Europe at large

Christine Lagarde’s 100-day charm offensive

New ECB chief has changed the mood, not the policy.

Christine Lagarde has applied her political communication skills to improve the ECB’s image | John Thys/AFP via Getty Images

Paul Taylor, a contributing editor at POLITICO, writes the “Europe At Large” column.

PARIS — Like a skilled manager hired by a multinational whose board members are at each other’s throats, Christine Lagarde has spent most of her first 100 days at the European Central Bank reaching out, listening, team-building and delivering soothing messages.

To parody one of those equations with which economists bamboozle the uninitiated, the former IMF chief’s start as ECB president might be expressed as: HR + PR + CO2 – € = 100.

Deploying classic human resources techniques, she has charmed a governing council that was riven by her predecessor Mario Draghi’s radical monetary stimulus policies. She has met each member individually, taken the mostly male governors for a tie-less off-site bonding session at a castle-hotel near Frankfurt and joked that she is neither a dove nor a hawk but an owl — “birds of wisdom that can see well in the dark and have a wide range of vision.”

“The mood is much better. We feel she is listening to us,” one national central banker said.

“Lagarde will not lead from the front but manage from the middle” — Erik Nielsen, chief economist at UniCredit

Lagarde has applied her political communication skills to improve the ECB’s public relations, notably in Germany, and asserted a role for the central bank in promoting a sustainable, green economy, clashing with U.S. Treasury Secretary Steven Mnuchin on the issue at the Davos World Economic Forum.

But when it comes to monetary policy, she has given little or no clue as to her intentions.

Manage from the middle

With the eurozone economy in a rut of low growth, below-target inflation and stagnant productivity, Lagarde has exhorted governments with healthy finances to boost public investment, notably to fight climate change, while deferring any change in the ECB’s stance until the conclusion of a yearlong policy review that she launched in January.

The former French finance minister, who by her own admission is not a trained economist, has promised consultation and collegiality, offering national central banks more say in ECB debates, without accepting — so far — demands to make policy decisions only by consensus or to hold formal votes and publish voting records.

Dig deeper, and it looks as if she is putting a more consensual face on the ultra-low interest rate and bond-buying policies inherited from Draghi, while resisting German-led efforts to reverse them or to handcuff her against any further easing.

“Draghi led from the front and used the power of the institution to get what he wanted,” said Erik Nielsen, chief economist at pan-European Italian bank UniCredit. “Lagarde will not lead from the front but manage from the middle, because she’s unlikely to have a monetary policy of her own.”

Parting gifts

Admirers lauded Draghi’s bold leadership, deep understanding of markets and willingness to stretch the ECB’s treaty mandate to its limits to save the euro, vowing in 2012 — on his own authority — to do “whatever it takes” to preserve the 19-nation single currency.

Critics accused him of ignoring council members, pre-announcing policy moves before they had been discussed, and putting banks, pension funds and insurers at risk with prolonged negative rates.

He left Lagarde three parting gifts: an expansionary monetary policy that she would not need to change for at least a year, a feuding governing council in need of tender loving care, and a festering public opinion problem in Germany, the eurozone’s largest economy.

German savers, politicians and the media are up in arms at the ECB’s negative interest rates. Lagarde has tried to defuse this anger by putting the new German member of her executive board — pro-European economist Isabel Schnabel — in charge of the bond-buying operations most virulently criticized in her home country.

Bumps ahead

The demonstratively inclusive Lagarde may merit a triple-A rating for her honeymoon period — “even [German Bundesbank chief] Jens Weidmann has melted towards her,” an insider says — but she hasn’t really been tested yet. All the difficult choices lie ahead. Launching a strategy review was the easy part. Bringing it to a convincing conclusion will be the real test.

Should the ECB stick to its inflation target of “below but close to 2 percent,” which it has consistently undershot for almost a decade? Should it favor “green bonds” in its asset purchases or risk-weight banks that invest in fossil fuels and carbon-intensive industries? Should the central bank create its own digital currency or let the private sector take the lead?

Eurozone core inflation is stuck at around 1 percent. ECB hawks contend that doesn’t matter since there is no longer any risk of deflation. The real danger, they say, is that a flood of cheap money is driving up real estate and share prices and threatening financial stability.

How Lagarde would act in a crisis is the big unknown. Some ECB-watchers are concerned that Lagarde has twice eschewed the opportunity to reaffirm Draghi’s “whatever it takes” mantra, though there is no sign that markets are bothered.

“I hope I never have to say something like that,” she told the European Parliament. “Because if I do, it will mean that other economic policymakers are not doing what they have to do.”

Cross your fingers.

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