The ECB was already on a slippery slope
Christine Lagarde has emerged as a surprise candidate for the ECB's top job after yet-another round of horse trading. By all accounts this sounds like it's almost a done deal.
It was assumed someone from France would get the job after Merkel targeted Manfred Weber fro the European Commission but the obvious candidates were Villeroy and Coeure, both members of the central bank's governing council.
Instead, Christine Lagarde has gotten the nod. She would be the first woman to serve in the post. However she would also be the first lawyer to get the post and most-importantly, the first politician.
In September, Lagarde was asked if she was interested in the job, she said this:
"No, no, no no, no no . . . I am not interested in any of the European - ECB, commission, da da da da da - jobs, no."
Lagarde has no experience setting monetary policy or running a central bank. That may not be a big problem giving that she was France's minister of finance and the leader of the IMF -- both jobs that closely work with central banks. However she will be attacked for her education, which includes master's degrees in English, labor law and social law. Duisenberg, Trichet and Draghi were all trained in economics, as have been the heads of virtually every major central bank.
What's problematic is that the ECB is already under fire for being politicized and this would be putting a career politician in charge. The central bank deep into the weeds of using central bank policy to finance government debt. Trump is already accusing the ECB of manipulating its currency.
Mario Draghi has done a fantastic job of deflecting the political ramifications of extraordinary policy moves but Lagarde simply couldn't be credible on that point.
How we got to this point gets back to the original sin of the selection process. It's bundled up with a group of explicitly-political choices. The ECB is then forced to frame itself as non-political. After this, that's going to be impossible.
What's the issue with politicizing it?
The ECB is in a spot right now where it needs to push the envelop. Rates are already into unprecedented territory and they're pondering a cut. In all likelihood they will need to reach even further into the bag of tricks at some point and that means more QE along with various tiering schemes for banks.
These are extremely delicate moves politically and every step faces waves of criticism. A career bureaucrat like Draghi can stand up to them credibly. Can Lagarde? More importantly, would she be willing to take further necessary steps into experimental monetary policy knowing that a backlash against her personally and a politicized ECB is inevitable?
Ultimately, I think this skews the ECB more hawkishly, but it will be a messy hawkish.
