If new institutional reform is to come to the Eurozone, it will entail a major paradigmatic shift
We now know that there will be a changing of the guard at the European Central Bank (ECB) in October. The current head of the International Monetary Fund (IMF), Christine Lagarde, will succeed current ECB President Mario Draghi at that time.
A known quantity among the political and investor class of Europe, Lagarde seems like a safe choice: she is a lawyer by training, not an economist. Hence, she is unlikely to usher in any dramatic changes, in contrast to current European Central Bank president Mario Draghi, who significantly expanded the ECB’s remit in the aftermath of his pledge to do “whatever it takes” to save the single currency union (Draghi did this by underwriting the solvency of the Eurozone member states through substantially expanded sovereign bond-buying operations). Instead, Lagarde will likely stick to her brief, as any good lawyer does. There’s no doubt that her years of operating as head of the IMF will also reinforce her inclination not to disrupt the prevailing austerity-based ECB ideology.
Unfortunately, the Eurozone needs something more now, especially given the increasingly frail state of the European economies. The Eurozone still doesn’t have a treasury of its own, and there’s no comprehensively insured banking union. Those limitations are likely to become far more glaring in any larger kind of recession, especially if accompanied by a banking crisis. That is why the mooted candidacy of Jens Weidmann may have been the riskier bet for the top job at the ECB, but ultimately a choice with more political upside. An old-line German central banker might have been able to lay the groundwork for the requisite paradigmatic shift more successfully than a French lawyer, especially now that Germany itself is in the eye of the mounting economic storm.
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