Editorial | Christine Lagarde: A friend at the ECB?
One coincidence of the imminent changing of the guard at a swathe of European institutions is that Christine Lagarde will, in November, take up the job of head of the European Central Bank (ECB), only weeks after Richard Byles becomes governor of the Bank of Jamaica (BOJ). Indeed, the Jamaican authorities are likely to look favourably on Ms Lagarde’s transition and what, positively, Kingston can extract from it.
Judged merely in statistical terms, there is no comparison in the magnitude of their responsibilities. Ms Lagarde will have monetary policy responsibility and financial-sector oversight for 19 countries with a combined population of more than 336 million and an economy valued above US$13.6 trillion, or around 22 per cent of global gross domestic product (GDP). By contrast, Jamaica has fewer than three million people and its GDP of around US$25 billion is a blip on the league table of global output.
But while it may not be immediately discernible, there are some similarities, indeed, points of connection between Ms Lagarde and Mr Byles. While the former will join the ECB from her previous role as managing director of the International Monetary Fund (IMF), she, like Mr Byles, as we observed when his appointment to the BOJ was announced, wouldn’t be the obvious choice to be governor of a central bank. She is neither an academic, economist nor banker, the kind of professionals who tend to be most favoured for such positions.
Or, put another way, Ms Lagarde’s previous two jobs, as France’s finance minister and head of the IMF, required political and negotiating skills rather than the arcane demands of monetary economics. She, like Mr Byles, who previously headed the Jamaica subsidiary of the Sagicor Financial Group, will likely rely heavily on the advice of technical staff and, ultimately, their judgement.
In Mr Byles’ case, the situation is complicated by the fact that he is taking over an institution that is in transition, that he is expected to accelerate. The BOJ’s independence is being formalised in law, with a core focus being inflation targeting to support employment growth. It is in the latter regard that what Ms Lagarde does will be of interest to Mr Byles. The United States is, by a significant degree, Jamaica’s major economic partner. It accounts for around half the island’s trade and 70 per cent of its tourist arrivals. As Ms Lagarde quipped on her 2014 visit to Jamaica to provide her personal endorsement to the IMF economic reform programme, “God forbid that the US economy goes south rather than north.”
Eurozone 19 affects Jamaica
But in a complex and integrated global economy, what happens in Europe, including the Eurozone 19, is likely to affect the rest of the world, including Jamaica. And there is much to keep a concerning eye on, if not yet to be deeply worried about, that front. Donald Trump’s trade war with China and his incipient one with the European Union, if not contained and reversed, can have damaging consequences for the global economy. Indeed, Ms Lagarde will undoubtedly be keen to provide rev to the zone’s rebooted economy, which is expected to grow 1.2 per cent this year, after appearing to be headed towards a stall in the latter period of 2018.
But given her lack of history on this front, the open question is what tools she would favour for the job, including whether she would be inclined towards her predecessor Mario Draghi’s formula of rate cuts and quantitative easing, and any risks contained therein.
On more general central banking matters, the presence of Ms Lagarde at the ECB may open the opportunity for cooperation with the BOJ. Jamaica, under successive IMF programmes, starting in 2013, implemented fiscal austerity with positive outcomes, which Ms Lagarde partly attributed to the work of the Economic Progamme Oversight Committee, which was headed by Mr Byles. They may not be on first-name terms, but there is something there for Mr Byles to leverage.