Lagarde Resigns from the ECB: A Review of a Mandate Between Crisis and Innovation
From the COVID emergency to managing inflation, the outgoing president's legacy
KEY TAKEAWAYS
- Lagarde leaves the ECB with a positive balance in managing crises such as COVID-19 and energy wars
- The PEPP and TPI as key tools for financial stability, with criticisms of the subjectivity of the latter
- Mixed results in managing inflation, with an initial delay followed by a strong corrective intervention
- Promotion of the euro as an international currency through innovations such as the digital euro and TIPS
- Legacy of a leadership that has strengthened the foundations of European monetary sovereignty
Christine Lagarde announces her resignation from the ECB: a balance of managed crises and inflation challenges
Christine Lagarde, President of the European Central Bank (ECB), has announced her resignation effective February 7, 2027, nearly nine months before the end of her renewed term that began in November 2019. Unlike her predecessor Mario Draghi, who faced the eurozone debt crisis with the famous promise to do "whatever it takes" to preserve the single currency, Lagarde had to manage the COVID-19 pandemic, the war of Russia against Ukraine, and subsequent energy crises that fueled inflation. Despite this turbulent scenario, her performance has been overall positive: she effectively managed the crises, preserved financial stability in the euro area, and promoted the use of the single currency in global transactions.
Quick Answer
Christine Lagarde has announced her resignation from the ECB for February 2027. Her term was characterized by effective management of crises such as the pandemic and the war in Ukraine, but with a slower approach in addressing inflation. She introduced tools such as the PEPP and the TPI to stabilize markets and promoted the international use of the euro.
Effective management of financial crises
At the beginning of 2020, with the arrival of the COVID-19 pandemic, Lagarde launched the Pandemic Emergency Purchase Program (PEPP), an emergency purchase program worth 1.850 billion euros, to stabilize European bond markets. This timely move prevented fragmentation of government bond markets, especially in countries like Italy and Spain, where yields were rising sharply compared to Germany. Unlike Draghi's more vertical approach, Lagarde worked to build consensus within the ECB's Governing Council.
The Transmission Protection Instrument: a controversial tool
In 2022, the ECB introduced the Transmission Protection Instrument (TPI), designed to prevent unjustified divergences in financing costs among euro area member states. Although it has not yet been used, the TPI has sparked criticism for its subjectivity in distinguishing between justified and unjustified divergences, raising concerns about moral hazard among debtor countries and investors.
Delays in responding to inflation
At the end of 2021 and the beginning of 2022, the ECB under Lagarde's leadership initially underestimated the persistent nature of post-pandemic price increases, calling them "transitory". This delay in response allowed inflation to reach a record high of 10.6% in October 2022. However, the ECB subsequently launched an unprecedented cycle of monetary tightening, raising policy interest rates by 450 basis points, the fastest in its history. This contributed to reducing inflation to 2.4% in November 2023 without causing a recession.
The 2021 strategic review and the symmetric inflation target
Another significant contribution by Lagarde was the strategic review of July 2021, which replaced the previous inflation target, "close but below 2%", with a symmetric target of 2%. This change allowed the ECB to tolerate temporary overshoots of the inflation target, avoiding premature tightening of monetary policy. Furthermore, it corrected a previous bias that underestimated the risks of inflation below the target, thus protecting against long-term deflationary stagnation.
Promoting the international use of the euro
Lagarde also worked to promote the use of the euro in international transactions, a crucial initiative to protect European monetary sovereignty and financial stability. The ECB expanded the TARGET Instant Payment Settlement (TIPS) service to implement settlement capabilities in different currencies and pursued links with fast payment systems in other regions. Additionally, the ECB is developing a digital euro and a wholesale central bank digital currency to adapt to the evolution of digital financial markets. The international use of the euro has grown moderately, reaching a share of about 20% in key indicators of global currency usage in 2025.
The future of European monetary policy
While Lagarde leaves a largely positive legacy, her successor will have to face new challenges, including the need to maintain price stability in an increasingly uncertain economic context. Managing inflation and promoting the international use of the euro will remain key priorities for the ECB in the coming years. Furthermore, the ECB will need to continue closely monitoring risks to financial stability, including those arising from possible external shocks such as geopolitical tensions or energy crises.
Implications for future monetary policy
Lagarde's decision to resign early raises questions about who will replace her and what direction European monetary policy will take. Her successor will need to balance the need to maintain price stability with promoting economic growth and employment. Furthermore, the ECB will need to continue developing tools to address emerging challenges, such as the integration of digital currencies and the management of risks associated with the growing use of cryptocurrencies.
To delve deeper into the implications of inflation management and monetary policies, explore our guide on inflation in the eurozone. Additionally, to better understand the tools used by the ECB, see also our analysis of monetary policy tools.
Frequently Asked Questions
What are Christine Lagarde's main achievements at the ECB?
Lagarde effectively managed crises such as the pandemic and the war in Ukraine, introduced tools such as the PEPP and the TPI, and promoted the international use of the euro.
What are the main criticisms of Lagarde's management?
The main criticism concerns the delay in responding to inflation, initially underestimated as "transitory". Additionally, the TPI has raised concerns about moral hazard.
What are the future challenges for the ECB?
The ECB will have to face challenges such as maintaining price stability, promoting the use of the euro, and managing the risks associated with digital currencies and cryptocurrencies.
The impact of Lagarde on the European financial system
Christine Lagarde's legacy extends beyond the management of immediate crises, profoundly influencing the architecture of the European financial system. The 2021 strategic review established a new paradigm for monetary policy, with the symmetric 2% target recalibrating the ECB's decision-making framework. This change allowed the institution to adopt a more flexible approach, avoiding both premature austerity and prolonged inaction in the face of economic shocks. Promoting the euro as an international reserve currency represents another pillar of her mandate, strengthening Europe's role in the global financial landscape.
The digitalization of the payment system
An often underestimated aspect of Lagarde's work has been the progressive improvement of the ECB's digital infrastructure. The expansion of the TARGET Instant Payment Settlement (TIPS) service has enabled the implementation of cross-border real-time settlement capabilities, reducing transaction costs and improving the efficiency of the payment system. This development is crucial to maintaining the competitiveness of the euro in a context where digital currencies and fast payment systems are becoming increasingly relevant. The ECB is now further exploring these possibilities with the development of a digital euro, an initiative that could redefine the future of money and payments in the euro area.
The challenges of the green transition and monetary policy
As Lagarde steps down, the ECB faces new challenges related to the transition to a more sustainable economy. Monetary policy will need to integrate climate considerations, balancing price stability objectives with the need to support green investments. The ECB has already taken initial steps in this direction, including climate factors in its risk analyses, but her successor will have to address more complex questions about how to align monetary policy tools with environmental goals. This represents an unprecedented challenge for the central bank, which will have to navigate between political, economic, and environmental pressures.
The implications for national central banks
The policies implemented during Lagarde's tenure have had a significant impact on the national central banks of the euro area. The introduction of tools such as the PEPP and the TPI has required greater coordination between European institutions and national ones, strengthening the system of monetary policy transmission. However, this greater integration has also raised questions about the monetary sovereignty of member states and the role of national central banks in a context of increasing centralization of decisions. The future of European monetary policy will need to balance these aspects, ensuring that ECB policies are effective without compromising the autonomy of national central banks.
The role of the ECB in global financial stability
The ECB, under Lagarde's leadership, has strengthened its role in global financial stability. The effective management of crises has demonstrated the institution's ability to act as a regional stabilizer, contributing to maintaining confidence in European financial markets. This role has become even more crucial in a context of growing geopolitical tensions and volatility in international financial markets. Her successor will need to maintain this position, working closely with other central banks and international financial institutions to address global challenges. Promoting the international use of the euro is a key element of this strategy, which aims to reduce dependence on the euro-dollar and strengthen the resilience of the European financial system.
Prospects for employment and economic growth
While price stability remains a fundamental priority, the ECB will also need to consider the impact of its policies on employment and economic growth. The increase in interest rates, although necessary to combat inflation, can have negative effects on the labor market and investments. Lagarde's successor will need to find a balance between these objectives, adopting an approach that supports economic recovery without compromising financial stability. This will require close collaboration with fiscal authorities and greater attention to structural policies that can support long-term growth.
Managing public debt in the euro area
Another important challenge for the future of the ECB is managing public debt in the euro area. With high levels of debt in many member states, the ECB will need to closely monitor financial stability risks and ensure that its policies do not exacerbate pressures on public budgets. The introduction of tools such as the TPI has been a step in this direction, but her successor will have to address more complex questions about how to manage public debt in a context of growing economic uncertainty. The ECB will also need to work closely with member states to promote structural reforms that improve the long-term sustainability of debt.
The future of the European financial system
The European financial system is at a crossroads, with challenges and opportunities requiring strategic vision and coordinated action. The ECB will need to continue evolving, adopting new technologies and approaches to address emerging challenges. The digitalization of the payment system, the integration of climate considerations in monetary policy, and the management of public debt are just some of the areas that will require attention. Lagarde's successor will need to be able to navigate this complex context, ensuring that the ECB remains a pillar of European and global financial stability.
Conclusions and future prospects
Christine Lagarde leaves a significant legacy to the ECB, having led the institution through some of the most turbulent crises of recent decades. Her term was characterized by a pragmatic and flexible approach, which allowed the ECB to adapt to a rapidly evolving economic context. However, the challenges for the future are numerous and complex. Her successor will have to address critical questions about price stability, economic growth, debt sustainability, and the integration of digital technologies into the financial system. The ECB's ability to respond to these challenges will be fundamental to ensuring the stability and prosperity of the euro area in the coming years.
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