Christine Lagarde’s surprise nomination last week as the European Central Bank’s (ECB) next president has sent financial market participants scrambling to review the monetary policy musings of someone else to get a sense of which way the wind will blow in future.
Philip Lane, the ECB's newly-installed chief economist after stepping down as Central Bank of Ireland governor at the end of May, is poised to become the most influential holder of this position since Otmar Issing, the ECB's first top number cruncher.
While Lagarde, a trained lawyer, former French finance minister and current head of the International Monetary Fund (IMF), is a global mover and shaker par excellence, she lacks one thing normally held by a central bank boss: an economics qualification.
Lane’s academic credentials, on the other hand, are hard to beat.
Having graduated from Trinity College Dublin in 1991 in economics, Lane went on to secure a PhD at Harvard, lecture for a stint at fellow Ivy League school Columbia University, and spend almost two decades from 1997 at Trinity, where he specialised in global flows of money. He joined the Central Bank in late 2015.
The markets concluded that Lane will urge his boss and others around the table to continue the extraordinary efforts of outgoing ECB president Mario Draghi to shield the euro-zone economy.
Lane used his first speech in the role to claim that Draghi’s past monetary stimulus has been effective and that more is available, if needed, to boost inflation amid the current economic slowdown.
“It is essential that a central bank shows consistency in its monetary policy decisions by proactively responding to shocks,” he said last week at a conference in Helsinki.
The dovish comments and Lagarde’s appointment helped push the market interest rates – or yields – on euro-zone government bonds to record lows. The yield on Ireland’s benchmark 10-year bonds fell to as low as 0.042 per cent last week, compared to 1 per cent at the start of the year.
The National Treasury Management Agency won't be complaining when it sells €1 billion of 10- and 15-year bonds on Thursday.
