After almost three years in the post of ECB President, we can venture a first interim conclusion. It’s unflattering for Christine Lagarde.
In the succession of Wim Duisenberg, Jean-Claude Trichet and Mario Draghi, Lagarde is by far the weakest person at the head of our central bank. It’s probably even a miscast.
The following eight points speak personally and monetary policy against the lawyer Lagarde, who once served as finance minister in France:
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The personal first. Without giving a reason, she did not travel to Jackson Hole for the world’s most important monetary policy conference, which ended on Saturday. This is tantamount to a refusal to work. Instead, an interview with the fashion magazine Madame Figaro was published in France, where, as the Handelsblatt scoffs, she “speaks about her favorite topics, such as the role of women in management positions, climate change and the role of central banks in combating it.” Markus Fugmann, commentator for the financial market world: The ECB obviously has a leadership problem.
To this day, Lagarde is unable to explain conclusively why she and the members of the Board responsible for it repeatedly forecast inflation incorrectly and based their interest rate policy on these incorrect forecasts. No personal consequences were drawn in Frankfurt, which is all the more surprising since fighting inflation is the core of the ECB’s mandate. Two percent was promised; currently it is 7.5 percent in Germany. Breaking the ten percent mark is considered likely, agrees Bundesbank President Joachim Nagel.
The euro keeps falling behind the dollar. In the past week, one euro was worth less than one US dollar at times – the lowest level in 20 years. An end to the decline of the euro is not in sight. Robin Winkler, currency strategist at Deutsche Bank Research, says in the investment briefing: “I think the end of the road has not yet been reached.”
The fall of the euro is not due to whims on the financial markets, but is an expression of a fundamental weakness of the euro. In the first quarter of 2022, more than 50 percent of global foreign exchange transactions were made in dollars. The euro is in second place with just 18 percent. Christine Lagarde never made the vision of a European currency that performs at par with the American currency her own. She’s a politician at heart, not a Fed governor. She has no strategy, only many small tactics.
The US currency is strengthened by the central bank policy of the FED. In the USA, the decision was made – also at the behest of the White House – to fight inflation consistently. FED chief Jerome Powell even showed his willingness in Jackson Hole to end monetary devaluation altogether. He said: We’ll stay tuned until the job is done. “
This means that the FED is also willing to accept a weaker economy and higher unemployment figures. You will not defeat inflation without causing pain to companies and consumers – “pain to households and business.” A similar determination is missing in Frankfurt – also because it is missing in Berlin, Paris and Rome.
The flood of money of the past decade is being resolutely reversed in Washington. For comparison: the bonds bought by the ECB represent 80 percent of the gross domestic product of the euro zone. The balance sheet total of the ECB has hardly been reduced and is still at 8.75 trillion euros. The FED’s total assets are of a similar magnitude at USD 8.85 trillion.
However, the bonds purchased by the US Federal Reserve only account for 35 percent of GDP there. And the US Federal Reserve announced that it would sell government bonds worth over a trillion dollars in the next twelve months. Christine Lagarde sees fighting inflation as one, but not her top priority. She wants to go down in history as the head of the green central bank, not as a stability politician.
Christine Lagarde is the first personality at the head of the central bank who has no economics training. From the outset, the lawyer made it a priority not to be classified in the classic camps of monetary policy hawks or doves. She wanted to be an owl, she said when she took office. The owl – as she meant this comparison – stands for wisdom.
The ECB President hates criticism. Christine Lagarde tries to get at her internal critics with an internal “muzzle”. As the Reuters news agency reports, which cites four informants from the ECB’s management circles, critics of any monetary policy decision are no longer allowed to articulate this criticism publicly immediately after the decision has been made. It is therefore undesirable to criticize or even to name details of the debate within the first few days after an ECB Executive Board decision.
Conclusion: In Europe, the states can currently restructure themselves at the expense of savers. Christine Lagarde clearly lacks the will to solidify this inflated reality that she helped create. One will probably say later about her: she was clever, ambitious and politically efficient. But she was the wrong woman in the wrong place at the wrong time.
Gabor Steingart is one of the best-known journalists in the country. He publishes the newsletter The Pioneer Briefing. The podcast of the same name is Germany’s leading daily podcast for politics and business. Since May 2020, Steingart has been working with his editorial staff on the ship “The Pioneer One”. Before founding Media Pioneer, Steingart was, among other things, Chairman of the Management Board of the Handelsblatt Media Group. You can subscribe to his free newsletter here.
