Monday 22 January 2018

Draghi's successor at ECB should be picked on merit

US Federal Reserve chair Janet Yellen with Mario Draghi, president of the European Central Bank, at the Jackson Hole economic symposium in Wyoming on Friday (Bloomberg)
US Federal Reserve chair Janet Yellen with Mario Draghi, president of the European Central Bank, at the Jackson Hole economic symposium in Wyoming on Friday (Bloomberg)

Daniel Moss

Mario Draghi's appearance alongside Janet Yellen and Haruhiko Kuroda last week at Jackson Hole, Wyoming, would make a great photo for the history books. It may be the trio's last Fed retreat together.

The guessing game on Fed leadership has received plenty of attention, but less explored has been succession at the European Central Bank (ECB). For now Europe's eyes are on Brexit negotiations and on Germany's election next month.

Some time after that race, attention will begin to turn to the selection of Mr Draghi's successor as the central bank's president.

Rightly so, given that the ECB and the 19 countries sharing the euro are such a vital part of the global economy.

As the IMF noted in updated forecasts last month, the world expansion is on increasingly firmer ground thanks to the contribution from - among others - the euro region.

With the ECB likely to soon start winding back its huge stimulus, decisions announced in Frankfurt's euro tower have enormous consequence for capital markets.

If, as expected, Angela Merkel wins re-election in Germany, a slew of top EU positions will come increasingly into play, culminating in the presidency of the ECB.

The monetary chalice has been out of reach for Berlin for reasons that have little to do with merit. Since the world wars, there has been a taboo in Europe against giving that sort of power to Germany. That's a pity, and it's surely time to reconsider that taboo. The Eurozone might not have survived without the commitment of Mrs Merkel and the German political class.

Mr Draghi, an Italian, is not eligible to serve again after his eight-year term, which ends in late 2019. If you think that's a long way off, think again.

Top jobs tend to be settled by European leaders, mostly on the basis of diplomatic horse trading, quite some time in advance. By this time next year, we may well have a sense who will lead the euro into its third decade.

The ECB president is nominally selected by a vote of the European Council. In practice, it's by a majority of the subgroup that uses the euro. Ducks are lined up in advance through a mix of consensus and trading of top EU jobs.

The front-runners are seen to be Jens Weidmann, president of the German Bundesbank, and Francois Villeroy de Galhau of the Bank of France. France and Germany are the two biggest economies in the region, so that should be easy, right?

Far from it. Germany's partners have traditionally been squeamish about giving it too much influence, especially because the central bank is already headquartered in Frankfurt and was developed to resemble the Bundesbank.

That counts against Weidmann. But France had its turn recently; Draghi's predecessor was Jean-Claude Trichet. That will count against Villeroy.

Politics will never be far away, and regional compromise has been key to post-1945 Europe's success. That said, the EU should keep its eye on the future, not the past.

The biggest single factor shaping the selection of the ECB's next president should be merit. (© Bloomberg)

Irish Independent

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