Christine Lagarde is nothing if not a skilled political operator, and she’s proving it once again as she takes over the helm of the European Central Bank from Mario Draghi even as parts of Europe, notably Germany, face rising fears of recession.
Anticipating the eventual blame politicians might try to place on the central banker, Lagarde, a former French economy minister and more recently managing director of the International Monetary Fund, made a rather stunning but important admission in remarks before she took on the new role.
There’s really not all that much more the ECB can do to stimulate growth, she indicated, given official interest rates are already negative and a huge swatch of government debt offers negative yields, meaning investors as so worried about safety they are willing to pay a premium just to park their money in sovereign bonds.
Arguing central banks are no longer “the only game in town” as they were often seen during the last recession, Lagarde emphasized the ECB’s room for policy maneuver is severely constrained.
She urged fiscal authorities—that is, politicians—to do their part by spending money when needed to bolster growth.
Many economists chide Germany in particular, the euro zone’s largest economy, for focusing excessively on exports at the expense of consumption by not investing enough domestically.
“No central banker will easily acknowledge that he or she has run out of policy options, but in September 2019, Christine Lagarde … seemed to admit as much,” wrote economist Jean Pisani-Ferri, a visiting fellow at the Peterson Institute for International Economics, in a blog this week.
A look at the following chart helps further explain the limitations on additional monetary easing.
#Once Unthinkable Warning From New ECB President Puts Onus On Politicians … FORBES November 14, 2019 at 09:50AM
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