Eurozone economic growth has stalled. Can Lagarde lead the European Central Bank to play a greater role?

Every central bank governor has a moment of success and failure. With the rampage of the 2012 Euro crisis, Mario Draghi, then President of the European Central Bank, began referring to the common currency as a "big bee": we may not know how this imperfect currency union flies, but it flies indeed. Not surprisingly, this did not work. Just a few months later, when the bee was in danger of hitting the windshield, Draghi, using existential pressures, led the ECB into a "whatever it takes" era. It is worth noting that the Euro is not currently in crisis, but the complacency of that big bee is evident. This "whatever it takes" spirit is not enough to stimulate investment and boost confidence in the Eurozone. Economic imbalances between the North and South and geopolitical divisions between East and West are tearing the Eurozone apart. Draghi's recent proposal to eliminate structural barriers to economic growth is dangerously close to becoming a dust settling. The growth engines of the two major economies in the Eurozone are declining With Trump's tariff threats looming and China's export machine restarting, Draghi's successor, Lagarde, is facing a life-threatening moment. The leadership vacancies in France and Germany need institutions like the European Central Bank to intensify efforts, just as Draghi did over a decade ago. Since June, the ECB has cut interest rates four times, acknowledging the urgency of the situation to some extent. However, the ECB's "heavy artillery" remains locked in the safe, and the ECB's language remains cautious. Now is the time to prioritize growth rather than suppressing inflation. Since 2019, GDP per capita in the Eurozone has grown by 2.5%, while the US has grown by 7.9%. It is expected that the Eurozone's GDP growth rate will be less than 1% this year. The often repeated mantra of Eurozone central bank governors is that monetary policy cannot do everything, which is true, but considering the massive investment needs in technology, defense, and climate over the next decade, this statement is also short-sighted. Significantly lowering interest rates to stimulate economic growth is a delicate task - too much too quickly could trigger inflation or cause the Euro to weaken against the US dollar, leading to a loss of confidence. However, the current danger is that interest rates are too low in the face of pressure on Eurozone governments to cut deficits and debt, further suppressing demand. In a world where protectionism is on the rise, stimulating domestic consumption and investment will be crucial - this requires monetary and fiscal policies to move in the same direction. Eurozone inflation rates have rapidly declined Covering up old cracks is not enough, nor is it sufficient to justify the European Central Bank's "responsibility" to prioritize price stability. In fact, the European Central Bank has a dual responsibility, financial stability - economic recession can easily disrupt the smooth transmission of money. Recent comments by Franois Villeroy de Galhau, Governor of the Bank of France, are encouraging in this regard, as he gingerly aligns himself with Joachim Nagel, President of the Bank of Germany. He explicitly states that while price stability is the primary goal of the European Central Bank, the ECB must also "closely monitor" the risks of inflation falling below target and economic activity unnecessarily stagnating. He also explicitly states that addressing issues beyond monetary policy is the central bank's responsibility. "If we don't defend open trade and fair rules, who will?" Adhering too cautiously to the script may lead to public dissatisfaction with the central bank governor, not just a domino effect of falling and fueling populism like current politicians. Some European business leaders have begun privately criticizing the ECB's handling of monetary policy, attributing much of Europe's relative decline compared to the US to the ECB, from its excessive bureaucratic oversight of the banking sector to its overly tight monetary policy. This should make Frankfurt worried - how long will it take for international investors and executives to openly question the lifespan of the Euro? Overall, the message should be that now is the time for Lagarde and the ECB to take on a more proactive leadership role. If monetary policy is synchronized with fiscal policy rather than going against the tide, there are risks and rewards.