Lagarde’s ECB Must Modernize
Following her likely confirmation in November, Christine Lagarde will succeed European Central Bank President Mario Draghi at a time of deepening polarization among eurozone member states. It will take all of her skills as a leader and communicator to safeguard the institution's independence and ensure that it has the tools it needs.
BERLIN – As the nominee to succeed European Central Bank President Mario Draghi in November, Christine Lagarde may be hoping that her job will be somewhat easier than that of her predecessor. Yet the opposite is likely to be true. Though Draghi was tasked with guiding the ECB through years of crises, Lagarde will have to pursue eurozone reforms at a time of deepening polarization among member-state governments. It will take all of her skills as a political mediator, crisis manager, and effective communicator to safeguard the ECB’s independence and effectiveness.
This much is painfully obvious: completing the monetary union is now a distant and unlikely prospect. Member-state governments have lost the will to pursue a capital-market or banking union, a common safe asset, joint fiscal and stabilization policies, or most other reforms. Owing to a lack of mutual trust, member states will not give up any more national sovereignty, even though pooling sovereignty at the European level would ultimately benefit everyone.
The implications for the ECB are clear: it will keep struggling to make monetary transmission work in the context of a weak and divergent eurozone economy. It will also continue to bear the burden of maintaining financial stability, owing to member-state governments’ intransigence in implementing their own fiscal, financial, and structural reforms. As such, financial fragmentation and the possibility of a “doom loop” between domestic banks and governments will persist. And, adding insult to injury, governments will continue to blame the ECB and the euro for their own mistakes, thereby threatening the bank’s independence.