This top job is actually a crap job

While Frans Timmermans sees a European top job pass him by, Christine Lagarde gets a higher position just like that. However, should she be happy about that?

Lagarde is a striking winner of musical chairs for the European top positions. The current chairman of the International Monetary Fund (IMF) will have the opportunity to succeed Mario Draghi as chairman of the European Central Bank (ECB) in November. The French will then become the most powerful banker in the world after Jerome Powell, the chairman of the Federal Reserve (Fed).

Still, it remains to be seen whether Lagarde should be happy with her new job. Besides a lot of prestige, this also brings a lot of headaches with it. With every major decision, she runs the risk of antagonizing a group of powerful politicians. It is therefore no coincidence that the elephant skin of Draghi has always been one of its best features.

Difficult parquet
Another reason why Lagarde will soon be in a difficult position is because Draghi has already set the course for 2020 long before his resignation. For example, he already said that official interest rates will not rise in the foreseeable future. He alluded to a package of stimulus measures to get the economy going again in Europe. There is a good chance that Lagarde's contribution in her first year will be limited to a few beautiful speeches, without really having room to chart her own course.

The most frustrating thing about the ECB presidency, however, is that policies usually have little impact on the European economy. Draghi has already opened up the entire box of tricks in recent years. He lowered the (refinancing) interest rate to 0% and the deposit rate even to -0,4%. In addition, he bought $60 billion worth of government bonds and other assets every month for years. However, he failed to raise inflation to the target level of just below 2%. In recent months, this percentage came out at just 1,2%.

Shame on taxpayers
In itself, it is not so difficult to achieve the ECB's goals. A hefty tax cut could boost consumer spending, fueling inflation. This was also visible in the United States last year. Thanks to the budget surplus in, for example, Germany and the Netherlands, there is room for this in many countries. However, this space is not used for the time being.

Unfortunately for Lagarde (and for Dutch taxpayers), she does influence monetary policy, but not the fiscal stance in the eurozone. Lagarde's appointment will soon herald a period of low interest rates and headlines about her valiant efforts to boost Europe's faltering economy.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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