Lagarde’s Tightrope Act

The European Central Bank chief’s path to a soft landing is exceedingly narrow

In Europe, it’s déjà vu all over again.

It was almost exactly a year ago that Christine Lagarde promised that the European Central Bank had learned from the errors of past crises and wouldn’t derail the current economic recovery by withdrawing emergency support too early.

The comments from the ECB president were a reference to the central bank’s fateful 2011 interest-rate- hiking cycle, which began with an increase in April of that year, followed by another in July. Later labeled premature, those moves were reversed the same year when Mario Draghi took over, just as the debt crisis raging in the euro area was about to enter a more dangerous phase.

That turmoil, which began in Greece and soon engulfed other economically weaker members of the region, threatened to fracture the euro until Draghi famously declared he would do “whatever it takes” to protect the currency—and soon after unveiled a tool he could use to back up his claim.

Back then, the ECB was castigated for having raised rates to fight a price spiral that soon fizzled out. This time around, the central bank, under the leadership of Lagarde, is being criticized for having dawdled, allowing inflation to climb to its highest level since the creation of the euro in 1999.