The Economist - USA (2020-11-28)

TheEconomistNovember 28th 2020 63

1

C

hristine lagardehas been an outsid-

er before. Speaking to The Economist,

she relishes the memory of shaking up bu-

reaucrats—“men in grey suits”—when she

took over as France’s finance minister in

2007. She even installed a “psychedelic”
      carpet in her office, to get them to look up
      from the floor. Now Ms Lagarde, who then
      went on to run the imf, is shaking up the
      idea of what it is to be a top central banker.
      The main prerequisite used to be a de-
      gree of nerdiness: just think of Janet Yellen,
      a former chairwoman of the Federal Re-
      serve and Joe Biden’s choice for treasury
      secretary (see next story); Ben Bernanke,
      her predecessor at the Fed; or Mervyn King,
      a former governor of the Bank of England.
      All spent decades in academia. By contrast
      Ms Lagarde, who has been the head of the
      European Central Bank (ecb) for just over a
      year, is not an economist but a lawyer and a
      former executive and politician. She brings
      a glittering cvand a high public profile to
      the job, but is probably more comfortable
      rubbing shoulders with heads of state than
      participating in a research seminar.
      On the face of it, Ms Lagarde and the ecb

have had a decent year. The bank has acted

decisively, avoiding the mistakes of the fi-

nancial crisis of 2007-09 and the sover-

eign-debt woes of 2010-12. Since the start of

the year it has injected stimulus of €2.2trn

($2.6trn) into the economy (see chart 1). In

contrast with the austerity of a decade ago,

fiscal policy is acting in concert with mon-

etary easing, including at the eu-wide lev-

el. The new opportunity to help co-ordi-

nate monetary policy and government

spending plays to Ms Lagarde’s strengths.

Yet it is precisely her willingness to venture

into areas that most central bankers con-

sider political terrain that is causing some

controversy among the experts.

The ecb’s ammunition was sorely de-

pleted even before covid-19 struck. Its

benchmark deposit rate was -0.5%, and it

had been buying government and cor-

porate bonds through its quantitative-eas-

ing (qe) scheme since 2015. But the bank

warded off a credit crunch earlier this year

by ripping up self-imposed rules. Instead

of buying a country’s assets in rough pro-

portion to the size of its gdp, it has bought

more of those of Italy and Spain. The ecb

has also expanded the generosity of its

long-term loans to banks, paying them up

to 1% if they continue to lend. That, togeth-

er with government guarantees, has kept

credit from seizing up, even as a second

wave of infections and lockdowns make a

double-dip recession seem inevitable. An

ecbsurvey published on November 24th

found that access to finance was towards

the bottom of small firms’ list of anxieties.

All this, however, has done little to re-

vive the outlook for inflation. The bank it-

self expects annual inflation of only 1.3%

by 2022. Market participants are even

gloomier (see chart 2 on next page). It is be-

coming harder to believe that the ecbcan

do much more by itself. The Economist

Christine Lagarde

Culture shock

The ecb’s boss is taking the bank out of its comfort zone—and into hers

Splashing the cash

European Central Bank, balance-sheet

Sources:EuropeanCentralBank;

The Economist *At November 20th

1

2.2

6.9

50403020100 60

Nov2020*,%of 2019 GDP

Other

Lending/

credit

facilities

Assetpurchases

Total, €trn

50 10 15 20

Increase, Jan-Nov 2020*, % of 2019 GDP

Asset purchases Lending/credit facilities Other

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