Breakingviews - German ECB exit could make Lagarde’s life harder

Christine Lagarde, the next president of the European Central Bank, speaks to the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium September 4, 2019.

FRANKFURT (Reuters Breakingviews) - Nature abhors a vacuum. The tendency for voids to be filled may prove a problem for the European Central Bank’s incoming boss, Christine Lagarde.

The central bank’s boardroom will soon have another opening after Sabine Lautenschlaeger resigned late on Wednesday. The ECB gave no reason for the departure of the German more than two years before the scheduled end of her term. In the absence of any other justification, it is all too easy to suspect discontent at the loosening in monetary policy that the central bank’s outgoing chief, Mario Draghi, announced two weeks ago.

A number of policymakers, including Lautenschlaeger, dissented over that package, which included a new wave of asset purchases, sources have previously told Reuters. If her resignation was motivated by policy differences rather than personal reasons, Lagarde will face a couple of problems.

First, the departure will make it even harder for her to sell ECB policies in Germany, Europe’s biggest economy. The country’s best-selling newspaper had already reacted to Draghi’s recent measures by publishing a photomontage of the Italian with fangs and dressed as a vampire, alongside a headline about the continuing horror of sub-zero interest rates for German savers.

It is better for Lautenschlaeger to leave before Lagarde starts on Nov. 1. And she wouldn’t be the first German to quit following a policy dispute. Juergen Stark, who opposed buying government bonds to combat the euro zone crisis, stepped down as ECB chief economist in 2011. That didn’t prevent the central bank from ploughing on with ever bolder stimulus measures.

The big difference this time is that the German wasn’t the only dissenter. Other objectors included French central bank Governor Francois Villeroy de Galhau, ECB board member Benoit Coeure, also a Frenchman, and Estonia’s central bank chief, sources have told Reuters. Dutch central bank chief Klaas Knot is another critic. Together, they represent countries that account for more than half of the euro zone’s gross domestic product.

Lagarde will need all her fabled diplomatic skills to pour oil over such troubled waters. Even then, the divisions that predate her arrival may limit her room for manoeuvre in the future.


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