“I’m neither a dove nor a hawk. My ambition is to be this owl that’s often associated with a little bit of wisdom”. This is what the new President of the ECB says about herself.
“I will have my own style”, which may differ from that of my predecessors: “don’t over-interpret” the way I express myself as a hint of upcoming changes in monetary policy. In part because “I’m neither a dove nor a hawk. My ambition is to be this owl that’s often associated with a little bit of wisdom”. These are the words Christine Lagarde used to introduce herself to the financial press on 12 December, adding an unusual interlude between her opening statement and question time in her first press conference as ECB President. Immediately thereafter she stressed the “strategic review” that the Central Bank will conduct over the course of 2020.
While we must not go overboard in predicting changes, we cannot deny that there is a significant chance that some things, at least, will. They will do so under the leadership of the first woman to serve as BCE President, on the heels of her eight years as the first woman to head the IMF, a position in which she displayed diplomacy, skill, authoritativeness, and the ability to defend the institution’s independence from heavy political interference. In her time in Washington, she always showed particular interest and competence on matters concerning the Eurozone.
When she was nominated to succeed Mario Draghi, some wondered whether in light of her professional and academic background in law (with a specialisation in EU law), her technical competence would be on par with that of her predecessors. Lagarde jocularly warned journalists that “when I don’t know the answer to a question, I will admit it”. But she had no problem clearly discussing and explaining several technical fine points. Lagarde’s experience in international finance, which she has been involved in at the highest levels since 2007, when she served as France’s Minister of the Economy, leaves no doubts about her ability to lead an institution staffed with the very best professionals in their fields and where the collegiality of decision making will require great coordination and leadership skills. Her communication skills will also be important, and she has said that she will want to closely engage, using the appropriate language, not only markets, experts, and politicians, but also public opinion in the broad sense.
Some of Mme Lagarde’s characteristics suggest she is the right president at the right time. Indeed, we are at a delicate and complex juncture. Monetary policy worldwide is going through a phase of difficulty and reflection. It has been used extensively to limit the damage caused by the financial crises of the last decade, adopting exceptional measures to deal with exceptional situations. It now finds itself up against the limits of its effectiveness; in particular, it has been caught off guard and let down by the fact that inflation is struggling to rise to the level monetary policy aimed for. Additionally, the heads of central banks are grappling with the undesired collateral effects of some of the non-conventional tools they adopted, such as quantitative easing and negative rates, but they are struggling to return to normality. Monetary policy has taken on an excess of responsibility, and would prefer it if the role of supporting growth were more actively played by other types of policy, such as the fiscal policies and structural reforms that can help boost productivity. In some cases, central bankers have been put under extreme pressure by politicians and markets to intervene where other policies were coming up short, and thus felt their independence was under threat. The role of central banks is also being undermined by the emergence of various types of electronic money and payment systems.
In this situation, there is a keenly-felt need for some profound strategic revision to re-appraise the goals, tools, forms of communications, and institutional relations of monetary policy and of central banks. The U.S. Federal Reserve and the Bank of Canada have already launched sweeping and complex “strategic reviews”. The ECB can no longer put this off, and Lagarde has said she believes there has been some delay in launching one. It is a special effort that she announced right away and that will absorb much of her attention in the coming year. During her first ECB press conference, she used the perspective of this upcoming strategic review to contain the extent of problems and questions concerning immediate matters and decision. It was a sort of strategic invitation to expect, at least for some time, continuity with current policies, until any news emerge from the review itself.
As Lagarde announced, the review will involve the European Parliament, politicians, scholars, and civil society representatives, to whom the ECB will listen closely before beginning to make decisions. It is impossible to predict the breadth of the changes that will result from this strategic review; in fact, they could even be quite limited. But the review will be wide-ranging, and at least at the outset, there are no limits to how radical it may be. It will also include the challenges to monetary policies arising out of technological innovation, climate change, and the growing inequalities between citizens, regions, and professions.
It is difficult to imagine anyone better qualified than Lagarde to oversee such an effort. It requires, among other things, great diplomatic tact and communication skills targeting a highly diverse audience, in addition to experience with inter-institutional relations, including with the world’s other major central banks. Indeed, the financial globalisation of recent decades has accentuated the interdependence of monetary policies, and their coordination is one of the issues under review.
The strategic review could also facilitate another task for which Lagarde’s leadership style seems particularly well suited. The strength, innovativeness, and major successes of the Draghi presidency, which enjoyed widespread consensus for many years, helping overcome the natural and sometimes harsh controversies his proposals engendered, had lately left a degree of tension and dissent in their wake among European central bankers themselves. These issues need to be tackled immediately and solved constructively, with diplomacy and the ability to involve all the actors at hand. The context of the strategic review, as opposed to the short-term decisions that will have to be made in the meantime, is suitable to achieve a synthesis of opinions that have begun to diverge somewhat harshly. Such reconciliation is essential to successfully achieve the goals of the European Central Bank, and for which Lagarde’s personality and experience are invaluable.