Christine Lagarde. Unless a miracle happens, the current top woman of the International Monetary Fund will succeed Mario Draghi if he resigns his presidency of the European Central Bank (ECB) on October 31 this year.
The question for the financial markets is: what monetary cloth is Lagarde cut from? Normally we would be able to infer that from her publications in the field of monetary economics. However, that is not possible now, because Lagarde is not an economist. She is a lawyer.
Activist monetary policy
In 2013, she participated in a symposium at the regional central bank in Kansas City. After reading her speech, I have the impression that she is a proponent of 'highly activist monetary policy', with a strong leaning towards 'loose policy'. I also got the impression that Lagarde has a preference for unconventional measures.
In other words: Lagarde is someone who is convinced that governments and central banks can (and above all must) steer economic developments. In other words, if the goal is to prevent a recession, that goal justifies all means for Lagarde. There is nothing wrong with wanting to avoid recessions, but the economic reality is that recessions are an integral part of economic development. There is also nothing wrong with wanting to go on a date with Miss Universe, but the reality is that it is not possible.
Unconventional monetary policy
De central bank sees Lagarde as 'the heroine of the global financial crisis'. In her view, the unconventional monetary policy can therefore also be called positive. That does not bode well for what I believe is a highly desirable thorough review of the ECB's monetary strategy. If you, as a central bank, keep interest rates at 0% for a decade and take all kinds of unconventional measures to boost inflation (but fail to do so), then it makes sense to do an independent evaluation to see what's wrong gone.
In such an evaluation, the bank's strategy must therefore be considered. I don't think Lagarde is the person to carry out this evaluation, because she is convinced in advance that there is nothing wrong with the bank's strategy. Supporters of her appointment praise Lagarde's political influence. This is of course the result of the fact that she has been active in the political world for a long time. However great that may be, personally Lagarde is too political for me for the position of captain of a huge central bank.
More often no, than yes
As the president of the ECB, she should be able to say 'no' more often than 'yes' to politicians. I wonder if she will or would like to. It is true that she often said 'no' as an IMF boss, but that was often 'no' to developing countries or relatively small countries. Whether Lagarde can also say 'nein' or 'non' to Germany, France or Italy remains to be seen. Given all that and the previous statements on monetary matters, it looks very likely that Lagarde will follow the monetary course outlined by Draghi.
In the past, she has expressed her strong support for the current ECB policy. If she criticized the bank at all, it was because, in her view, the ECB was running too fast towards an 'exit'. In other words: normalizing policy does not have to happen so quickly for Lagarde.
Interest long below 0%
In my view, there is a good chance that the ECB will keep the official interest rate at 0% for longer. Just like the chance that the central bank will start quantitative easing again earlier. We have definitely entered the era of low interest rates. The geologists divide the period since the formation of the earth into eras, with names such as Pleistocene. I hereby baptize the aforementioned New Monetary Era as Zero Rentocene.