“She has enormous leadership experience, enormous institutional experience, enormous political and economic experience,” said Douglas Rediker, chairman of International Capital Strategies in Washington. “What she does not have is a track record as a monetary policymaker.”
Lagarde would take charge of the ECB with the global economy slowing, in part because of trade tensions between the United States and China, the world’s two largest economies.
Investors expect Lagarde — who called central banks “the heroes of the global financial crisis” in a 2013 speech — to continue Draghi’s aggressive crisis-fighting, which took European interest rates into negative territory in 2014. European banks now pay the ECB to hold their excess deposits, a policy intended to encourage bankers to increase lending.
Yet, despite years of such unconventional policies, the ECB expects the 19-nation euro-zone economy to grow by just 1.2 percent this year.
“It basically hasn’t worked,” said Torsten Slok, chief economist at Deutsche Bank Securities.
A decade after the financial crisis, the euro-zone economy is trapped in an environment of anemic growth with annual inflation that is little more than one-half of the ECB’s goal of about 2 percent.
The ECB has virtually emptied its monetary policy tool kit, having slashed interest rates and promised to keep them low for at least another year, purchased $3 trillion in bonds, and created an innovative refinancing channel for banks.
Draghi last month said the economic risks “remain tilted to the downside.” If growth does not accelerate, the ECB could cut interest rates further into negative territory — at the cost of hurting bank profits — and resume the bond purchases that it halted in December, he suggested.
His reassurances left many unconvinced.
“The ECB has reached the end of its rope,” said Ashoka Mody, the author of “Euro Tragedy” and a former IMF economist. “It has really no ability in the short to medium term to do anything like effective monetary policy.”
Lagarde emerged as a candidate for the ECB post only in recent days after consideration had focused on Jens Weidmann, head of the German central bank; Benoît Coeuré, a French member of the ECB’s board; and two Finnish central bankers.
Well acquainted with European leaders from her eight years at the IMF helm, Lagarde must now persuade them to borrow and spend more to offset weak growth, according to several economists who track the European economy.
“The euro zone, one way or the other, is going to have to come up with a new instrument, financed by a common pot of money,” said economist Jacob Kirkegaard of the Peterson Institute for International Economics.
If European leaders fail to develop such a fiscal stimulus program, the next recession could prove all but impossible to fight.
Cutting interest rates — the customary recession cure — would be impossible, since they are already below zero. Additional asset purchases would be politically controversial, particularly in Germany.
Lacking a mechanism to speed large amounts of government money to ailing economies, Europe would risk tumbling into the same prolonged economic malaise that hit Japan after its 1980s property bubble burst, he said.
The danger is aggravated by another condition Europe shares with pre-crisis Japan: the shrinkage in its working-age population, which peaked in 2015, Kirkegaard said.