The market has certainly seen Christine Lagarde as pro-easing, rather than a Germanic monetary purist, and reacted favourably.
A new head of the ECB
The European Parliament reopened this week, with suggested appointments for the top jobs proving very revealing.
On Tuesday, the European Council officially nominated the IMF’s managing director Christine Lagarde, to become the next president of the European Central Bank (ECB). Lagarde took over the IMF post in June 2011 at the height of the Greek crisis, replacing the disgraced French politician Dominic Strauss-Kahn. She provided a steady hand during this period and a figure head, leaving the technical work of renegotiating Greek debt to the bank technicians.
The ECB role is different, being as much a technical one, as a ‘presidential’ one. We have not had a non-expert in the post before, although it is quite possible that bringing pragmatism will be useful – but I do not expect her to be radical. For the ECB, this is a continuity candidate and, as the appointment is for eight years, it is an important one. The market has certainly seen her as pro-easing, rather than a Germanic monetary purist, and reacted favourably.
The appointment of long-term Merkel ally Ursula von der Leyen as Head of the Commission is very significant. Controlling the direction of policy and the resources of the EU will now give it a strong German flavour. A deeply pro-European politician, she has previously called for a European army and had run-ins with the populist Hungarian Prime Minister Viktor Orbán. A controversy over defence contracts meant that she was ruled out as Merkel’s successor a couple of years ago and this role looks like a consolation prize. But I expect her to be busy and not afraid to tread on toes, especially those of the populists.
The other selection of interest is that of the Brussels insider, former Belgian Prime Minister Charles Michel, as Council of Ministers President, replacing the pragmatic, conciliatory Donald Tusk. He is young, was under a lot of pressure in Belgian politics and is a federalist.
Closing of the ranks
This is perhaps the most important issue: these appointments smack of the thesis ‘the trouble with Europe is it is not integrated enough we should do more’. I expect the UK to be the first country to struggle with this, as it attempts to re-negotiate Brexit. This looks like a closing of ranks and the risk of a hard Brexit has risen.
The same risk of conflict will come from the populist politicians around Europe, who did well in the last elections and have clearly been shunned. Italy and the Eastern European states have lost out on the top jobs and thus influence. Again, the risk of conflict is obvious, and we believe the risk of an Italian debt crisis in the next five years is high.
Return to horse trading
The Spitzenkandidaten system, where the largest party in the European Parliament nominates its candidates for positions, has been well and truly dumped. The return to horse trading (rumoured to have been led by Macron) will make the EU look less accountable to its electorate, not more.
These appointments still have to get through the European Parliament and there could well be significant resentment from the leading political groupings there who dislike the ending of the Spitzenkandidaten system, as well as the populists. They will also decide on who to make the Leader of the Parliament, the one job still in their control.
This information is issued and approved by Martin Currie
Investment Management Limited (‘MCIM’). It does not
constitute investment advice.
Past performance is not a guide to future returns.
Market and currency movements may cause the capital value
of shares, and the income from them, to fall as well as rise and
you may get back less than you invested.
The opinions contained in this document are those of the
named manager(s). They may not necessarily represent the
views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not
be assumed that any of the security transactions discussed here were or will prove to be profitable