BUNDESBANK governor Axel Weber has been forced out of the running for the European Central Bank (ECB) presidency by Eurozone doves who would have marginalised his hawkish views, he said after quitting the Bundesbank presidency on Friday.
Weber was the front-runner to replace outgoing ECB president Jean-Claude Trichet until last week, when he announced that he is quitting the Bundesbank in April, a year before his term is up.
Referring to his opposition to the ECB’s activism in buying sovereign bonds to shore up the euro, Weber said: “These positions might not have always been helpful for my acceptance in some governments.”
Eurozone governments have become heavily reliant on ECB activism as worries about the euro have pushed up yields in peripheral economies. But Weber has vocally disagreed with the bank’s interventions.
He now says that he was “aware that a potential candidacy would be damaged” by his stance. “The (ECB) president has a special role,” he added. “However, if he has a minority position in important questions, then the credibility of this office suffers.”
Weber’s withdrawal throws the race wide open to a thin pool of candidates, with Germany lacking an obvious replacement. Germany is likely to have a strong say in the selection of a new president due to its role in bank-rolling successive Eurozone bailouts.
The race will pit traditionally hawkish countries fearful of inflation, like Germany, against more indebted, high-unemployment economies like Spain and Italy, who would favour loose policy and a more activist bank.
And there is also a strong element of national pride at play. ING economist Carsten Brzeski asks: “Could the French live without a French member in the ECB’s executive board after the end of Trichet’s term?” One member of the board will retire in May, while Trichet will step down in October.
FRONTRUNNERS FOR THE ECB JOB
Currently the governor of the Bank of Finland and a member of the ECB governing council, Liikanen could satisfy a perceived need for geographical balance in the ECB’s make-up, given that its vice-president is from Portugal. However, EU economics commissioner Olli Rehn is also Finnish. Liikanen is known as a moderate on monetary policy.
Italy’s central bank governor and chair of the Financial Stability Board, Draghi was viewed as the only obvious rival to Weber for the ECB job. But his chances are hurt by his nationality: Germany will not be keen to have southern-Europeans as both president and VP. German daily paper Bild has already said that he would not be hawkish enough on inflation.
The current head of the European Financial Stability Facility, the Eurozone’s €440bn bailout fund, could provide German Chancellor Angela Merkel with a replacement German to fly the national flag. He is thought to be hawkish on monetary policy while being more conciliatory than Weber. But his lack of central bank experience weighs against him.
The central bank governor of Luxembourg would satisfy German demands for a hawk, having once joked: “Do I look like a hawk? Is it the shape of my nose?” He views price stability as a central bank’s key responsibility and has criticised both the ECB’s bonds purchases and low rates. This might mean, however, that he faces the same opposition as Weber.