Undoubtedly the biggest question for the future of the euro this year is who’s going to be the next president of the European Central Bank (ECB).
President Mario Draghi ends his eight-year mandate in October and market players are anxious to know what direction the central bank will take when his tenure finishes. European officials have told CNBC that a French candidate is well placed to get the top job, but much depends on the upcoming European elections and the subsequent distribution of roles across the EU.
“In principle, (France) is well placed (to get the ECB presidency),” a European official with knowledge of the situation but prefered to remain anonymous due to the sensitivity of the issue, told CNBC over the phone.
The same official mentioned that France has more than one possible candidate and that Germany is more inclined to seek the presidency of the European Commission, the EU’s executive arm, which also becomes available this year.
There are two possible French names circulating in European corridors: Benoit Coeure, who is a French economist and currently serves as a member of the executive board of the ECB; and Francois Villeroy de Galhau, who is France’s current central bank governor. Both have said they would be keen to succeed Draghi, if asked, according to Bloomberg.
A second EU official, who also decided to remain anonymous, told CNBC the decision is totally outside the hands of the ECB. “European leaders will have to decide,” the official said.
A third European official told CNBC that it’s “too early” to know who will replace Draghi, but believed that the French government was deciding whether to put forward its candidates.
What’s the process?
European countries are able to name one person to take the ECB job. The nominations are then discussed among the finance ministers of the euro zone as well European lawmakers that sit at the European Parliament.
But the final say belongs to the heads of state of the euro area. Therefore, the decision is totally out of the hands of the ECB.
In this context, it’s important to consider the upcoming EU elections. This vote will open up a number of other European jobs, including a new president for the Commission, the Parliament and even the European Council. The heads of state will discuss and distribute the different roles between the different member nations.
But there are other names being spoken of as possible replacements for Draghi. These include Germany’s central bank Governor Jens Weidmann; Finland’s current and previous central bank Governor Olli Rehn and Erkki Liikanen respectively; as well as International Monetary Fund chief Christine Lagarde — a French citizen who would also help with the gender balance distribution at the ECB.
What direction to take?
Vitas Vasiliauskas, the central bank governor of Lithuania, told CNBC over the phone that irrespective of who becomes the next ECB president, the central bank needs to think about normalization.
“It is quite a difficult question, depends who it will be (the next president). But of course, we should think about normalization of the monetary policy,” he said. “But at the same time of course we do not work in the ideal world, so we have to react to economic reality.”
The ECB has embarked on an ultra-low interest rate environment and massive stimulus package since the euro zone sovereign debt crisis of 2011. Though the central bank has ended its bond buying, rates remain at record lows and are likely to be kept unchanged until at least the end of the summer.
“In my view, what the ECB needs is a continuation of Draghi’s ‘whatever it takes.’ Any departure from that risks a return to doubts about the euro’s irreversibility,” Panicos Demetriades, who served as governor of the central bank of Cyprus and a member of the governing council of the ECB between 2012 and 2014, told CNBC via email.
“With that in mind, the ideal person to continue that policy would be Benoit Coeure, as he was at the heart of the development of that policy and he fully appreciates what a departure from that may mean. Coeure has the advantage that he is well known and greatly appreciated among ECB staff,” Demetriades said.
‘Whatever it takes’
Draghi will always be remembered for his “whatever it takes” speech. As the sovereign debt crisis hit the 19-member euro zone, Draghi committed in July 2012 to restore the region’s economy and save the euro.
Analysts suggest his words gave much-needed reassurance to the markets. At the time, three countries were in a bailout program and Spain had also requested financial help to support its banks. The mood was grim, and investors were panicking.
Draghi is also likely to be remembered for not raising interest rates throughout his eight-year mandate.