing the legal ins and outs of economics should make her just as qualified as an economic grand strategist.
Regarding Europe specifically, Ms Lagarde worked extensively with struggling economies such as Greece and Portugal during her time chairing the IMF, and in turn appreciates not only the extent of the challenges these economies face but also understands the task of attempting to manage a divergent currency union. She would also see Draghi’s legacy continue after his departure, with some viewing Ms Lagarde as a ‘continuity candidate’ in favour of preserving the euro and supporting accommodative monetary policy to avoid deflation.
This tag of continuity, though, weighs heavily on Ms Lagarde as far as her political life and views are concerned. Seen by some as favouring the politics of amelioration and consensus, there are fears that Ms Lagarde would be prone to outside influences; with her background in politics and negotiation inspiring fears that the ECB would lose its independence. There is an ongoing trend of political figures entering the top positions of Central Banks, as seen in Finland, Slovakia and even the vice presidency of the ECB. The fear is that the appointment of Ms Lagarde will see the ECB deteriorate into a bureaucracy, and that for Lagarde to be successful, she will need to emulate Draghi’s success in telling politicians what needs to be done, rather than pandering to external political agendas.
This would not be a worry for those who know Ms Lagarde as a shrewd and straight-talking character, and that would be the case for her critics too, had her political standing and personal views not clashed on occasion. On the subject of austerity politics for instance; Ms Lagarde spoke out in support of Britain during its campaign of quantitative easing and fiscal retrenchment, only later going on to encourage countries to use their spending power to ease the burden of the least well-off and invest in environmentally friendly infrastructure. Now, Ms Lagarde is known for her right-of-centre politics during her time in office under Nicolas Sarkozy. We can either assume, then; that one of her two stances on austerity is merely disingenuous political rhetoric (most likely the latter), that Ms Lagarde doesn’t realise the correlation between austerity and funding cuts to public services (which I don’t believe), or that she indecisively panders to each side of the political mainstream. None of these scenarios are favourable, and reflect the characteristics of a political figurehead rather than a monetary decision-maker.
That being said, Ms Lagarde’s reputation as a tough negotiator didn’t come from nothing. She is known for not being easily swayed and behaves according to her own agenda – the BBC even reporting that she sometimes exercises during meetings. In all seriousness though, Ms Lagarde has no qualms about carrying out necessary courses of action. Last year for instance, she presided over the IMF’s largest ever bailout, a sum of $57 billion to Argentina which many credited with curbing turbulence in emerging markets. Further, it has also been suggested that despite her economic inexperience, her political acumen could help her pursue progressive structural changes to the ECB, such as a possible euro zone fiscal budget to help countries suffering isolated shocks.
Regardless of the opinions of either camp, the rock star of finance will have to remain strong, single-minded and reflect on her experience as a leader and decision-maker, should she hope to successfully carry out the office of ECB president. Possible successors for Ms Lagarde’s position at the IMF include the outgoing European commissioner for economic and financial affairs, Pierre Moscovici, and Governor of the Bank of England, Mark Carney.