The appointment of the French Christine Lagarde as president of the European Central Bank (ECB) has taken the world of finance by surprise. Lagarde's lack of experience in monetary policy contrasts with a clearly political career, first as Economy Minister in his country and then as executive director of the International Monetary Fund (IMF). A policy by directing a central bank is not normal.
The appointment, then, "responds to a certain trend that says that the central bank can not be in the hands of technocrats," says Alfredo Pastor, emeritus professor of economics at Iese. "It is a new paradigm," says Xavier Freixas, professor of financial economics at UPF.
"I do not think this is a disagreement about the person, but I do not like the criterion," says Pastor about Lagarde, because making a central bank "is a difficult trade" for a politician. "Not having a technical profile is a hindrance. I see it very badly, "Freixas rebounds over the replacement process of Draghi.
The orthodoxy established as a result of the economic crises of the late 1970s says that a central bank should be an independent body of the government, led by economists with a technocratic profile that are not aware of political cycles or to win elections, but rather to comply with the mandate of the institution.
In most countries this mandate includes controlling inflation and ensuring economic growth that leads to full employment. That is, the work of the central bankers is to avoid rising prices and unemployment, which is why they have a wide range of tools and flexibility when setting goals. The presidents are chosen, then, according to technical criteria.
The ECB's limitations
The case of the ECB is different because the mandate to stop unemployment does not exist. Thus, European treaties only give it powers to keep inflation at near (but lower) rates at 2%, a limit that can not be modified. And it is precisely this lack of flexibility that has brought problems to Draghi with the so-called hawks, members of the ECB council most obsessed with inflation and compliance with the rules. These hawks They come mainly from the central states of the euro zone, influenced by the economic schools of Austria and Germany and far from the Anglo-Saxon.
Draghi landed at the ECB with the future of the euro in question and almost all the periphery rescued (Greece, Spain, Ireland, Portugal and Cyprus) but, despite the internal opposition and the legal limitations of the mandate, he applied the same recipes That the leaders of the Federal Reserve or the Bank of England: minimum interest rates and billions of liquidity injections into the economy and the financial system. The measures worked: the debt markets calmed down and the eurozone grew again. And the fired inflation predicted by them hawks did not appear
The success of Draghi's policy has been incontestable and will leave the position between prayers, even the detractors. For example, Jens Weidmann, governor of the Bundesbank, was one of the ECB's most critical members of the Italian, but was found in a minority and ended up doing his own.
Draghi "has an extraordinary merit" because he had "the intelligence" of applying policies that, despite not being well-considered, are "saving the euro", Pastor says. Right now, he adds, "there is no alternative" to the Italian line, and nobody expects Lagarde to introduce any significant changes.
Inflation is "not a problem"
Freixas also does not think that the French introduces changes "during this year". "It has little room for maneuver," he adds. The reason is that the interest rates are negative and, despite this and having flooded the system with liquidity, there is no inflation. These two facts – negative types and static prices – are an exceptional situation that the current economic models did not foresee. "We do not know what it means," says the UPF professor.
"In the current context the independence of the central bank is less important than before," because "inflation is not a problem," Freixas says. Even so, in his view, the negative types can be a problem, because a rate reduction is the typical tool of the central banks when a recession comes, and now the ECB can no longer use it.
"The experts are very critical, now the important thing is what the voters want," he adds, to explain the appointment of a policy at the head of the ECB. In this sense, Pastor believes that Lagarde will be mistaken "if he thinks he can say what he should do" to his future team. In principle, the ECB is not going to do politics.
THE MAIN DRAGHI MEASURES
The forward guidance It is the set of instructions that the president of a central bank gives publicly about the future policies of the institution. In this way, the central bank plays with the expectations of investors, who try to move on to the decisions.
Massive debt purchase
The ECB acquired € 2.5 trillion in European government bonds in debt markets, a very common measure among the central banks of the Anglo-Saxon countries, where it is called QE (from English quantitative easing or "quantitative expansion"). However, the program was much questioned in the heartland of the eurozone. In fact, the governor of the German Bundesbank took him to court because he exceeded the ECB's mandate, but was considered legal.
LTRO and TLTRO
They are the abbreviations in English of two programs of loans with very reduced interests for the banks of the Eurozone. They had two goals: helping to clear their accounts and get them to give credit to families and companies to reactivate economic activity after the crisis.
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