Lagarde’s ECB has weathered the Covid pandemic, wars, inflation and Trump. With both successes and mistakes

The ‘Grand Dame’ of the European Central Bank is stepping down earlier than expected – it was, by now, a foregone conclusion. We now know when, though not where she is going, but perhaps it is clearer why. The date announced yesterday by Christine Lagarde – who was sporting plasters on her face following a minor skin procedure – is 7 February next year, before the French election race gets underway. There is still time, therefore, for Emmanuel Macron to play his part in helping to choose her successor. Currently in pole position are the Dutchman Klaas Knot, former governor of the Dutch central bank, and the Spaniard Pablo Hernández de Cos, president of the Bank for International Settlements; in the second tier are Bundesbank President Joachim Nagel and the Portuguese governor Mário Centeno, who could stand a good chance if the major countries end up deadlocked. Technical roles are also up for grabs, such as that of chief economist, who plays an influential role in shaping monetary policy. But there are simply too many decisive factors at play.

Among these is the state of health of a France that has, willy-nilly, become the sick man of Europe, and perhaps in need of at least a little help to make a country in turmoil swallow the medicine it needs. European summits have always been a Franco-German game of strategic manoeuvring, but today, in the 27-member EU—a broader bloc, more uncertain of its role in the post-global world, divided amongst its various member states and shaken by Russian neo-imperialism and the wave of nationalist populism—making choices will be even more difficult. Everyone will lay their cards on the table, including the Meloni government. Italy has had Mario Draghi and is out of the running, but not out of the picture. Will it choose the Latins or the Nordics? The choice is not, as it might seem, between grasshoppers and ants; rather, it will depend on which alliance proves most advantageous – whether with Friedrich Merz’s Germany or with a Spain likely to be led by the centre-right People’s Party, with or without Vox. On paper, this appears to be the most logical choice based on party alignments, but Giorgia—setting aside the detested Macron—will be wondering how many divisions Madrid has; putting aside the metaphor, just how much influence does it wield on the international stage, not just within Europe? These are questions that remain unanswered for now. The only certain thing is that, in this case, Paris is not worth a mass to Meloni—indeed, not even a rosary.

While it may not be the time to name names, it is undoubtedly the time to sketch out an assessment of Lagarde’s years in office, marked by the pandemic, wars and inflation. Following the interventionist Draghi, who managed the major sovereign debt crisis by effectively transforming the ECB’s role without changing the written rules (negative interest rates, massive purchases of government bonds, etc.), a so-called return to normality was expected. Then came Covid-19. Here, the ECB deserves credit for supporting the boldest decision taken by the EU since the introduction of the single currency: the co-financing of the Next Generation EU programme, which injected around 200 billion euros into the coffers of an Italy that has never stopped complaining about the Commission, the euro and the central bank. A negative assessment, however, must be given for the slow response to the 2022 inflation surge following Russia’s invasion of Ukraine. Caught off guard, the ECB hesitated; Lagarde spoke of a temporary spike, but then the surge in prices reached four times the legendary 2 per cent target that is supposed to ensure stability according to the central bank handbook. By the time it took action to put out the flames, the Iranian crisis had erupted, bringing a new wave triggered once again by energy prices (oil, whereas four years ago it was gas), which weighed heavily on the purchasing power of the middle classes, who had not yet recovered. Could more have been done, and done better?

The ECB has learnt its lesson and has now acted in time, albeit cautiously, raising key interest rates by a quarter of a point (yesterday it left them unchanged at 2.50 per cent). But the new central banker will not have an easy time of it. In addition to geopolitical tensions, he will have to manage the massive debt time bomb – public debt (the US risks catching up with Italy in terms of its ratio to GDP) and private debt, inflated by the artificial intelligence bubble. The ECB cannot tackle these issues alone; however, as long as Trump is in office, it will not be able to count on coordination with the Federal Reserve.

Madame Lallouette, now Lagarde, thanked everyone. “It has been a source of great pride and an enormous privilege to serve this institution,” she said, offering a parting thought: “Long-term yields have risen everywhere, more in some countries, less in others, and then we start to look at the spreads,” yet she herself had ruled out the idea that spreads were a problem for the ECB. In any case, she exonerated herself: “I believe I am leaving in the knowledge that I have done a good job and with an ECB ready to face the future.” And what will she do? Will she go to Davos to chair the tarnished globalist forum? Or will she look after her grandchildren, as she once said, shedding her upper-middle-class air? Will we see her on the benches of the Champs-Élysées, where Marcel Proust first encountered love?