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Category: Economics

A French Farce

If it wasn’t so tragic it might be funny. The next president of the European Central Bank – as everybody knows but is too polite/afraid to mention...

10 July 2019


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If it wasn’t so tragic it might be funny. The next president of the European Central Bank – as everybody knows but is too polite/afraid to mention – comes with baggage.

The superbly coiffed Christine Lagarde is seguing from her position as managing director of the International Monetary Fund (IMF) into the seat kept warm since mid-2011 by Mario Draghi, and is to become president of the European Central Bank (ECB). She is officially negligent, however, if nothing more sinister.

The negligence judgement was imposed on Christine Lagarde by the French Cour de Justice de la République or CJR in 2016. The CJR was established in 1993 by the then President, François Mitterrand, with the sole remit to try cases of alleged ministerial misconduct.

Lagarde was French finance minister in 2008 under President Nicholas Sarkozy – who is himself now facing trial, accused of fraud and bribery. The CJR court judged that Lagarde was guilty of negligence in a complex case involving the award of €404 million to the businessman Bernard Tapie; the CJR did not hand Lagarde any punishment however, other than the slap on the wrist. She could have been given a fine and one year imprisonment. In 2007 Tapie backed Sarkozy for the Presidency…wheels within wheels.

Lagarde did not appeal the ruling against her, which spoke volumes. She merely said at the time: “There’s a point in time when one has to just stop, turn the page and move on and continue to work with those who have put their trust in me.” It’s the phrase of today – just ‘move on’, nothing to see here.

Why does any of this matter? What has it got to do with gold?

It matters because Lagarde’s appointment to the most powerful banking job in the EU’s eurozone is a bit like giving the job of chief fire prevention officer to someone who may have pyromaniac tendencies. That someone so powerful, so richly endorsed by the great and the good, could be judged negligent in a multi-million case by a French court, surely should have been considered a black mark against her.

That she is about to steer the Eurozone economy at an incredibly difficult time, trying to pull it out of stagnation – something which former Goldman Sachs employee Draghi failed to do after years of trying – is worrying. Lagarde is no economic hawk – indeed, we expect her to be much more of a dove than Draghi; which in turn means oodles more quantitative easing.

Reuters calculated in December 2018 that the ECB’s “asset purchase program, a monetary experiment known as quantitative easing” (launched in March 2015) has seen €2.6 trillion pumped into the Eurozone economy in four years; that’s €1.3 million a minute. A tidal wave of cash will have bought…economic growth struggling to be more than 1% this year.

We find ourselves paradoxically placed. As scrupulous defenders of honest government and cleaner-than-clean people in political office – and the president of the ECB is a political office – we do not feel we can welcome Lagarde into her new role, although congratulations Christine on landing a €400,000-plus a year job. After years of media acclaim Lagarde clearly thinks she now has carte blanche to espouse a gender-agenda, telling a recent interviewer that “when it’s bad, you call women to the rescue.” Nope. When things are bad you call on someone you know is not negligent, male or female.

On the other hand, this is terrific news for gold. As the eurozone economy continues to drag its feet like a child on its way to a yelling, Lagarde and her advisers can only deliver more of the same – much, much more printing of increasingly devalued paper money. The great compromiser, Lagarde will not want to be known as the person who imposed austerity on the EU and nor would that work either – it would simply exacerbate the tendencies for the EU to fracture. So our very best and honest advice is – get your Glint card now, download the app and upload the gold. And hold onto your seat, because it will be rocky.

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