The rising probability of a comparatively ‘soft’ British departure from the European Union has added to the chances that Jens Weidmann, Bundesbank president, could after all become head of the European Central Bank when Mario Draghi steps down at end-October.
Weidmann, a critical but increasingly stoical figure opposing key elements of Draghi’s easing policies over the past eight years, has been widely seen – even among his supporters – as holding only a slender opportunity to succeed Draghi.
But he has moved into greater favour as a result of three factors. First, politicking may stymie the European Commission presidency bid by Manfred Weber, the conservative German member of the European Parliament chosen by German Chancellor Angela Merkel to spearhead Germany’s quest for Europa’s traditionally pivotal post. This would open the scenario of a senior German at the ECB – a prospect French President Emmanuel Macron has told Merkel he treats with froideur.
Second, rising likelihood of a regulated UK withdrawal could boost France’s Michel Barnier, the European Commission’s lead negotiator, a prime French candidate to take over from Jean-Claude Juncker. Theresa May, the British prime minister, is attempting to force die-hard Conservative Brexiteers to support her contested EU departure deal by threatening to delay or cancel Brexit. As a result, the possibility has re-emerged – earlier seen as a likely outcome, but apparently rejected last year by Merkel – of an accord to divide the jobs of Commission and ECB president between France and Germany respectively.
Third, the worldwide hiatus in normalisation of central banks’ unconventional monetary policies, starting with the Federal Reserve, has diluted Weidmann’s propensity towards monetary hawkishness. This is reducing resistance from other European countries opposed to the Bundesbank’s policy orthodoxy, such as over the ECB’s massive purchases of government bonds under quantitative easing.
Even if politics – especially the aim of reaching EU-wide balance (following UK departure) in the 2019 distribution of five top posts – are increasing Weidmann’s chances, securing his nomination will not be easy. As I pointed out in July 2017, he would face the same obstacles that would have dogged Axel Weber, his Bundesbank predecessor, had he taken the job in 2011, as was envisaged. ‘The ECB can never become the Bundesbank. As an institutional hawk, Mr Weidmann would face the significant impediment of being structurally outvoted on important issues.’
The Germans could win benefits by allowing François Villeroy de Galhau, governor of the Banque de France, with strong German roots and empathy with Weidmann, to take over at the ECB. On the other hand, latest appointments to the ECB board – Luis de Guindos, former Spanish finance minister, as vice-president, with Philip Lane, governor of the Central Bank of Ireland, becoming chief economist later this year – free the way for a German candidate to become ECB chief.
EU governments must find new presidents this year for the union’s four largest institutions: the Commission, ECB, Council and Parliament, as well as the EU’s foreign policy chief. Realpolitik indicates that these five jobs must be split between one person each from France and Germany as well as candidates who are female and from southern and eastern-central Europe.
An innovation designed to add democratic legitimacy links the Commission presidency to European Parliament elections in May. Weber, leader of the centre-right European People’s Party in the Strasbourg parliament, has fallen foul of a mounting imbroglio over the EPP’s links with Viktor Orbán, the Hungarian prime minister who belongs to Weber’s and Juncker’s EPP. Brussels has stepped up battle against Orbán over what the Commission says are his distorted claims over an alleged ‘secret plot’ to undermine Europe by drawing in immigrants.
If Weidmann ends up at the ECB, this would lead to many additional complications. These would become virulent if the ECB is pressed to reintroduce QE – which Weidmann has bitterly opposed – in the next few years to counter another downturn. Furthermore, Sabine Lautenschläger, the current German representative on the six-person ECB board, would have to step down to restore national balance. This poses a tricky dilemma about appointing a woman to an otherwise entirely male board at a time when gender balance at central banks is becoming increasingly important.
David Marsh is Chairman of OMFIF.