Snapshot - Economics
Is Christine Lagarde a welcome ECB appointment for investors?
Christine Lagarde will succeed Mario Draghi as president of the European Central Bank, it has been revealed. We discuss what this might mean for markets and the economy.
Christine Lagarde, Managing Director of the International Monetary Fund (IMF) has been appointed to succeed Mario Draghi as the president of the European Central Bank (ECB).
Lagarde’s heavy involvement in the Greek sovereign debt crisis during her role at the IMF demonstrates her pro-European integration stance. While she has no direct experience in monetary policy, Lagarde has previously expressed the view that negative interest rates in Europe and Japan were net positives for the global economy. With these factors in mind, we think she will be a dovish governor who should be seen as fairly positive for investors.
Aside from this, Lagarde’s strong communication skills will no doubt be useful in providing forward guidance, which - thanks to her predecessor - has become a successful tool in ECB policymaking.
Lagarde has also expressed the need to use all policy tools in the next downturn, so her appointment will likely facilitate further discussion around the use of fiscal policy in Europe to support growth.
As for the current monetary policy stance of the ECB, the central bank has stated that if things do not improve, then further stimulus may be required. This could include a change in forward guidance, lower interest rates or more quantitative easing (QE).
The challenges the ECB face are whether these policy initiatives can change the outlook sufficiently, particularly given the challenge of low inflation, and whether easier policy is seen internationally as a "beggar thy neighbour" policy of weakening the euro.