Draghi stages Lagarde as new head of the ECB

Mario Draghi enters the last three months of his term as President of the European Central Bank with a plan that will see his influence continue long after his replacement by Christine Lagarde.

The head of the ECB will lead a political meeting this week which should largely pave the way for interest rate cuts in September and a possible resumption of quantitative easing. Its staff also began work on a possible revision of the inflation target, which could facilitate the continuation of the monetary stimulus.

It is a bold strategy at the end of a mandate that has been defined by radical measures and that could well tie the hands of Lagarde during his eight years of mandate. Yet, with persistent inflation below the ECB's target despite years of mbadive stimulus, and with stuttering of the economy again, Mr Draghi should be tacitly endorsed.

"Draghi is trying to make sure everything is in place for Lagarde when she arrives and protect her from excessive political capital spending too soon," said Gilles Moec, Axa's chief economist, former head of the Bank of America. La France. "It's a case of taking one for the team in a certain way."

Mr Draghi 's urgent concern with the approach of the October 31st deadline, while there are only three policy meetings left, is that its 2.6 trillion euros from the end of the year. quantitative easing, its negative interest rates and long-term bank borrowings have not made it possible to relaunch inflation over the long term. .

Consumer price growth has only increased an average of 1.2% during his tenure – well below the "less than 2%" target, and he will step down without tightening its policy over the past eight years.

The economists surveyed by Bloomberg are mainly expecting the Governing Council to adjust its political speech at the July 25 meeting to signal that a further reduction in the deposit rate is imminent and to bring it back from 10 base points at minus 0.5% after the summer break. Some anticipate a further reduction in December, and just over half anticipate an EQ that will be restarted, which would continue to stimulate the stimulus for at least several months.

At the same time, ECB staff are studying whether the inflation target needs to be adjusted to be more effective. Mr Draghi is in favor of a specific target of 2% with a "symmetrical" approach, according to sources. This would allow the Governing Council to maintain high inflation for some time after a period of weakness to ensure price growth.

Investors – in the financial markets and in the real economy – will probably welcome the continuity that the president apparently tries to lock. A slowdown caused by US trade tensions and structural changes in the manufacturing sector left Europeans reluctant to borrow more. does not matter when soon.

Central banks around the world have opted for a more flexible policy. It is generally expected that the US Federal Reserve will reduce its rates a week after the ECB meeting with senior officials, stressing the need to act quickly. South Korea and South Africa have already relaxed their policy last week.

Lagarde, appointed head of the International Monetary Fund in 2011, just four days after the appointment of Draghi as head of the ECB, has repeatedly praised the central banks for their stimulus measures.

She is also aware of the global struggle to boost inflation in developed economies. At the IMF headquarters in Washington, the Fed is currently examining its own approach to its 2% target. Olivier Blanchard, former chief economist of the IMF with Mrs. Lagarde, advocates to raise the inflation targets to 4%.

The Governing Council of the ECB is likely to consider this week how far it can go with stimulus measures. Negative interest rates are already affecting banks, which are a key channel for monetary policy. A further reduction may therefore require mitigation measures, such as exemptions for certain deposits. A QE recovery may involve changing the central bank's rules on the amount of public debt it can buy, a decision that could lead to prosecution.

Yet few ECB observers doubt that the president and his successor are essentially on the same page.

"There is a lot of continuity here," said Nick Kounis, an economist at ABN Amro in Amsterdam.

"Lagarde strongly believes that the ECB has done so far, and perhaps even if she would be more proactive and activist."