The poisoned chalice
by David Marsh
Mon 19 Jul 2010
When a former member of the Bundesbank directorate asked me two or three years ago whether I would support the idea of Axel Weber, the Bundesbank president, becoming the next head of the European Central Bank, I reacted with a wry smile. My view was that, in many years of tussles with France, the Germans had already won enough battles, by pushing through the decision to put the ECB in Frankfurt and make it a near-clone of the Bundesbank.
Certainly a decision would have to be made in due course on the replacement for the incumbent, Jean-Claude Trichet, former Governor of the Banque de France, upon his retirement in autumn 2011. But I believed that the Germans had about as much chance of presiding over the ECB as the Archbishop of Canterbury had of running the Vatican.
No, I said, the job would have to go to an Italian -- or a Luxembourger.
In the meantime, I changed my mind somewhat.
I still believed that France would take some persuading. But so many senior Germans told me that their man had a good claim on the job that I started to believe it could come true. Even French politicians started to make some soothing noises about the justification of the German position -- ruling nothing in, but ruling nothing out. Earlier this month for instance, Christine Lagarde, the French finance minister, said she did not exclude Weber as Trichet's successor but pointed out there could be "two or three" candidates.
A lot of water has still to run under the bridge, though, before European governments come to a decision that will be hotly contested. And recent events -- in particular, Weber's disagreement with the ECB's move on 10 May to start buying government bonds -- have convinced me that the Berlin government's best interests do not necessarily lie in gaining the No.1 monetary position.
Making Weber ECB president would heavily constrain Germany's own room for monetary and political manoeuvring. That's why it would be an act of statesmanship for German Chancellor Angela Merkel and French President Nicolas Sarkozy to announce now that the decision on the new chief will be made in summer 2011 -- and that he or she will not come from the euro area's largest countries.
Weber publicly declared on May 10 that he disagreed with the ECB decision earlier that day to start buying government bonds from Greece and other weaker euro members -- an important adjunct to a 750 billion euro bailout package by European governments and the International Monetary Fund. Weber said the move created "considerable risks" for euro stability
German commentators and politicians who make the link between Weber's candidature and the stability of the currency are missing the point. For three reasons, bringing him into the top job might undermine both Germany's interests and the stability of the currency.
First, giving the Germans the top job would probably inflame north-south divisions in Europe. France, for one, would insist on having a powerful representative beholden to Sarkozy on the six-person board of the ECB to countermand Weber. This would add further to the progressive politicisation of the ECB Board, something that contradicts the essence of an independent central bank.
Second, Germany would have a greater chance of enforcing policies it supports if it continued present arrangements with two "ordinary" representatives on the ECB Council, rather than seeing one of these people taking over the presidency. More disagreements on the Council are near-inevitable as the ECB grapples with the enormous monetary challenges of austerity and rising debt in the southern euro members and export-led growth among the strengthening northern creditor states. In 2012, the year after the new ECB president takes charge, Greece is forecast by many experts as seeking to restructure its debt. Weber, and Germany, would be in an untenable position if the representative of Europe's largest creditor state, and the one most viscerally opposed to inflation, was also in charge of further bailout efforts to shore up the euro. As an ordinary member of the Council Weber can say no to bailouts; as president he would be shackled.
Third, Germany would have far greater leverage through a smaller country -- but one that very much agrees with the Germans' basic monetary stance -- providing the top leadership post. In view of Trichet's sizeable credibility on the international monetary stage, senior German monetary policy-makers have repeatedly stated the benefits of having a French ECB president carrying out German-style policies in Frankfurt. Another EU country holding the presidency -- but one that agrees with Germany -- would give the Germans additional clout, all the more powerful for being largely unseen.
Some politicians around Europe see the general rise in influence of German-style fiscal discipline as evidence of a German take-over of Europe. It is far more likely, however, that strategic thinkers in the weaker countries (including France) would favour Weber's accession as one more way of binding the Germans into a project that has never been too popular with the German public. For all these reasons, the presidency of the ECB is a poisoned chalice that the Germans should avoid. Maybe the job will end up with a Luxembourger after all.
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