A change of Lagarde
On 1 November 2019, Mario Draghi will step down as President of the European Central Bank (ECB) and...
While Brexit party MEPs chose to turn their backs on the EU national anthem, and Lib Dem MEPs decided rude anti-Brexit t-shirts were the way forward, when it got down to business, more practical choices were being made in Europe on Monday: namely who should get the bloc’s top jobs.
Among the nominations were Germany’s Ursula von der Leyen, who was nominated to lead the EU Commission replacing Jean-Claude Junker, and current IMF chief Christine Lagarde, who has been nominated for the role of President of the European Central Bank (ECB), replacing Mario Draghi.
Both would be the first woman to get either role, if the appointments are ratified by the European Parliament.
Mario Draghi – or “Super Mario” as he became known – has been President of the ECB since 1 November 2011.
Within a month he oversaw a 489 billion euro, three-year loan program (quantitative easing) from the ECB to European banks. Two months later, a second larger round of ECB loans to European banks was initiated and then, in July 2012, in the midst of renewed fears about sovereign debt in the eurozone, he promised to “do whatever it takes to preserve the euro”. Draghi’s statement has since been seen as a key turning point in the fortunes of the eurozone: hence the Super Mario nickname.
The euro is still here, the eurozone still intact and, even if other countries wanted to leave, the very public difficulties faced by the UK trying to extract itself may well put them off.
In terms of equity market performance, European returns have been comfortably ahead of those of the UK in both euro and sterling terms – but still lagged the US by some 100%*.
10 Elite Rated European equity funds have track records going back to November 2011. All of them have out performed the FTSE Europe ex UK index* during Draghi’s reign:
|Rank||Fund or trust name||Percentage returns|
1 Nov 2011 to 2 July 2019*
|1||Jupiter European Opportunities||299.95%|
|3||BlackRock European Dynamic||203.83%|
|4||T. Rowe Price European Smaller Companies Equity||189.16%|
|5||Marlborough European Multi-Cap||187.17%|
|6||Threadneedle European Select||171.10%|
|7||BlackRock Continental European Income||165.02%|
|8||Janus Henderson European Focus||161.95%|
|9||GAM Star Continental European Equity||148.64%|
|10||Janus Henderson European Selected Opportunities||147.56%|
|FTSE Europe ex UK||133.68%|
Fidelity’s Andrea Iannelli said that Lagarde’s nomination was unconventional given she has no experience of central banking. “Her appointment is unlikely to bring a major shift in stance by the ECB, but rather continuity, following the path set under Draghi,” Andrea commented. “Over the longer term, however, she will have to work hard to ensure that the ECB’s credibility remains as strong as it has been under her predecessor.”
Schroders’ Piya Sachdeva commented: “Lagarde’s heavy involvement in the Greek sovereign debt crisis during her role at the IMF demonstrates her pro-European integration stance. While she has no direct experience in monetary policy, Lagarde has previously expressed the view that negative interest rates in Europe and Japan were net positives for the global economy. With these factors in mind, we think she will be a dovish (cautious) governor who should be seen as fairly positive for investors.”
TwentyFour’s Mark Holman added: “European bond markets breathed a sigh of relief this morning. This relief is perhaps more about who is not going to be the new ECB president rather than who will be. German Bundesbank chief Jens Weidman was considered to be one of the forerunners for the post and while Draghi will be remembered for doing “whatever it takes”, Weidman will be known for trying all he could to prevent some of Draghi’s policies being enacted.
“So what about Lagarde? Naturally we welcome the great spirit of diversity in the eurozone ranks but more than this, we think a politician at the helm could do a better job than another economist. Mario Draghi will not go down in history for being a great economist, but rather for his political nous, which helped preserve the euro aided by a strong will and great determination. These are skills that Lagarde has acquired in her roles at the French finance ministry and as chair of the International Monetary Fund. Our sense is she will err on the side of caution, which markets will like.”
*Source: FE Analytics, total returns 1 Nov 2011 to 2 July 2019