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Intelligence

Yellen-Merkel: a possible tandem of powerful women

Obama, German electorate hold key to new duo

by David Marsh

Mon 12 Aug 2013

Stand by for new age female leadership. Within a few weeks, we could see two women ensconced in No.1 roles: Janet Yellen, chairman of the US Federal Reserve, the world’s most important central bank, and Angela Merkel, (again) chancellor of Germany, the fourth biggest economy after the US, China and Japan, and the pivotal player in Europe. The media could soon start talking about the world's two most powerful women.

Neither of these nominations is assured. Yellen, deputy chairman of the Fed’s board of governors, has to withstand a leadership challenge from Lawrence Summers, the intellectually top-notch but personally abrasive former Treasury Secretary, in a contest that will be decided by President Barack Obama. Merkel has to fight a parliamentary election rather than simply win over the head of state. Obama has said he will make a decision in the autumn; the Germans vote on 22 September. These female high-flyers could see their fate settled more or less simultaneously.

A Yellen-Merkel duo would be a unique combination. When Margaret Thatcher was British prime minister in the 1980s, she and Indian prime minister Indira Gandhi (they overlapped for nearly five years) were often bracketed as the most potent pair of women the planet had ever seen. Yet in raw power, they would be eclipsed by Yellen-Merkel.

In her latest tussle, Merkel is confronting a man who, in some ways, is remarkably similar to Summers. Peer Steinbrück, the German Social Democrats' chancellor-candidate, a raspingly intelligent former finance minister, suffers neither fools nor anyone else gladly – but seems to have been born with an unavoidable penchant for putting his foot in his mouth.

Like Summers, Steinbrück has attracted controversy for lucrative private sector engagements – although his personal wealth is only a small fraction of the riches Summers has amassed from US financial firms.

Steinbrück’s party is trailing heavily in German opinion polls. Although the composition of the coalition Merkel may eventually lead is unclear, her conservative Christian Democrats appear likely to finish polling day next month as Germany’s strongest party, which would result in President Joachim Gauck asking her to form the next government and start her ninth year as chancellor.

Yellen’s passage to become the first woman chairman of the Fed – and, indeed, the first female head of any leading industrial country central bank – is less certain. Summers is mounting strong behind-the-scenes lobbying.

His myriad supporters have been vocal (perhaps too much so, considering the counter-reaction they have sparked) in voicing their acclaim.

Given the controversies over his wealth, personality, and past actions, and the finely-balanced position of the US economy, it seems likely that President Obama – like the German electorate on 22 September – will opt for a steady choice, a safe pair of hands, to steer through economic recovery.

As Meghnad Desai, chairman of the OMFIF advisory board, has put it, Yellen displays intellectual toughness, but without the accompanying arrogance: 'She would be more inclined to talk to Congress rather than down to it.’ The closer Obama gets to the time of decision, the more likely it seems he will espouse the slogan with which legendary former Chancellor Konrad Adenauer successfully appealed to German voters: 'No experiments'.

One factor that could count against Yellen is not gender but age. She will be 67 by the time incumbent Ben Bernanke steps down at the end of January. That would make her two years older than the previous most elderly Fed chairman taking office (Arthur Burns in 1970). That argument may however not be a clincher. Summers is not the youngest either. He will be 59 in the New Year. That would make him the fifth oldest of 15 Fed chairmen since 1914.

The two women share some intriguing characteristics. Both have built up deep experience in their respective fields. Yet Yellen and Merkel have been overshadowed during part of their careers by better-known males: George Akerlof, the Nobel Prize-winning economist, who is married to Yellen, and former chancellor Helmut Kohl, who plucked Merkel from her formerly communist-dominated East German party base to bring her into his government after German unification in 1990, frequently referring to her condescendingly as his 'girl'.

Yellen has strong expertise in European affairs. She co-authored with her husband a landmark study of East German labour markets in 1991, convincingly showing how workers in the eastern part of the country had been comprehensively priced out of jobs by the terms of German unification. As Yellen knows, that experience in some important ways mirrors the fate of peripheral euro area countries suffering acute loss of competitiveness and high unemployment after fusing their currencies with Germany’s in 1999.

If both women overcome forthcoming hurdles, they could have plenty to talk about - and not just economics.

 

David Marsh, chairman of Official Monetary and Financial Institutions Forum, is the author of 'Europe's Deadlock How the Euro Crisis Could be Solved - and Why it Won't Happen' (Yale University Press).

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