Backlash over top central bank job for Lagarde

Fears ECB role has become pawn in Brussels power game

THE choice of Christine Lagarde as the next boss of the European Central Bank has sparked a backlash amid fears that it will politicise the institution.

Frenchwoman Lagarde, who runs the International Monetary Fund (IMF), has emerged as the favoured candidate to succeed Italy’s Mario Draghi after days of horse-trading among European Union diplomats.

The 63-year- old’s nomination, which must still be approved by the European Parliament, cheered the markets due to hopes that she will continue Draghi’s regime of money-printing and ultra-low interest rates.

But the appointment also raised eyebrows because of her lack of central banking experience and a controversial stint as French finance minister.

Analysts said Lagarde, a lawyer by training, was a skilled political operator.

But they questioned whether she had the expertise to steer the ECB through turbulent times, and fear she is likely to bend to the whims of politicians she supports.

The mother-of-two will serve for a single term of eight years if she is confirmed in the post.

Economist Marc Ostwald, of ADM Investor Services, said: ‘ The appointment of Lagarde will raise questions about the politicisation of the role – above all because, in sharp contrast to Draghi, she does not have any background in economics or indeed monetary policy formulation.’

And Jim Reid, of Deutsche Bank, added: ‘There is a credibility risk, especially if and when things get more complicated economically, but markets will like the fact she is a skilled and well- connected political operator.’

Another analyst, Erik Nielsen of Unicredit, said: ‘In normal times she’d be fine, but it is not quite normal times now.

‘What if, or when, a downturn or crisis comes? Who does she rely on, without her own educational framework or experience at a central bank?’

Lagarde’s nomination comes as the eurozone economy stagnates, and fears grow about Italian plans to bust EU budget rules with debt-fuelled spending plans.

Draghi has signalled the ECB could slash rates and start pumping money into the economy again as soon as this month.

The central banker was a champion of so-called quantitative easing, which has been used by central banks since the financial crisis to boost economies.

It effectively involves printing money that is then used to buy assets such as government debt in the form of bonds.

Under Lagarde, the ECB is widely expected to continue the policies backed by Draghi. She previously praised the Italian’s pledge in 2012 to do ‘whatever it takes’ to preserve the euro – seen as a pivotal moment in saving the currency.

And she has argued that governments with spare cash should use this to cushion the impact of economic downturns. Fiona Cincotta, a senior market analyst at City Index Group, said: ‘There is a good chance Lagarde will want to continue with Draghi’s stance.’

Paris-born Lagarde, who has been dubbed a ‘rock star’ of international finance, graduated with a law degree from Paris Nanterre University and was a member of the French national team for synchronised swimming.

She worked at law firm Baker McKenzie before switching to politics, serving as a French government minister under both Jacques Chirac and Nicolas Sarkozy. However, her stint as finance and economy minister from 2007 to 2011 prompted allegations she abused her authority.

A French court ruled that in 2008 she was guilty of negligence for approving the award of £360m in compensation to businessman Bernard Tapie over the disputed sale of a firm.

However she was not made to serve a sentence and kept her job at the IMF.

Lagarde’s work with the French and German governments during her time at the IMF has also proved controversial.

Under her leadership, the Washington-based lender was part of the hated ‘troika’, with the European Commission and ECB.

They enforced brutal austerity on struggling Greece during the eurozone crisis.