ECB nominee Lagarde faces grilling from euro MPs

The Brussels legislature cannot block Lagarde's ascension, as the ECB job is the preserve of EU heads of government. — Reuters pic
The Brussels legislature cannot block Lagarde's ascension, as the ECB job is the preserve of EU heads of government. — Reuters pic

FRANKFURT, Sept 4 ― European Parliament lawmakers will today question incoming European Central Bank chief Christine Lagarde on how she will run the institution, in a first major public test for the French nominee.

The Brussels legislature cannot block Lagarde's ascension, as the ECB job is the preserve of EU heads of government.

But as the first person named to the Frankfurt post without a top-flight economics education ― arriving instead via law, national politics and the International Monetary Fund ― she may face a gruelling two hours with the economic committee ahead of an evening vote.

“I favour Ms Lagarde's candidacy, her character and the fact that she's a woman in such a politically powerful office,” committee member and Greens MEP Sven Giegold told AFP.

Nevertheless, 'parliamentarians' job is to check (the executive), we should therefore remain critical,” he added.

Conservative MEP Markus Ferber was blunter, saying “she must convincingly demonstrate that she brings the necessary monetary policy expertise”.

The 63-year-old's installation on November 1, replacing departing boss Mario Draghi, will be the final step in a changing of the guard at the ECB that has seen a new vice-president and chief economist climb aboard in the past year.

The appointment comes as the bank's governing council is divided over the right course to chart through intensifying headwinds.

Passing the baton

For her part, Lagarde said in a written submission to the committee that she would follow in Draghi's footsteps, with extensive support to the economy.

“Monetary policy needs to remain highly accommodative for the foreseeable future. The ECB has a broad tool kit at its disposal and must stand ready to act,” she wrote.

With ebbing growth and inflation at half the just-below-two-per cent level aimed for by policymakers, the eurozone economy is weakening.

Trade conflicts between the United States, China and Europe are heating up, emerging markets are stumbling and geopolitical upsets like Brexit loom.

Britain's Prime Minister Boris Johnson has vowed to take the country out of the EU on October 31 ― an unprecedented step that could herald significant financial market turmoil and throw parts of the bloc's economy into reverse gear just as Lagarde takes office.

The bloc's largest member Germany is already on the brink of recession.

Draghi is widely expected to push for a new big-bang package of monetary easing measures on September 12 to ward off the threats.

Moves could include deepening negative interest rates on banks' deposits at the ECB and a relaunch of “quantitative easing” mass bond-buying to pump even more cash into the system.

Alongside any policy changes, Draghi will issue “forward guidance” on how long measures like bond purchases and low rates may last.

The tool is a powerful way of shaping market expectations and thereby financial conditions ― but will likely bind the hands of his successor for many months after her term begins.

Weighing up interests

Also in her written testimony, Lagarde was careful to touch on issues dear to the hearts of different interest groups on the committee.

In a nod to German concerns over negative rates' impact on banks, she agreed that it is “essential to closely monitor whether adverse side effects may emerge” for lenders.

Meanwhile there was a boost for backers of further reform to the eurozone's rickety structure.

“The institutional architecture which started to be put in place during the crisis... remains incomplete,” Lagarde wrote, urging national governments to put budgets in order as well as the creation of a crisis-fighting joint fiscal capacity for the single currency bloc.

Monetary policy alone “cannot lift countries' longer-term growth potential”, she wrote, calling for action from politicians after the central bank's years as the solitary buttress to the economy. ― AFP

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