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Analysis
Collective leadership for ECB

Collective leadership for ECB

by David Marsh

Tue 30 Aug 2011

During the past two years of euro-crisis escalation, the European Central Bank generally has won high marks for competence. Yet the picture has darkened since early summer. So it’s time for the ECB to appear in public with collective leadership and a more cohesive voice.

Up to a few months ago, the ECB benefited from the failure of European politicians to recognise the scale of the euro’s difficulties and tackle them with the right firepower. The ECB was Europe’s sole fully functioning crisis manager.

Now those days are over — because of evident disagreement on monetary policy within the ECB’s Governing Council. With his ‘no’ to ECB purchases of southern member states’ government bonds, Bundesbank President Jens Weidmann has admitted that, in the euro’s central decision-making body, Germany is now in a structural minority. Christian Wulff, the German president, who is supposed to be above day-to-day politics, added his voice to the controversy last week, saying the central bank’s bond purchases were illegal.

Weidmann has stepped up the opposition shown by his predecessor Axel Weber who — once he displayed his initial dismay about bond purchases in May 2010 — tried reasonably hard not to rock the ECB boat with too much discord. By contrast, Weidmann now fully articulates his resistance within the ECB Council The ECB’s fragmentation is a dangerous sign of dislocation. How long can this state of affairs drag on? A partial solution might be available in coming weeks. The retirement of President Jean-Claude Trichet on 31 October could bring a new beginning.

His successor, Bank of Italy Governor Mario Draghi, like Trichet a former Treasury chief, faces multiple challenges, against a background of progressively more sceptical public opinion – especially in Germany, where he will now have to spend a good deal of his time. Draghi may be a shrewd personality on the global central banking scene and a respected policy authority in his Italian homeland. But it’s exaggerating to say he’s an international superstar. He lacks a firm hold on the Governing Council and has no great experience with the international media. Rather counter-productively, he has apparently lately been turning down chances to meet the international press.

Draghi has to overcome these obstacles. The sooner the better. Trichet has always practised an imperial style — accentuating the pattern of predecessor Wim Duisenberg. My suggestion is that Draghi should bring in collective leadership. From 1 November, he should appear before large audiences only with other members of the ECB’s executive board. Above all, Draghi should insist that at the ECB’s monthly press conferences he is accompanied by an appropriate number of board colleagues.

Not only, as happens up to now, Vice President Vítor Constâncio should appear before the media. In addition, board member Jürgen Stark, an ex-Bundesbank official who backs Weidmann’s tough line on state bonds, should be there — and Draghi should allow his colleagues actually to speak. Trichet’s current press rituals embody the absurd theatre that his experienced, well-respected deputy Constâncio (who held the office of Portuguese finance minister as long as 33 years ago) sits lamely next to him during press conferences but hardly makes any comments.

A new communication style would best reflect the ECB’s difficult external circumstances as well as its increased internal plurality. It would side-step the considerable threat to Draghi that he could be made the sole scapegoat for future setbacks. Trichet-era autocracy has to end. The answer is collective leadership. This will not be a permanent fix for the euro’s woes — but it’s a good way for the ECB to overcome its obvious fragility and mount a more effective public presence.

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