Race to succeed ECB President Mario Draghi seen opening up
The race to succeed Mario Draghi — and lead the European Central Bank on the path to normalizing monetary policy — appears to be opening up.
While Jens Weidmann, the head of Germany’s Bundesbank, was seen as the front-runner for the job when Draghi’s nonrenewable, eight-year term as president of the Frankfurt-based central bank ends in October 2019, a Thursday news report said securing the position is no longer a priority for German Chancellor Angela Merkel.
Instead, it’s securing a German in the position of European Commission president that is Merkel’s highest priority, German newspaper Handelsblatt reported, citing an unnamed government official. Like the ECB, the commission, which is the executive branch of the European Union, is slated to get a new leader in late 2019.
This is notable because it is unlikely for one country to supply two institutional EU heads at the same time — in this case its commission and central bank. The problem is particularly political for Germany, which is the largest European economy, arguably the most powerful member state of the EU and already has to fend off claims that Merkel is running the show on her own. So if the chancellor wants a German to lead the commission, Weidmann might be stuck at the Bundesbank — Germany’s central bank — which he has helmed since 2011.
Draghi is credited with using and creating ECB policy tools that played a crucial role in steering the eurozone through the worst part of the region’s debt crisis, as epitomized by his 2012 vow to do “whatever it takes” to preserve the shared currency. Critics, including many in Germany, have argued that the ECB under Draghi significantly overstepped its mandate, distorting financial markets.
Some analysts argue that the ECB’s recent history has exaggerated the importance of the presidency.
“However, when one steps back and considers the historic moment, it seemed clear that despite understandably keen investor interest, in the current context, the ECB presidency is almost a distraction,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in a note.
“The fact of the matter is that regardless of who is the next head of the central bank policy will begin what will be a protracted normalization process. It will be a thankless job as taking away the proverbial punch bowl always is,” he said.
At the same time, there’s no reason for Merkel to concede the ECB presidency just yet, Chandler said, as she would then lose a bargaining chip.
While seen as a frontrunner for the job, Weidmann’s candidacy hasn’t been without controversy. He is one of the most hawkish European central bankers and has adamantly opposed the ECB’s ultralow interest rates and other policy measures. Analysts have previously suggested he may be too hawkish to get support from economically weaker southern European countries, where resentment remains over austerity measures implemented during the European debt crisis that were often seen as a German initiative.
Weidmann, in a February interview with the Financial Times, had argued that the idea that the nationality of the ECB’s leader was an important consideration was absurd.
Other potential candidates to succeed Draghi include Central Bank or Ireland Gov. Philip Lane. Various French candidates could also have a decent chance, Handelsblatt wrote, in part because French President Emmanuel Macron‘s political party isn’t part of a broader European alliance, which means he would likely have less influence over a possible French candidate for the commission.
Possible candidate include Bank of France Gov. François Villeroy de Galhau and ECB Executive Board member Benoît Cœuré. Even Christine Lagarde, head of the International Monetary Fund, was a wild card possibility, according to the German paper.
The euro EURUSD, -0.3276% last bought $1.1571, down from $1.1599 late Wednesday in New York. While the shared currency is on track for a strong week, having gained 1.4% on the dollar so far, it has sold off 3.7% in the year so far, according to FactSet.
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