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Culture Shock - Christine Lagarde is taking the ECB out of its comfort zone from the Economist

Updated: Dec 8, 2020

The article begins with these words:

CHRISTINE LAGARDE has been an outsider before. Speaking to The Economist, she relishes the memory of shaking up bureaucrats—“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 degree of nerdiness: just think of Janet Yellen, a former chairwoman of the Federal Reserve and Joe Biden’s choice for treasury secretary; 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 CV and 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 financial crisis of 2007-09 and the sovereign-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 monetary easing, including at the EU-wide level. The new opportunity to help co-ordinate 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 consider political terrain that is causing some controversy among the experts.

Here is the full article in pdf:

Article from the Economist 28.11
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However, give the concerns about the stability of the Eurozone expressed elsewhere on this website by Professor David Blake of the City University in his article about Target2, I have asked him for his comments which can be found in the pdf file below.

Comment by Professor David Blake on the
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Professor David Blake has since posted an article on the Briefings for Britain website entitled:

Here is the link to a pdf file for those who want to download it:

Article by Professor David Blake 03.12
Download 2 • 195KB


As an addendum to the above, we include an article by Roger Bootle in The Telegraph in October on the stresses inside the eurozone and the stark political choices now facing the ECB:

"Within the euro-system there is a special sort of IOU. These are so-called Target2 balances, representing claims by one central bank to another as a result of imbalances in the flow of money between member countries...

"Germany has net claims on other countries within the Target2 system of some €1,000bn. That amounts to roughly 30pc of German GDP. The target liabilities of Italy come to roughly half that figure. The stock of both German claims and Italian liabilities is far greater now than it was at the height of the euro crisis in 2012.

"If Italy were to leave the euro, would it honour its debts? The lawyers will tell you that legally it must. But then that's why they are lawyers. If I were the ECB I would not want to bank on it -as it were. What will happen if the stand-off between the Italian government and the euro authorities continues and the Target2 balances get ever larger? And suppose that there is a run on the Italian banks? The Bank of Italy cannot issue euros. It would be the ECB that would provide the dosh. Would it?

Here is the article in full:

Roger Bootle Article 21.10
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