Mario Draghi will be remembered for doing “whatever it takes” and, on many accounts, the outgoing ECB President’s tenure was a success. Savers have been ‘punished’, but the unemployment rate now stands at 7.5%. This is only 0.2 percentage points above the low point reached prior to the financial crisis of 2008.
The task facing Christine Lagarde is arguably more challenging. Cyclically, monetary policy has exhausted its limits. Interest rates could be cut deeper into negative territory, but in all practicality, it is now up to governments to implement and deepen critical reforms.
On this front it must be acknowledged that the Eurozone has made some progress, particularly in France. German companies are also gaining access to more venture capital investment, which will be a major positive for start-ups. France is benefitting from its strong investment in intellectual property products (6.0% of real GDP in Q3). The EU is making giant strides in renewable energy too, as highlighted in last week’s commentary on offshore wind.
Nevertheless, Christine Lagarde arrives at the helm of the ECB at an inauspicious time, with clear risks on the jobs front. The downward trend in unemployment across the Eurozone has stalled. ‘Peripheral’ and other ‘core’ economies have not been immune to the slowdown in Germany. According to Eurostat data, the jobless total in Spain rose 12k over Q2 and Q3. Portugal also saw an 11k rise in its jobless total in the six months to September.
