Sunday 21 July 2019

ECB chief race hots up as Philip Lane awaits rival

Deputy Governor Sharon Donnery
Deputy Governor Sharon Donnery

David Chance

Italy fired the starting gun in the race to succeed Mario Draghi as head of the European Central Bank, even as Central Bank of Ireland Governor Philip Lane awaited a February 11 decision on whether he would get the chief economist post.

In an interview with Reuters in Davos, Italy's Economy Minister, Giovanni Tria, said that he would not necessarily object to Bundesbank President Jens Weidmann as the next head of the ECB.

This was a shock comment due to the German's hawkishness and opposition to the ECB's bond-buying. Mr Weidmann would be far more likely to tighten policy than Mr Draghi, who has presided over the bank's bond-buying programme and policy of ultra-low interest rates.

Dr Lane is so far the sole candidate in the race to be chief economist and the nomination process closes on January 30.

An elevation to ECB chief economist for Dr Lane could pave the way for Deputy Governor Sharon Donnery to succeed him and become the first female Governor of the Central Bank of Ireland. Dr Lane is seen as close to Mr Draghi and is perceived as a dove on interest rate policy.

While the size of the ECB Governing Council means that the President only has one vote out of 21, both Mr Draghi and his predecessor Jean-Claude Trichet, wielded huge power in setting policy.

Mr Draghi leaves his post in November, so his successor is likely to be the person who decides whether the ECB raises interest rates for the first time since Mr Trichet's ill-thought out hike in 2011.

"Investors would rightly be concerned if Jens Weidmann were to emerge as President," said Andrew Kenningham, Chief Europe Economist at Capital Economics. "Admittedly, he has toned down some of his criticism of unconventional policies over the past couple of years, but it would be difficult to argue that he is 'transitioning' from a hawk to a dove".

As well as Mr Weidmann, those viewed as being front-runners include Benoît Coeuré, who would require a waiver for another term at the ECB, Bank of France Governor François Villeroy de Galhau. Erkki Liikanen - the former Governor at the Bank of Finland - and Olli Rehn, also a former Bank of Finland governor.

A hawkish alternative to Mr Weidmann could emerge in the form of Dutch Central Bank Governor Klaas Knot.

"None of this will have much impact on monetary policy in the short term," said Mr Kenningham. "Whoever succeeds Draghi, we think the ECB will leave interest rates unchanged this year and next: with core inflation set to remain closer to 1pc than 2pc, policy tightening will be hard to justify."

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