February 28, 2021

Lagarde at the ECB, follow the party for Spain!


Updated:

It just leaked the name of Christine Lagarde as a nominee for the presidency of the European Central Bank (ECB), ten-year Spanish government bonds reduced their yield by one tenth of a percentage point, like the Italians. The markets immediately saw in Lagarde the hand that will continue to keep the highly indebted states giving continuity to the monetary policy of Mario Draghi.

"Mrs. Lagarde is a political candidate willing to support the governments of the Club Med-Mediterranean countries- to continue to borrow," dit Steen Jakobsen, chief economist of the Danish bank Saxobank, in line with the assessment made by Daniel Hartmann , chief economist of asset manager Bantleon.

"The governments of the southern peripheral countries will welcome Lagarde with a sigh of relief", the latter guesses, "because it is very open to unconventional measures and will even argue in favor of an even more expansive monetary policy than what we have seen so far. " And both wonder how far that rope of monetary laxity can stretch.

With Draghi in front, the European Central Bank has bought Spanish debt bonds worth 260,000 million euros, as of December 2018. "And now the party continues," laments author Dorothea Siems, "and as with these levels of debt, normal rates of interest rates would be unsustainable and would bankrupt several states, since the normalization of the types are postponed sine die. "

"I could go even further," warns Thomas Mayer, former chief economist at Deutsche Bank and now director of "think tank" Flossbach of the Storch Research Institute, "she does not come from the tradition of monetary discipline, she has been a banker but a French Minister of Finance between 2007 and 2011 ", so that for her there are less immutable principles of banking, such as the fact that central banks can not manage or sustain public finances.

A more political ECB

The European Central Bank runs the risk of becoming more political and becoming more involved in the public financing of southern European countries, a line of action that has awakened anti-European forces throughout the continent. It should be remembered that, as president of the International Monetary Fund (IMF), she defended a Greek debt write-off and that, when the European partners refused, the third bailout was carried out without the support of this international organization. What decision will it take when the stimuli are exhausted, the peripheral countries are still more indebted than now and the European economy has not found the formula to make a niche between the American and Chinese giants, which are the economic powers of the 21st century? the analysts ask.

And at this point it is worth remembering what Lagarde herself wrote last January in the blog of the International Monetary Fund: "When the next crisis arrives, something that will happen, the authorities should use all their tools to maximize their combined effect. means supporting demand through a looser monetary policy and fiscal incentives where possible. "

Half full glass

The bank analysts consulted by ABC, who try to hide their fear of the prolongation of low and even negative rates, try to show the glass half full and point out that Lagarde has repeatedly claimed from the International Monetary Fund for the completion of the banking union, a process that can now boost from its role as supervisor of the sector, with a greater reduction of unproductive loans in the balance sheets and favoring cross-border mergers.

And in France all eyes turn to the newly elected chief economist of the ECB, Philip Lane. This does have an authentic banker profile and the European economy and finances in the head, besides being considered by some experts as "the best macroeconomist in the world". It will be he who manages the machinery, while Lagarde puts face and public relations to the decisions.

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