Thursday 4 July 2019 8:54 am

City economists warn Lagarde poses ‘credibility risk’ as ECB chief

City economists digested the news of Christine Lagarde’s nomination as European Central Bank (ECB) president yesterday with some warning of a “credibility risk” while others welcomed her expected dovish stance.

Read more: IMF chief Lagarde among surprise picks for EU top jobs

European Union member state leaders surprised pundits on Tuesday night by picking Lagarde, currently head of the International Monetary Fund (IMF), to succeed Mario Draghi at the ECB’s helm.

Bond yields fell and stock markets rose across Europe following the announcement.

Lagarde has led the Washington-based IMF since 2011 and was formerly French finance minister. Yet she has no direct experience of central banking and faced criticism in debt-burdened Mediterranean states for the IMF’s actions during the Eurozone crisis.

Andrea Iannelli, investment director at Fidelity International, said Lagarde has “played more political than policy-related roles in her career”.

Deutsche Bank research strategist Jim Reid said that “her relative inexperience” with the ECB’s complex policy toolkit meant “there is a credibility risk, especially if and when things get more complicated economically”.

However, Lagarde’s support for the unconventional policy measures such as bond buying pursued by Draghi, which are credited with saving the Eurozone after 2012, have reassured markets.

Seema Shah, chief strategist at Principal Global Investors, said the appointment had “come as a positive surprise to markets, dissipating fears that hawkish Bundesbank president Jens Weidmann would be taking the helm”.

Read more: George Osborne vying for top role at IMF

Head of European fixed income at Franklin Templeton, David Zahn, said it “reconfirmed the idea that the ECB will support the market over the short-to-mid-term at least”.

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