There are increasing signs from the US Federal Reserve, European Central Bank and Bank of England that the long march back to policy normality is beginning to gather pace. But it is not just policy which is changing. The leadership of all three institutions, as well as that of the Bank of Japan, is expected to change in the next couple of years, as long-standing governors give way at the end of their terms.
In a general sense this is to be welcomed. In democracies, rotation of office holders is almost always beneficial; the long stint that Alan Greenspan put in as Fed chairman (1987-2006) is not remembered as an unalloyed blessing. Spending too much time in the seat of power can unduly convince even the most rational person of their infallibility.
But the forthcoming set of rotations will bring to the various governorships new minds for the task of normalisation. The successors to Janet Yellen, Mario Draghi and Mark Carney will not be encumbered with remarks made to justify the extreme monetary actions taken since the 2008 financial crisis. They will have a freer hand in unwinding the policies of the immediate past.
Nowhere will this be more visible than at the ECB, where Draghi’s term ends in just under two years’ time. One of the frontrunners for his position is Jens Weidmann, president of the Deutsche Bundesbank. He was one of Draghi’s fiercest critics when the ECB’s bond purchase schemes were introduced. Weidmann therefore, many might think, is well placed to manage the exit from the strategy. He would certainly not bring any sentimental attachment to the current policy.
In one sense, Weidmann would be a logical choice. Germany has watched as a Dutchman, a Frenchman and an Italian have led the euro area’s central institution, and has not always enjoyed the experience of their monetary policy being made in Frankfurt by a foreign official. The cries of ‘equal chances for all’ and, more pointedly, ‘our turn now’ resonate strongly with both the German political class and their electorate. Though it would be too much to say that German public opinion is overtly hostile towards the ECB, a fourth non-German president would certainly take up the position with some antagonisms to overcome.
Further thought, though, suggests Weidmann may want to be more careful. He is still a young man (49) among monetary policy-makers, and it is doubtful that the presidency of the ECB is the pinnacle of his ambition. National politics beckon, and Weidmann may be more tempted to move to Berlin. Furthermore, as well as proving an extremely competent technical central bank governor, Draghi has been a quite excellent political one in what is possibly, along with the chairmanship of the Fed, the most politically challenging of all governorships. The capacity for Weidmann to get things wrong, and thereby damage not only his career but Germany’s already tense relationship with its euro area partners, cannot be overlooked.
There are several other individuals that the ECB will consider. Vitor Constâncio, ECB vice-president, has been a sound deputy to Draghi and his term will have ended by 2019. But at 76, as he will then be, Constâncio is perhaps too old to want the top post. Benoît Cœuré is a well-respected member of the ECB board, but his background is more in regulation and financial stability than monetary policy.
One person who is seldom mentioned, but who may be worth the ECB’s consideration, is Sweden’s Stefan Ingves. Ingves has been a hugely respected governor of Sveriges Riksbank, Sweden’s central bank, since 2006, and knows all about quantitative easing and negative interest rates. He would bring great experience and a politically neutral figure to the ECB presidency at a time when steady leadership will be needed.
Critics might raise the point that Sweden is not a member of the euro area (though Ingves himself was born in Finland). It is true too that Ingves has just been invited to stay on at the Riksbank for another five-year term. But neither of these are insurmountable problems. The presidency of the ECB is a European Union post, open to citizens of any member state, and with enough notice the Swedish authorities would probably accept his transition to Frankfurt with good grace and perhaps even some pride.
As the ECB begins to plan for life after Draghi, it could do a lot worse than consider the man from Stockholm.
John Nugée is a Director of OMFIF and a former Chief Manager of Reserves at the Bank of England.