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English

Lagarde’s ECB Checklist

After years in which the European Council acted as if there were no qualified women to lead the European Central Bank, it has finally abandoned that ludicrous excuse and appointed Christine Lagarde to the position. Lagarde is an eminently qualified and promising president-designate; but to have a successful tenure, she will need to head off her critics' concerns.

ZURICH – The surprise nomination of Christine Lagarde to serve as the next president of the European Central Bank has pleased many observers, including me, and disappointed others. Those who are pleased feel that Lagarde’s eight-year term as Managing Director of the International Monetary Fund makes her uniquely qualified to forge agreement within the ECB’s Governing Council on many of the contentious issues it faces.

Chief among these are the eurozone’s current downturn and the potential review of its monetary-policy framework that has been proposed by Olli Rehn, Governor of the Bank of Finland. Considering that the ECB’s most influential members appear to have different views about the framework and how it might be changed, reaching a consensus will not be easy.

Nonetheless, those who support Lagarde’s nomination believe that her time serving as France’s finance minister has left her ideally suited to work with the eurozone member states’ governments – and to convince them to marshal a collective fiscal response in the event of a severe downturn. She also will need to push for a revision to the European Union’s fiscal rules, which have placed almost the entire burden of economic stimulus on the back of monetary policy. The current rules, which first appeared in the 1992 Maastricht Treaty, are woefully outdated, owing to the collapse of long-term real interest rates.

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