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Is the personality trait of flexibility apparent in Lagarde’s…
Is the personality trait of flexibility apparent in Lagarde’s management style, AND could her leadership style in the ECB be viewed as creative decision making? Scholarly article references in answer
What Christine Lagarde Brings
to the ECB: Flexibility
The career of the next European Central Bank chief shows the
institution is getting a diplomat and negotiator, not a technocrat or
economist
By Josh Zumbrun and Bojan Pancevski
July 18, 2019 11:22 am ET
For seven hours, European finance ministers in a windowless room argued over how to
keep a government-debt crisis from infecting eurozone economies, and the meeting
threatened to fall into disarray.
Then Christine Lagarde stood up to speak.
She read a proposed solution from notes she had jotted while the others were debating,
said Thomas Wieser, a senior European civil servant who was there. “A group of
ministers alternating between screaming and mumbling, some of them not necessarily
well-informed, gradually went quiet.”
The ministers, said Mr. Wieser and other participants, rallied to Ms. Lagarde’s side.
That was May 2010 in Brussels, when Ms. Lagarde was French finance minister. The
topic was how to prevent Greece’s financial crisis from threatening the eurozone’s
survival. The brand of political compromise Ms. Lagarde displayed there would play out
during her tenure as the International Monetary Fund’s head from June 2011. This month,
it helped her become the person tapped by European leaders to helm the European
Central Bank, the most influential monetary-policy maker after the U.S. Federal Reserve.
A review of her career offers hints at what kind of ECB chief she would be. On numerous
occasions, she has shown a politician’s pragmatism to the point of pivoting sharply away
from some of her own initial policy positions. In 2018, Ms. Lagarde, who once said
Greek debt was “totally unsustainable,” shifted her longstanding stance to cut a deal with
European creditors that ignored the IMF demand to restructure Athens’s enormous
obligations.
The ECB, unlike the IMF, has always been run by a leading economist or central banker.
Instead, the ECB is getting a political operatora diplomat and negotiator, not a
technocrat.
She is likely to need that pragmatism when she succeeds ECB President Mario Draghi in
November. The goal of European integration is under strain. It will depend heavily on the
central bank’s contribution to bolstering the region’s wobbly economic expansion
including further quantitative easingin an era when many populists want the world’s
high financial institutions to do less, not more.
“It’s a fiction to think that the ECB can be completely outside politics,” said Giorgos
Papakonstantinou, who was Greek finance minister at the height of the crisis and worked
closely with Ms. Lagarde. “The fact that market reaction to her appointment was positive
is telling: The markets are welcoming someone with a pragmatic stance and political
agility.”
Share prices in Europe and the U.S. rallied following Ms. Lagarde’s nomination as ECB
president, while borrowing costs dipped across the eurozone in expectation of continuity
and renewed stimulus.
Her approach doesn’t always succeed. Compromises she helped broker between the IMF,
ECB and European Union helped prevent the eurozone from breaking up but
left Greece’s economy still struggling today and the broader eurozone expansion still
sluggish.
Ms. Lagarde’s reputation suffered when she supported a much-criticized decision in the
2013 bailout of Cyprus, said Nicolas Véron, a senior fellow with the Peterson Institute for
International Economics in Washington, a think tank. She and EU officials agreed to a
plan by the Cypriot government to inflict losses on bank depositors, effectively reneging
on a deposit guarantee. The nation’s parliament soon overturned the decision. “It was an
inglorious episode in an otherwise admirable career,” Mr. Véron said.
While many applaud her persuasive skills, some worry about giving the ECB helm to
someone who appears likely to continue Mr. Draghi’s expansive “whatever-it-takes”
approach to policyincluding a willingness to experiment and push through
controversial change for the sake of holding the 19-member currency bloc together. His
critics, particularly in Germany, say such efforts have hurt private banks and savers and
could fuel financial instability.
‘Subtle manner’
Those who know Ms. Lagarde, 63, say she can take control of a room and influence those
in her circleusually technocratic men, as she has notedwith personal charm. “Ms.
Lagarde’s subtle manner,” Mr. Wieser said, “proved effective in dealing with older men
who often tried to assert themselves personally instead of looking at the bigger picture.”
A picture of the leadership style Ms. Lagarde brings to the ECB emerges from interviews
with finance ministers, a former premier, top civil servants, central bankers, government
advisers, and IMF staff and leadership. She declined to be interviewed.
Born in Paris and educated as a lawyer, Ms. Lagarde rose through the international law
firm Baker McKenzie, working on labor, antitrust, and mergers and acquisitionsareas
involving contentious negotiations. In 1999, she became the first female chairman of its
global executive committee. In 2005, she joined the French government, rising to finance
minister at the dawn of the global financial crisis.
The euro crisis began when Greece lost access to bond markets after a collapse of fiscal
discipline, triggering investor stampedes out of eurozone countries with financial
imbalances and shaking investors’ faith Europe’s common currency would hold together.
Germany had initially brought the IMF into the matter to press debtor countries to
overhaul their economies.
Ms. Lagarde was the first finance minister to openly propose a bailout for Greece in
2010, a move until then opposed by countries including Germany. Later, she and Poul
Thomsen, head of the IMF’s European department, pressured European creditors to
restructure bailout loans to Greece with easier repayment terms and debt relief.
Ms. Lagarde won the affection of Wolfgang Schäuble, the cantankerous German finance
minister at the time. Ms. Lagarde is known in Berlin as one of the few with whom Mr.
Schäuble, a French speaker, uses the familiar form of address that exists in German and
French.
The warm relationship continued after Ms. Lagarde took the IMF helm and led it in
rethinking its tough bailout approach. She commissioned critical internal reviews of how
the IMF became involved in the initial Greek bailout that was failing. Creditors’ demands
for budget austerity including spending cuts and tax increases had caused an economic
contraction so severe it made debt repayment less likely and fueled the rise of populist
politicians.
Berlin grew increasingly irritated by the IMF’s pressure on European creditors to
restructure Greece’s debt. But she and Mr. Schäuble maintained cordial relations.
German Chancellor Angela Merkel took an immediate liking to Ms. Lagarde’s
straightforward manner early in their acquaintance, said a person familiar with the
relationship, and was impressed at how Ms. Lagarde established herself in the male-
dominated top echelons of politics.
In 2015, when Greece’s new left-wing government tried to overthrow creditors’ austerity
measures, Ms. Merkel worked closely with Ms. Lagarde to avoid a Greek exit from the
eurozone. They met at a crucial meeting in Berlin in June, along with presidents of
France, the ECB and the European Commission, to hammer out the basis of a bailout
plan that proved acceptable to Germany and allowed Greece to muddle through.
Ms. Lagarde figured out the key to changing IMF economic policies was identifying
topics that, in IMF jargon, have “macro-criticality”ones that can bring broader overall
economic results. She is widely known for speeches on topics of gender inclusion,
economic inequality, climate change and fighting corruption. Less known is that she
successfully built the case that these topics bring broader results and must be
incorporated into bailout programs and the IMF’s economic reviews.
While it was IMF economists who calculated that excluding women from the labor
market reduced potential GDP as much as 30% in some countries, it was Ms. Lagarde
who spoke out against these practices as an “insidious conspiracy” and successfully
pushed the IMF to formally integrate metrics such as women’s labor-force participation
into economic reviews.
She may not have come up with the data or idea for a policy, but she recognized its
importance, said Sean Hagan, former IMF general counsel. “It’s always the case with
effective leaders that they’re not always the ones that do the initial calculation,” he said,
“but they’re the ones who understand that this particular strand of thinking can be given
priority. She was able to do it very effectively.”
She used her network like a politician. She answered to the IMF executive board,
representatives of 189 member countries. But if someone on the board was skeptical of
her initiatives, say former directors, she had the relationships to go over their heads and
speak to finance ministers or heads of state.
Gerry Rice, the IMF’s communications director, acknowledged that Ms. Largarde had
relationships with top politicians, but said she preferred to make the case on its merits and
find common ground.
And Ms. Lagarde proved adept at operating in rooms of besuited men. When the IMF’s
executive board first interviewed her for the top job eight years ago, the only female
director on the 24-person board was absent, leaving her in front of 23 men. In group
photos at G-20 summits and IMF meetings, it is often Ms. Lagarde standing out in a dark
sea of suits.
“There is a lot that is attributable to personality and part of my personality, of course, is
being a woman,” she told The Wall Street Journal in 2015. “It may be, because people
tend to be territorial, men tend to be a little more territorial, so to the extent that I’m not
really a physical threat, because men don’t have to show off to me, because a man-
woman relationship is of a different nature, that helps.”
She honed the art of taming unruly groups. When she chaired meetings, she tended not to
cut people off. To keep meetings moving on the IMF’s board, she allotted each director
four minutes to speak. Once they went over time, said former board members, Ms.
Lagarde began gradually tapping her microphone until they stopped, rather than
interrupting.
German sensitivities
German sensitivities will likely remain Ms. Lagarde’s greatest challenge. Germany is the
eurozone’s largest economy. Its political establishment and public have been largely
hostile to eurozone bailouts and stimulus policies under Mr. Draghi. Jens Weidmann, the
German Bundesbank president, has often voted against Mr. Draghi’s policies. Ms.
Merkel’s designated successor, Annegret Kramp-Karrenbauer, said in June that ECB
policies were hurting German savers.
Alexander Stubb, Finland’s former premier and its finance minister during the eurozone
crisis, said the balancing act between German sensitivities and the eurozone’s demands is
where Ms. Lagarde’s political astuteness will prove more relevant than central-banking
experience.
Ms. Lagarde may depart further from the traditional view that the ECB should pursue
monetary policy independently of European political leaders who manage tax, budget,
labor and other economic policies, said Olli Rehn, Finland’s central-bank governor, who
sits on the ECB board.
“But independence doesn’t mean loneliness. We need both fiscal policy and structural
reforms to support stronger growth and job-creation.”
Jörg Asmussen, deputy to Germany’s Mr. Schäuble during the euro crisis and now senior
executive with New York bank Lazard Ltd., agreed. “She may not be a monetary
economist, but she is a monetary diplomat,” he said. “She is extremely charming and that
is part of her style of politics. She would hand out French pralines at 3 a.m. during frantic
ministerial meetings.”
A senior EU official said there were concerns that, in putting a politician in charge of the
continent’s monetary policy, technocratic consensus could be replaced with political
calculus. The official noted the ECB’s new vice president, Spain’s Luis de Guindos, was
also a politician.
One hint of how Ms. Lagarde may defuse such concern comes from how she drew on her
own technocratic deputies during her IMF tenure. Mr. Thomsen, the IMF’s Europe
director and an economist, represented her in key European meetings that required
detailed technical expertise.
Officials at the IMF, the ECB and in several European capitals said that in her new job
she will likely rely on Philip Lane, the ECB chief economist, as she relied on Mr.
Thomsen.
Mr. Asmussen, who served on the ECB executive board, said Ms. Lagarde will be able to
fall back on Mr. Lane for technical expertise. The ability to provide continuity with Mr.
Draghi’s policieshe publicly vowed to do “whatever it takes”was key, he added.
“The question whether the new ECB chief would do whatever it takes is now answered,”
he said. “Yes, she will.”
