In June, she appeared on the American TV show “The Daily Show with Trevor Noah.” Asked why she took over the IMF in the midst of the financial crisis, Christine Lagarde quipped: “Whenever the situation is really, really bad, you call in the woman.”
On the same show, Lagarde got into a sarcastic vein: “Here’s where President Trump is wrong: Raising tariffs doesn’t help; it doesn’t impact China, it only impacts companies that are importing goods, and ultimately hurts the consumers.” How to repair trade discussions? “We need adults in the room…”
That quote hits hard, as Lagarde will, as the ECB president, be involved in trade discussions between the US and Europe. Lagarde’s predecessor, Mario Draghi, lambasted Trump recently after a presidential tweet complained that ECB policy unfairly weakened the euro (on the same day, Trump also complained that the German DAX stock exchange was “unfair to the US” because stocks rose higher).
But Lagarde, whose charm is legendary, also showed a steel lining when she presided over the rehabilitation of the Greek economy, after that country became the first ever to default on a loan from the IMF in 2015. When then Greek Prime Minister Alexis Tsipras balked at reforms, Lagarde famously replied: “We do not have a choice as to who represents a country… ” Lagarde forced the Greek government to toe the line and make the reforms that the IMF and the Eurogroup demanded.
Lagarde will face a total revamp at the ECB
Lagarde will not lack equally daunting challenges at the head of the ECB. The central bank’s fundamental monetary policy has not been reviewed for many years, and creating one that is better adapted to our volatile economic times will be her first task. Then, the ECB’s failure to boost inflation must be confronted; the policies initiated by Lagarde’s predecessor Draghi have had little effect.
The ECB has called for structural reforms in the 28 Member States in vain for many years. Lagarde will have to show that she can influence national politicians in ways that Draghi was not able to.
Her background as a politician and a diplomat, as well as her skills honed in working with all kinds of professionals at the IMF, will be severely tested in this job.
A meteoric rise to power
But she has shown remarkable resilience in the past. Lagarde broke through the glass ceiling early in her career. Former head of the international law firm Baker McKenzie, Lagarde innovated with a client-first approach that boosted revenue.
After a stint at the prestigious Center for Strategic and International Studies, the Washington, D.C.-based think tank that is ranked among the top in the world for foreign policy and defense thought leadership, Lagarde returned to France to become Trade Minister in the government of Dominique de Villepin. In this role, she succeeded in promoting French exports, finding ways to provide credits via the EU’s Cap Export Mechanism.
Lagarde returned to France in June 2005 to join Prime Minister Dominique de Villepin’s government as trade minister before (briefly) becoming minister for agriculture and fisheries in 2007. As trade minister, she encouraged foreign investment in France and the opening of new markets for French products, particularly in the technology sector, helping exporters through the Cap Export mechanism, which she launched in September 2005.
In 2007, Lagarde joined the government again as finance minister – the first woman to ever hold this position in a Group of Eight country. She promoted a conservative approach to labour issues and fiscal stimulation. During this time, her career suffered its only stain, as a French court judged her as having been “negligent” in the Bernard Tapie scandal, in which that businessman received 400 million euros from the French treasury in illicit financing.
In 2011, Lagarde became head of the International Monetary Fund, although she had no training as an economist. She proved adept at working with staff and in managing the Greek economic crisis as well as in helping the EU to come through its euro crisis.
Can Lagarde make this transition to running a central bank, from managing an international agency?
The Wall Street Journal voted yes: “Some ECB watchers express surprise that a non-economist should run the ECB. A cynic might say that given the repeated failure of econometric PhDs to correctly forecast the European economy, and the failure to reach the inflation target, she has as good a chance as anyone. But in my view, Lagarde has the perfect background: the barriers to ECB action are political and legal, and as a lawyer-turned-politician, she fits the bill perfectly.”
One cannot, in fact, question Lagarde’s proven abilities as an influencer and as a communicator. But, at the ECB, she will have to manage an economy with 28 separate heads, and with only limited powers to intervene. Is Lagarde going to rise to the challenge?