As energy prices threaten inflation again, Lagarde’s European Central Bank legacy offers lessons
Christine Lagarde, president of the European Central Bank (ECB), has announced her decision to step down on February 7, 2027, roughly nine months before the end of her eight-year term, which began in November 2019. While her predecessor Mario Draghi had to deal with the eurozone debt crisis—which he helped contain with his famous pledge to do “whatever it takes” to preserve the currency—Lagarde has been confronted with the COVID-19 pandemic, Russia’s war against Ukraine, and successive energy crises that fueled inflation. Against that tumultuous backdrop, her record is largely positive: she can be said to have managed crises effectively, preserved financial stability in the euro area, and promoted the euro in global payment transactions.
The ECB has just warned that rising energy prices pose a renewed risk to price stability. Lagarde’s own record on managing inflation, however, is more mixed.
Effective crisis management
When the COVID-19 pandemic hit in early 2020, threatening financial instability in the eurozone, Lagarde launched what eventually became a €1.85 trillion Pandemic Emergency Purchase Program (PEPP) to add liquidity to stabilize Europe’s bond markets. Her prompt action helped prevent fragmentation in European sovereign bond markets as government bond yields in southern European countries (including Italy and Spain) rose noticeably relative to those in Germany, the benchmark. She was able to move quickly, having worked to build consensus within the ECB’s governing council—in contrast to Draghi’s more top-down approach.
Building on the apparent success of the PEPP, in 2022 the ECB introduced the Transmission Protection Instrument (TPI), designed to prevent unwarranted divergences in borrowing costs among euro area member states that could undermine the transmission of monetary policy. Although it has yet to be used, the TPI has drawn market criticism over the subjective distinction between warranted and unwarranted divergences, as well as uncertainty over the conditions member states must meet to receive bond purchase support—raising concerns about moral hazard among borrowing countries and investors. It remains to be seen whether the TPI can prove as useful as the PEPP.
Delays in responding to inflationary pressure
In late 2021 and early 2022, the ECB under Lagarde misdiagnosed the nature of post-COVID price spikes, repeatedly describing them as “transitory.” The ECB was slow to respond as inflation accelerated, reaching a record 10.6 percent in October 2022.
However, the ECB later salvaged the mistake through a resolute monetary tightening program, increasing ECB policy rates by 450 basis points in the fastest monetary tightening cycle in its history. This helped bring inflation down to 2.4 percent in November 2023 without causing a recession.
Nevertheless, the whole episode remains a blemish on her record—despite the fact that other major central banks, including the US Federal Reserve, also initially underestimated the persistence of inflation.
Symmetric inflation target
Another contribution by Lagarde was the July 2021 strategic review, which replaced the ECB’s previous inflation aim of “close to but below” 2 percent with a symmetric 2 percent target, under which deviations above and below are considered equally undesirable. This has given the ECB room to tolerate temporary inflation overshoots instead of tightening prematurely. Importantly, this approach addressed a flaw in the previous formulation, which gave insufficient attention to the risks of inflation below the target. Correcting this bias helps protect against long-term deflationary stagnation.
Promoting the euro’s international use in transactions
Lagarde has also been active in promoting the use of the euro in international payment transactions, primarily to protect European monetary sovereignty and financial stability even as US payment platforms, such as Visa and Mastercard, dominate the global marketplace. She returned to this theme during her most recent conversation with the Atlantic Council at the International Monetary Fund-World Bank Annual Meetings in Bankok, Thailand this month.
Specifically, the ECB has built upon the TARGET Instant Payment Settlement (TIPS) Service to implement cross-currency settlement capabilities and pursue links with fast payment systems in other regions, encouraging the euro’s international use. It has also worked to develop a digital euro and a wholesale central bank digital currency as payments and financial markets become increasingly digital. The euro’s international role has grown moderately, with its share across key indicators of global currency use reaching around 20 percent in 2025.
In short, Lagarde has been effective at managing crises to preserve financial stability in the eurozone and at strengthening the foundations for the euro’s international role. However, her record on inflation is more mixed. Although the ECB initially underestimated inflationary pressures, its resolute monetary tightening brought inflation down without triggering a recession. She leaves a largely positive legacy and important lessons for her successor in managing inflation and financial stability during periods of economic upheaval.
Hung Tran is a nonresident senior fellow at the Atlantic Council GeoEconomics Center and senior fellow at the Policy Center for the New South. He was formerly executive managing director at the Institute of International Finance and deputy director at the International Monetary Fund.
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Image: European Central Bank President Christine Lagarde speaks at a press conference in Frankfurt on Octonrt 29, 2026, after the ECB's Governing Council decided to leave its benchmark deposit rate at 2.25 percent. (Kyodo via Reuters Connect)