My ‘old boss’ Christine Lagarde just got nominated to be at the helm of the European Central Bank. Will that make a difference for monetary policy and possibly for the interest rates you pay for a future mortgage?
I am inclined to say no. Christine Lagarde is a very competent leader who knows how to get her way. But she has no particular strong economic views. She is a pragmatist. And actually a lawyer by training. She will rely on her team of very competent advisors at the ECB. Personalities rarely make a difference in such institutions except perhaps in a crisis, when a leader of a central bank need to be able to resist political pressures and a strong reputation in the public eye helps a lot in that respect.
Ms Lagarde will be good at that. If anything “Madame Lagarde” as she is known among the IMF staff, is very good at public relations, creating a strong image for herself. Having been at the IMF for 8 years makes her also a very powerful player with many high level connections, not easily thwarted.
Lagarde’s predecessor, the current president Mario Draghi had a much harder task. He came on board in a very critical time when the Greek crisis was in full swing and risked to effect Spain, Italy, Portugal and Ireland and by the sheer magnitude of the contagion also risked sinking the rest of Europe.
He is a very different personality, a career official in the Italian Treasury, but unlike the standard reputations of Italians, very much an introvert. I found him to be an extremely competent and focused professional, when I had the honor to work with him. And he showed his guts to go against a lot of standard prejudice to claim that he would do whatever it takes to turn around the European crisis. And it worked. Witness the simple fact that we barely think about this crisis period anymore.
Draghi put the ECB squarely on the map as a very competent and independent institution. And my guestimate is that ‘President’ Lagarde will only enhance the reputation and political independence of the institution.
For you (and me), for us, that is good news. It means a central bank squarely focused on keeping inflation under 2 percent, but not much below 2 percent, and one that will ignore the dogmatists who just think that interest rates should be high, because they used to be high, or monetary policy should be traditional because it used to be so.
In concreto, this means that if the economy is not doing well—and the European economy keeps showing signs of a very lackluster growth--that interest rates will stay very low. This will keep benefiting those of us that seek a mortgage.
Enjoy your house hunts. Your friends at Hypofriend.
For comments or suggestions, you can reach Chris personally at Chris@Hypofriend.de