ECB chief Draghi symbolically passes baton to Lagarde | Business| Economy and finance news from a German perspective | DW | 28.10.2019
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ECB chief Draghi symbolically passes baton to Lagarde

Political leaders have wished incoming ECB chief Christine Lagarde a good start as the new guardian of the euro. They also thanked Mario Draghi for protecting the currency during the global financial crisis.

Prominent political figures including German Chancellor Angela Merkel, French President Emmanuel Macron and Italian head of state Sergio Mattarella on Monday congratulated outgoing ECB chief Mario Draghi on his eight-year tenure at the helm of the central bank.

At a ceremony in Frankfurt to mark Draghi's passing the baton to former IMF chief Christine Lagarde, Angela Merkel said she remembered the times "when markets were actually betting on the collapse of the euro," adding that because of Mario Draghi's policy "the eurozone —despite all the problems at hand — is now much stronger than it was during the area's massive sovereign debt crisis."

French President Manuel Macron said at the ceremony he admired Mario Draghi to "talk about and believe in the irreversibility of the euro currency in the face of markets that seemed no longer controllable during the financial crisis." Macron also praised Draghi's efforts to arrive at a genuine banking union in the euro area.

Italian President Sergio Mattarella noted he viewed Draghi as "a man with and extraordinary commitment to serve Europe."

"He led a central bank that in times of crises was not rigidly bound to old mechanisms, but reacted creatively to emergency situations."

A polarizing figure

Analysts remarked that with his monetary policy, Mario Draghi had been a polarizing figure. Most will remember him as the man willing to do "whatever it takes" to save the euro during the global financial crisis.

He took up the fight against deflationary fears and sluggish growth in the 19-member eurozone by near-zero and negative interest rates and a huge asset-buying program. Never before in the history of the Central European Bank had markets been swamped with such huge amounts of ultracheap money.

Draghi's policy had been a thorn in the side of many ordinary citizens, including Germans, who found themselves unable to secure decent yields on their savings. Germany's Bild newspaper dubbed the Italian economist "Count Draghila," saying the man had sucked empty the accounts of German savers.

Woman putting banknote into piggy bank

For eurozone residents, saving money has meant a bad deal in recent years with the ECB's ultralow interest rates in place

Mario Draghi had heard of such criticism before, but appeared completely unfazed by it last Thursday when chairing his last meeting of the ECB Governing Council. There, he defended a recent move to launch fresh stimulus measures in the eurozone, cutting a key interest rate deeper into negative territory and paving the way for yet another round of cheap credits to banks.

The ECB had also relaunched corporate and government bond purchases worth 20 billion ($22.2 billion) per month, thus triggering a lot of public criticism even from within the ECB, with some pundits there saying the move was "too drastic."

Winds of change blowing?

That won't mean, though, that Christine Largarde, who officially takes over on November 1, will change everything that Draghi has stood for. Experts say her most pressing task will be to bridge the divide among ECB governors and "have the two sides talk to each other," as ING Chief Economist Carsten Brzeski told the AFP news agency.

"This also means that there won't be any imminent changes to monetary policy," he added.

However, rather than banking on monetary policy alone, Lagarde looks set to call on governments to use their leeway to help boost the eurozone economy particularly by increasing spending on vital infrastructure projects.

"Monetary policy has done a lot in recent years," Lagarde told Der Spiegel. "Finance and economic policy must complement it now."

The 63-year-old is not an economist herself and will have to rely on the technical expertise of other council members. But she's known to be a well-connected politician who was praised for guiding the International Monetary Fund through the aftermath of the financial crisis.

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