March 8, 2021

Lagarde, continuity in front of the ECB

Correspondent in BerlinUpdated:

The bells of the German Bundesbank touch the deceased. Not only because until the last minute there were hopes there that, when Manfred Weber fell out of the European pool, outside the German Jens Weidmann who occupied the presidency of the BCE after Draghi. Weidmann would have had the opportunity to return to the "hawks" the possibility of redirecting monetary policy and alleviating the profitability of German banks.

But instead of Weidmann, and this is the serious thing, The French Christine Lagarde will occupy that position, that from the IMF not only has not criticized Draghi's policies but has been insistently dedicated to criticizing Merkel's austerity policies, calling public spending to a type of economy that has nothing to do with fiscal discipline and savings .

Christine Lagarde will become at the age of 63 the first woman to preside over the ECB and arrives dressed in her lax monetary policy profile, in a line of pure continuity with respect to the Italian mandate. It will be done with its new functions in October and thereafter will have to decide whether to continue with the plans of its predecessor, which go on to maintain and even reduce interest rates, and launch a new program of Quantitative expansion (QE) to prevent the European economy from weakening further. With an inflation of 1.2% and a growth forecast for the whole of the Eurozone of 1.2%, it does not seem that Lagarde is going to have a very different policy to the Italian At least, that is what the markets discount today, which have received their appointment with a good face.

At the ECB headquarters in Frankfurt, however, surprise prevails this morning. It is widely recognized political capacity of the former finance minister gala and his fluency and international baggage, which will undoubtedly allow him to fight with grace the pressures of the European States. However, their lack of experience with monetary policy is criticized there, which could cause more than one confrontation within the Council. Lagarde is a name well seen by a good part of the States, especially those who are more indebted as Spain because with low rates and excess liquidity the financing comes out very cheap.

Not in vain, the Frenchwoman was during her tenure at the head of the IMF one of the great promoters of European bailoutss to bankrupt countries after the crisis of 2008, especially Greece. Those who do not like their arrival at the institution is the European banks. Drowned by the low and even negative rates, they are terrified of the possibility of choosing to keep the rates at historic lows or to reduce the ease of deposit, which the ECB charges the bank for depositing the money in it. Only during the past year did European banks pay 7,000 million euros to the ECB for leaving their money there. If something has shown is his preference for lazitud. Proof of this is that in 2014 he even urged the ECB to launch the massive program of purchases of public debt that the institution had already slipped months earlier but that would not arrive until the following year.

«She is a very tough negotiator and will surely give the position more political relevance », say sources close to Lagarde, who say that in their mentality "it is a priority to make people see that commercial wars do not benefit anyone". In any case, the final profile that will assume its presidency at the head of the ECB will also be determined by the collaborators that surround it. It should be remembered that in addition to Draghi Coeuré, whose mandate ends at the end of the year, and the former chief economist, Peter Praet, whose term also ended a few months ago. At his side remains Luis de Guindos as vice president, also with great political experience but little macroeconomic. Lagarde requires several heavyweights to shore up his mandate and make a respectable image for the markets.

Another novelty that Lagarde brings is that the position of president of the ECB has entered the deal political, something that had not happened until now. It was carried out after consultation between the commission, parliament and council of the institution. Now that everything has changed, he is in doubt. Lagarde manages to maintain his independence and in any case he will have to prove it. Another challenge will be to convince the markets that they are willing to intervene decisively when the time comes. The balance of the ECB, over and above 4.5 billion euros, along with the exorbitant valuations of the debt, can hide the monster of a new crisis. If that happens, Lagarde should be able to show agility to rethink monetary policy and normalize the situation regardless of who falls.

(tagsToTranslate) lagarde (t) frankfurt

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