ECB Launches Yearlong Review as Lagarde Promises ‘New Thinking’

The new president of the European Central Bank, Christine Lagarde, has only been in the job for a few months, and chaired her first ECB policy meeting in December. Lagarde has announced that the ECB will launch a thorough reappraisal of its monetary policy, the first such review since 2003.

Lagarde clearly has big shoes to fill at the ECB, as she takes over for Mario Draghi, who steered the ECB for an eight-year stint, from 2009-2018. Draghi was one of the most powerful and respected central bankers in the world, and currency markets often reacted to his comments. Lagarde has said that she plans to continue Draghi’s accommodative policy, but at the same time, she appears eager to lead the bank in her own style. When asked recently whether she considered herself a hawk or a  dove, she famously said that she preferred to think of herself as “an owl – a very wise animal”.

One of Lagarde’s most pressing challenges is how to revive inflation, which has persistently remained below the ECB’s inflation target of around 2 percent. Speaking at the ECB policy meeting earlier on Thursday, Lagarde indicated that she is approaching the review with an open mind that she is open to all options, saying that the review will cover “how we deliver, how we measure, what tools we have and how we communicate.” The ECB review could include alternative tools for dealing with inflation – the bank has maintained rates in negative territory and injected some 2.6 trillion euros in asset purchases in order to lift low inflation levels. The results, however, have been a disappointment, as inflation has been slightly over one percent.

The ECB review is scheduled to take one year, but Lagarde will likely have to administer some strong medicine to the eurozone much earlier, as economic conditions remain weak, and the EU could find itself in a trade war with the U.S. if negotiations to reach a trade deal are unsuccessful.