Northern Europe’s claim for a turn at leading euro-area monetary policy in the era after Mario Draghi advanced over the weekend as two of its contenders dropped hints that they’re waiting to be asked.
The signals from Bundesbank chief Jens Weidmann and outgoing Finnish Governor Erkki Liikanen are the most explicit so far in the race to succeed the Italian president of the European Central Bank. The winner will take on an eight-year term from November 2019 in a critical role that will probably oversee the removal of extraordinary monetary stimulus and preparations for the next economic downturn.
Securing key ECB jobs has long been seen by governments, who will make the decision, as a prize worth winning, and that has often made the process a fraught one. France’s insistence on Jean-Claude Trichet for the presidency was a sticking point at the birth of the single euro currency, and it took the resignation of Weidmann’s predecessor at the German central bank, Axel Weber, to clear the way for Draghi.
Economic divergences since the region’s sovereign-debt crisis further complicate the deliberations. While all ECB officials are required to disregard national interest, governments are acutely aware that Draghi’s expansive measures in the wake of the sovereign debt crisis stoked popular discontent in northern countries such as Germany. Weaker southern economies fret that they’ll suffer should demands for tighter policy be pushed through.
The ECB’s independence can’t shield it from being dragged into national politics. That’s been highlighted in recent days in Draghi’s home country, where bond markets were unsettled by coalition negotiations between Italian populist parties. The talks featured a possible request, ultimately dropped, for a 250 billion-euro ($294 billion) debt writeoff from the ECB, as well as budget-busting spending plans.
“The political situation in Italy at the moment threatens to spark a fresh euro-zone debt and banking crisis — Germany won’t want another bail out on its hands or a situation where the ECB has to keep expanding its balance sheet, thus threatening financial stability,” said Neil MacKinnon, global macro strategist at VTB Capital. “Hence the choice of ECB presidency is crucial.”
Weidmann has long railed against the extent of the ECB’s expansive stance, including doubting the need for the 2.6 trillion-euro bond-buying program. He’s seen as the frontrunner by many economists though, in part because Germany has never held the presidency despite being the region’s largest economy.
His comments to Funke Mediengruppe can at least give German Chancellor Angela Merkel some assurance that, should she lobby for him, she won’t face the sort of climbdown as last time when former Bundesbank chief Weber removed himself from the race to replace Trichet.
“I believe that every member of the Governing Council should have the willingness to contribute to monetary policy also in a different role,” Weidmann said, adding that the discussion has started “much too early.”
Liikanen, who leaves his central bank this summer, told Finnish television that he wouldn’t campaign for the top job but there might be “situations where you get asked: ‘will you do your duty?’ and then one must consider.”
He also outlined his views on monetary policy, saying the key is to be decisive.
“When inflation accelerates to more than 2 percent, which is our target, then I demand raising interest rates,” Liikanen said. “When it remains considerably below that level, we must stimulate.”
Another possible contender is Bank of France Governor Francois Villeroy de Galhau. He has the advantage of being from a large economy seen as having a foot in both the northern and southern camps, and he speaks German. A disadvantage is that France has already held the presidency, under Trichet. Villeroy de Galhau has played down, but not ruled out, the prospect of becoming ECB chief.
Draghi’s successor probably won’t be determined until next year. However, the selection of a Spanish vice president for the ECB — Luis de Guindos, who starts next month — may have already laid the groundwork for a northern European president as a counterbalance.
Governments will take that into account, as well as a host of big roles coming up, including the president of the European Commission.