Lagarde as ECB head: Germans are divided on the appointment..

Nice piece by David Marsch in OMFIF:

In the drawn-out annals of Franco-German wrangles over economic and monetary union, last week’s deal over top European posts, including the presidency of the European Central Bank, stands out as a landmark French triumph. President Emmanuel Macron has exploited Chancellor Angela Merkel’s political weakness by pushing through a solution that gives France strong levers of control over European money – and provides Germany with only scant rewards in return.

There are some constructive aspects. The nomination of Christine Lagarde, International Monetary Fund managing director, to succeed Mario Draghi on 1 November has been greeted by some in Germany as providing a much-needed boost to the ECB’s status.

A high-profile policy-maker with a brisk collegiate organisational style brings to Frankfurt a track record in handling crises. In contrast to Draghi, who has kept a low profile on the wider Frankfurt scene, Lagarde will install glamour and a touch of show business in the German financial capital. She will add to the city’s appeal to international financial firms after Britain’s departure from the European Union.

Other interpretations, for the Germans, are less positive. Officials point to the unbalanced nature of last week’s agreement. Lagarde’s appointment, scotching German hopes that the job would go to Bundesbank President Jens Weidmann, looks certain to go through the political approval process. The other important part of the deal, nomination as European Commission president of Ursula von der Leyen, the trouble-plagued German defence minister, is not secure, since she could fall victim to an increasingly strong-willed European Parliament.

Lagarde’s policy stance at the IMF, supporting both quantitative easing through ECB asset purchases and growth-boosting German fiscal activism, will now be enshrined and enhanced at the centre of European decision-making. The view from Frankfurt is that Lagarde will put on hold indefinitely much-heralded monetary ‘normalisation’. So there will be no end to ultra-easy policy and no interest rate rises to alleviate what German economists say are dangerous ECB-induced distortions in the financial system.

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