August 21, 2019

In Tense Times, ‘Call in the Woman’: Lagarde Will Lead the E.C.B.

In Tense Times, ‘Call in the Woman’: Lagarde Will Lead the E.C.B.

Ms. Lagarde, who will start on Nov. 1, called her new job an “honor.” Her legacy at the I.M.F. includes the fund’s largest ever bailout, a $57 billion deal with Argentina credited with averting a default.

An antitrust lawyer by training, she will have a steep learning curve in the mechanics of monetary policy. She will also inherit an economy that, while not in a crisis, is nonetheless on wobbly footing. Fears of recession have been amplified by the trade war, tensions in the Middle East and Britain’s messy attempt to leave the European Union.

Mr. Draghi has been talking about reviving some of the measures used to fight the last financial crisis, like purchases of bonds to drive down interest rates and pump money into the economy. But that approach is controversial, keeping companies, firms or banks alive through cheap money. If investors suddenly lose their appetite for high-risk debt, these businesses could collapse en masse and exacerbate an economic downturn.

Ms. Lagarde will have to decide which approach to support: more easy money, or a gradual move toward tighter credit to slowly weed out the zombie companies.

For some analysts, Ms. Lagarde’s appointment was a surprise and evidence of how hard it has become for Europe to find a consensus candidate for the position.

“I thought they might go for someone with a more conventional background,” said Ángel Talavera, lead eurozone economist at Oxford Economics. “She doesn’t have central banking experience, so it’s pretty hard to judge her on previous things she’s said on the subject.”

What Ms. Lagarde has said about the world economy has sounded more optimistic in recent months. In an I.M.F. blog post in June, she said that data suggested that global growth might be stabilizing. Her biggest concern remains the trade wars now simmering around the world, and in characteristically blunt words that seemed directed at President Trump, she warned about the downsides of tariffs.

“These are self-inflicted wounds that must be avoided,” she wrote. “How? By removing the recently implemented trade barriers and by avoiding further barriers in whatever form.”

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