Last September, Christine Lagarde was quoted in an FT interview as saying “No, no, no no, no no? .?.?.? I am not interested in any of the European – ECB, commission, da da da da da – jobs, no,” but she has now been tapped to replace Mario Draghi as president of the ECB.
We have been through the no-turns-to-yes script before with regards to Carney and the BoE, so this should not have been a complete surprise.
However, ECB watchers are now wondering how Lagarde as head will shape the central bank and policy going forward for the next eight years.
While it is easy to focus on the fact that she is not an economist or central banker, this is irrelevant given her wealth of experience firstly at the French Finance Ministry and subsequently at the IMF.
These roles encompassed a period when she was involved in firefighting a economic/banking crisis as well as the eurozone debt crisis. Her role also meant a need to be politically savvy, not just in the eurozone but in global matters too, and she might have better luck than Draghi’s ECB in convincing eurozone governments of the need for a more simulative fiscal stance.
In terms of her role as ECB president, 1) she will likely support the continued use of unconventional measures, lean toward the dovish side and reflect continuity, and 2) the newly appointed chief economist Philip Lane and a new head of markets (a replacement for Coeure has not been announced) will likely play key roles, and the views of individual members more generally will matter more.
And if you are still hung up on the fact that Lagarde is a non-economist, just remind yourself how concerns over non-economist Powell have proved unfounded since he took over from Yellen at the Fed. In fact, Lagarde’s straight talking, like Powell’s, is likely to come in very handy as communication beyond markets takes on an important role in a lowflation environment.