Lagarde: first woman to head European Central Bank, “Devil Wearing Prada” of the financial world

The European Council on October 18th appointed Christine Lagarde to be the new and first-ever female president of the European Central Bank (ECB) for a non-renewable term of eight years.

The Council said in a statement that Christine Lagarde will replace the outgoing President, Mario Draghi, as of 1 November 2019.

In response, Lagarde thanked the European leaders on Twitter for appointing her as President of the ECB.

She added that she was looking forward to working with ECBs staff to keep euro area prices stable and banks safe.

Born on Jan. 1, 1956 in Paris, Lagarde holds a law degree from the Paris Nanterre University and a masters degree from the Political Science Institute in Aix en Provence, southern France.

In 2011, Lagarde was elected to become the first-ever female head of the International Monetary Fund (IMF).

From November 1st, Lagarde will succeed Mario draghi as President of ECB, the Frankfurt-based institution responsible for financial and monetary policy in the Euro Zone, for a non-renewable eight-year term.

Ms Lagarde has a reputation as the “The Devil Wearing Prada” in the international finance world, adding an elegant feminine touch to the male-dominated world of finance.

However, Draghi leaves the glamorous “devil” with a tough task. The ECB‘s governing council is divided over the central bank’s decision in September to cut a key interest rate and relaunch its “quantitative easing” (QE) mass bond purchases.

There is clear downward pressure on the European economy and, the region has entered an era of negative interest rates, leaving little room for monetary easing.

Can Ms Lagarde, who turned France around during the financial crisis, lead Europes recovery in her new role？ All eyes are on her.

Commendable Career Record

Ms Lagarde, 63, is known for her meticulous, elegant and delicate style on the international stage.

Chanel suit, Hermes handbag and trademark white hair; her unique yet delicate appearance has prompted many to claim that she is the inspiration for the movie “The Devil Wears Prada”, calling her “Devil Wearing Prada of the financial world” and “Coco Chanel of the financial world”.

Some comment that she is both graceful and capable, equal parts gentle and iron-fisted, standing at the top of international financial power.

Lagarde has already shown her outstanding talent in her youth. She has made countless progresses and created many “firsts” in her career over several decades.

In 1981, at the age of 25, Ms Lagarde was hired by Baker McKenzie, a big American law firm, to work on antitrust and labour disputes. In 1995, she became a member of the firm‘s executive committee and four years later became the firm’s first global chairman.

In 2005, at the invitation of then France Prime Minister Dominique de Villepin, she returned to France and served as Minister for Foreign Trade for two years. After Mr Sarkozy became French President in 2007, Ms Lagarde became Agriculture Minister and then Economy, Finance and Employment Minister, making her the first female finance minister in the G8.

As French Finance Minister, she pushed for co-operation with Eurozone members and persuaded them to adopt a collective fiscal response in the face of a severe downturn. In 2009, the Financial Times named Ms Lagarde “the Best Eurozone Finance Minister”, praising her “timely and appropriate measures” during the financial crisis.

In 2011, she became the first woman to head the IMF. She was re-elected in 2016. Ms Lagarde resigned as IMF managing director in July after being nominated to head the ECB, and formally stepped down in September after eight years in Washington.

During her tenure at the IMF, Lagarde served as the “fire chief” to save the European debt crisis, promoted IMF‘s quota and governance reform, rebalanced relationship between Europe, the United States and emerging countries, and worked on a number of humanitarian issues such as women’s equality and climate change.

The “policy legacy” of “Super Mario”

Mr Mario Draghi, who steps down as ECB President on October 31, has introduced a number of easing measures during his tenure.

In 2005, when Italy‘s central bank was in danger of going bust during its fiscal crisis, Mr Draghi, then a senior executive at Goldman Sachs, was appointed the bank’s governor “at the eleventh hour”. At the beginning of his term, Draghi streamlined the central bank with a series of radical reforms. The outstanding achievements prompted Italian media to dub him “Super Mario”.

Mr Draghi became President of the ECB in 2011, coincidentally the year Ms Lagarde became head of the IMF. That was when the Greek debt crisis was at its height and the Eurozone as a whole was facing systemic risk.

Draghi has said that he did not feel able to successfully save the euro, but would take a plunge, and take steps that “defend the euro at all costs”, including Long Term Refinancing Operation (LTRO), Outright Monetary Transactions (OMT) and negative interest rates, etc, as well as Targeted Longer-Term Refinancing Operations (TLTRO) and assets purchase programs that targeted guaranteed securities and asset-backed securities.

The ECBs decision in last December to end its €2.6 trillion asset purchase programme capped nearly four years of quantitative easing.

In September, when Ms Lagarde was due to step down as head of the IMF and become President of ECB, Mr Draghis central bank again sparked a turmoil in the markets by cutting interest rates to minus 0.5 per cent and relaunching the QE.

Analysts say that Mr Draghi has “locked in” the ECBs monetary policy for the next three years, leaving his successor with a daunting task. Most economists do not expect the ECB to raise interest rates until 2022, and asset purchases are expected to end in the autumn of 2020.

Shouldering Heavy Responsibilities

Ms Lagarde, a former dove in the ECBs stimulus programme, is likely to continue Mr Draghi's monetary easing framework. But an important challenge for her will be to revive the Eurozone economy with a central bank that is running out of policy ammunition, and many ECB hawks have already rejected the ECB's use of more stimulus.

There is little room for the ECB‘s monetary policy. Ms Lagarde’s job would more likely be providing support, legitimizing more fiscal policies and then funding them through bond purchases.

On the other side, the ECB‘s governing council is divided over plans to resume bond purchases as part of measures that also included a rate cut and a pledge to keep the money taps open indefinitely, and the more outspoken opponents of the ECB’s stimulus policy have begun to demand a radical rethink of the monetary strategy under Lagarde.

The central bank governors of Austria, Robert Holzmannn, and the Netherlands, Klaas Knot recently questioned the ECBs revered inflation target of just under 2%. Bundesbank President Jens Weidmann dismissed suggestions that the ECB should broaden its remit to include goals other than inflation, such as unemployment.

This sets the stage for new boardroom battles unless Lagarde addresses their concerns. When taking over from Mario Draghi in November, she will have some work to do to mend the ties.

Lagarde has so far taken a balanced approach in public, telling the European Unions parliament during her confirmation hearing that policy would need to stay easy for a long time but that rate-setters must be mindful of its side-effects.

The ECBs low and latterly negative interest rates have caused frustration in cash-rich Germany, where savers have seen returns on traditional investments collapse while house prices have soared.

These stimulus policies did save the day during the European debt crisis, but their marginal utility in promoting sustainable economic growth are diminishing. Negative interest rates do not only harm banking profits, but also encourage excessive risk appetite, threatening the stability of the financial system and having negative impact on allocation of resources throughout the economy.

The ECB's dilemma can only be addressed through a comprehensive package of pro-growth measures, which need to be complemented by measures beyond central bank actions.The EU needs to improve its policy machinery, complete banking union and resolve differences over fiscal policy integration.These tasks fall on Ms Lagardes shoulders.

Lagarde recently said in interview that for the next recession, Europe and the Eurozone in particular need to do more to complete the banking union and ensure a deeper and broader European equity market, adequate common fiscal space and so on, as these are tools that can stabilize the economy and build the foundation for development and security.

Some analysts believe that Lagarde may be more of a co-ordinator than a plotter, which could bring some change to the ECB.