Macro Matters: 'The ECB won't rescue a President Le Pen from her own policies'

ECB President Christine Lagarde has resigned and will step down in February. This is Macro Matters and we're talking the ECB. Central Bank President Christine Lagarde is stepping down ahead of the official end of her term next October. Speculation about her early departure has been mounting for months, with the World Economic Forum seen as her likely destination. Olga Schmeiding is Chief Economist at Berenberg. Olga, how is the market likely to digest this? I think this is not going to be a big issue for markets. Of course, it initially adds uncertainty. But leaning back, do we really think that ECB policy will change? No. First of all, she is still there. Second, her successor will be appointed by the likes of Mr Macron or Mr Maatz in Germany, who will likely pick a successor who will pursue policies pretty much like her. And in addition, key ECB decisions tend to be taken in sort of consensus and not be dictated by the president. Well, what's crucial about this timing, as you say, is that it means a successor can be picked before the election and change of government during the spring in France. So who are the main names in the frame? Well, as to names of potential successors, the two most often mentioned names are Klaas Noord from the Netherlands and the Spaniard Hernandez de Kors. Both seem well qualified. Klaas Noord has one advantage, namely that as a former head of the D20's financial stability board, he has a lot of experience with financial stability issues, well, and looking at recent events in bond markets, looking at concerns about France, that might serve Europe and the ECB well, so I would say he has an edge. Of course, EU leaders will try to have a package, and will most likely have a package, where the three vacancies and the ECB presidency, chief economist and then Isabel Schnabel's position as in charge of market operations, will likely be filled at roughly the same time. I've scratched my head about that, but actually I don't think it will have a major policy impact. First of all, the standard policy, the rate policy, monetary policy, the ECB discusses that typically at length, and when they have a sort of consensus, they decide. It's important how the president steers the discussion, how the chief economist steers the discussion, but it's not going to make a crucial difference. Sometimes the president matters when it comes to urgent decisions, say in a financial crisis. How to deploy its instrument, then it may make a difference to what president it is. I think both of those candidates have at least some experience or remember the Euro crisis. So I would not even expect from them a material difference with, again, a slight edge that Klaas Noord, with his G20 Financial Stability Board background, might be the one a bit better suited to react, if he has to, to circumstances. But, well, we don't even know whether such circumstances will arise. Hopefully not. But as you mentioned, France's borrowing costs have weighed on the euro in recent weeks, and markets are very nervous about uncertainty there, especially around that election in April. What action could the ECB take to stave off potential crisis? I don't think the ECB can do a lot to stave off a potential crisis. The ECB can remind us, of course, that it has instruments to prevent markets seizing up, that it has instruments to prevent contagion risks, such as the risk that whatever happens in France brings Italy down. But I don't think the ECB has a mandate and a reason to say that they would support France on current fundamentals. The ECB, in my view, is more likely to suggest that what we've seen in the French spread, or in European spreads, is by and large in line with fundamentals, and hence no need for the ECB to intervene again. If things become very dramatic, the ECB would act, but the ECB would not spare, say, French President Le Pen from facing the consequences of reducing the retirement age or other fiscal follies. Do you see, though, the central bank perhaps delaying a rate hike beyond December to ease pressure on that spread? Not because of France, but there is, of course, a bit of a risk or a possibility that if higher yields and the sense of a bit of a crisis, if they weigh on Eurozone growth and inflation outlook, not on France itself, but on the Eurozone as a whole, that the ECB will, of course, take that into account. So, yes, at the margin. And actually, beyond a bit at the margin, the recent rise in yields and the sense of uncertainty is an argument for the ECB to wait. At current oil prices, with inflation probably hitting 4% shortly, I still think the ECB will likely deliver a rate hike in December, but it has turned into an open question. That was Holger Schmieding of Berenberg. Don't forget, you can watch more videos on Reuters.com. We'll be right back.